Memorandum of Compromise Entered by Operational Creditor and Resigned Director of  Corporate Debtor is not valid: NCLAT upholds Order of NCLT in Favour of SBI

The Chennai bench of the National Company Law Appellate Tribunal (NCLAT) has held that memorandum of Compromise entered by the operational creditor and resigned director of the corporate debtor is not valid and upheld the order of the National Company Law Tribunal (NCLT) in favour of the State Bank of India (SBI).

K Parthiban Rasu, the Suspended Director of the Corporate Debtor (M/s Star Trace Pvt. Ltd.) challenged the order passed by the Adjudicating Authority (National Company Law Tribunal) by which prayer ‘a’ made by the sole Financial Creditor (State Bank of India) (Respondent N0.3) has been allowed. 

M/s Umiya Development Centre India Pvt. Ltd. (Operational Creditor) applied Section 9 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) against M/s Star Trace Pvt. Ltd. (Corporate Debtor) which was admitted on 09.08.2021. K. Ganesan was appointed as the Interim Resolution Professional (IRP) and thereafter C. Ram Subramaniam was appointed as the RP of the Corporate Debtor on 31.03.2022.

The Application was filed by the State Bank of India (Sole Financial Creditor) sought for relief to direct the 2nd Respondent represented by its RP to continue the CIRP since the first respondent has failed to apply (Form FA) under Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 in terms of order dated 23.02.2022 passed in CA (AT) (CH) (Ins) No. 242 of 2021 by the Hon’ble NCLAT, Chennai Bench and thus render justice.

The Operational Creditor and the Director of the Corporate Debtor, namely, P.R. Maheswaran entered into a memorandum of compromise on 16.12.2021 but Harsan Kumar was not the director of the Operational Creditor at the time of compromise i.e. 16.12.2021 because MCA Master data shows that he had resigned on 16.10.2021.

It was stated by the State Bank of India that the Operational Creditor did not file any such application or Form FA before the Adjudicating Authority as directed but still the interim order is operative. The case set up by the State Bank of India is that it is being a sole Financial Creditor is unable to move to the Appellate Authority because the appeal filed by Parthiban Rasu K as the Suspended Director against the order of admission bearing CA (AT) (CH) (Ins) No. 242 of 2021 was withdrawn.

The Appellant has argued that the MOU dated 16.12.2021 has been signed by Harsan Kumar as an authorised representative of the Company and he has referred to the board resolution dated 01.10.2021 of the Operational Creditor but he could not deny the fact that before it could sign the MOU dated 16.12.2021, tendered his resignation on 16.10.2021 and was no more a director on the date when the MOU was signed. 

A two-member bench of Justice Rakesh Kumar Jain, Member (Judicial) and Shreesha Merla, Member (Technical) observed that there is no denial to the fact that Harsan Kumar resigned on 16.10.2021 as per the MCA Master data, therefore, he was not competent to enter into MOU dated 16.12.2021 on behalf of the Operational Creditor. 

Further held that argument of the appellant has no legs to stand because the MOU has been entered into between the Corporate Debtor and the Operational Creditor and in that the Operational Creditor has been represented by Harsan Kumar as the Managing Director.

The NCLAT upheld the order of NCLT in favour of SBI and dismissed the appeal.

To Read the full text of the Order CLICK HERE

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