Application u/s 9 of IBC Cannot be Admitted When Debt is Discharged by Corporate Debtor: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of has held that Insolvency proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code) cannot be initiated if the debt in question has been discharged and settled between the parties after the issuance of demand notice under section 8 of the Code.

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On December 2, 2013, and December 31, 2015, the corporate debtor signed a contract with Greeka Greens Solution (India) Limited (Respondent No. 1) to hire drilling rig services. On March 5, 2018, respondent No. 1—Mr. Pankaj Kalra, suspended director of Essar Oil & Gas Exploration & Production Limited—sent a demand notice for the outstanding balance, to which the corporate debtor responded. As a result, the parties signed a settlement agreement on June 24, 2019, which was later amended on July 7, 2020, to include new parameters for full and final settlement payment.

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As part of the settlement, the Corporate Debtor paid 20 installments of Rs. 7,40,00,090 between July 3, 2020, and June 1, 2022.  Due to a calculated dispute between the parties on the final installment, the last installment was unable to be paid.

The remaining USD 125,833/-was paid on June 26, 2024, while the Section 9 application was still pending. The Section 9 application, which has been contested in the current appeal, was admitted by the adjudicating authority after hearing the parties by the contested order.

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Since the Corporate Debtor has discharged its liability and the last installment could not be paid due to some calculation errors, the appellant argued that there was no reason to initiate any Section 9 proceedings at this time. The sum was also paid while the Section 9 application was pending.  Additionally, the Respondent acknowledged that all of the liability had been released.

A two member bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member)that in the circumstances of the case, it was unnecessary to start CIRP proceedings because the corporate debtor had already reached a settlement and paid 20 of the 21 installments after receiving a demand notice under section 8 of the code.  Due to disagreements over calculations, only the twenty-first installment was unable to be paid.

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 The bench dismissed the ruling admitting the section 9 application under the IBC and allowed the appeal, arguing that the insolvency proceedings could not be started.

To Read the full text of the Order CLICK HERE

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