The National Company Law Appellate Tribunal (NCLAT) has paved the way for companies to exit ongoing corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC) even when an interim resolution professional has been appointed and a moratorium period imposed.
The Principal bench headed by Acting Chairperson Justice Bansi Lal Bhat, Justice Anant Bijay Singh, Member (Judicial) and Dr. Ashok Kumar, Mishra Member (Technical) relying on the verdict of the Hon’ble Apex Court in ‘Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors.’ – (2019) 4 SCC 17) observed –
“As the parties have reached the settlement and the ‘Committee of Creditors’ was not constituted, in exercise of powers conferred under Rule 11 of the NCLAT Rules, 2016, we set aside the impugned order dated 27th May, 2020 passed in ‘C.P. No. IB 2223 (ND)/2019’ and allow exit from the ‘corporate insolvency resolution process’ which is permissible in terms of the verdict of the Hon’ble Apex Court in ‘Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors.’ – (2019) 4 SCC 17). The matter is accordingly disposed of in terms of the ‘Settlement Agreement’ between the parties. In effect, order (s) passed by Ld. Adjudicating Authority appointing ‘Interim Resolution Professional’, declaring moratorium and all other order (s) passed by Adjudicating Authority pursuant to impugned order and action taken by the ‘Resolution Professional’ are set aside. The application preferred by the Respondent under Section 9 of the I&B Code is disposed of as withdrawn. The Adjudicating Authority will now close the proceeding. The Respondent Company is released from all the rigour of law and is allowed to function independently through its Board of Directors with immediate effect.”
To mitigate the effect of the Covid-19 Pandemic on businesses and avoid the potential disruptions caused to a company in case of initiation of CIRP by creditors or the resolution applicant, IBC has suspended insolvency proceedings for a period of 1 year.
This order by the Appellate would provide a breath of fresh air to companies as well as lenders when economic growth has been stagnated and cash flows are in the negative. It also provides an opportunity to firms already in the resolution process to settle claims, especially debtors with smaller debts.
“We make it clear that in the event of default not adhering to the terms of ‘Settlement Agreement’ as regards the payment of the outstanding instalments, the ‘Operational Creditor’ shall be at liberty to seek revival/restoration of the ‘corporate insolvency resolution process’ proceedings before the Adjudicating Authority.” the bench added.