In a recent case, the Telangana High Court has held that a request for a one-time settlement cannot be entertained by a sole financial creditor after commencement of Corporate Insolvency Resolutions Proceedings ( CIRP ).
The court dismissed a Writ petition filed by Mandava Holdings Private Limited. The petitioner contended that PTC India Financial Services Limited was wrong in approving the resolution plan without considering the settlement offer and prayed that the rejection letter issued in 2023 be set aside and consequently reconsider the proposal of OTS.
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Before the NCLT in 2017, the corporate debtor—who is not a party to this petition—filed an application to start CRP procedures. In 2018, a moratorium was imposed after the application was accepted. A committee of creditors was established, along with the appointment of an expert in interim resolution. A party to this committee was R1 and the only financial creditor. The OTS offer of 90 crores that the petitioner in this case presented to R1 in 2020 was turned down. The COC approved the resolution plan in 2024 after the resolution professional requested applications for its submission in 2023.
The petitioner’s senior attorney argued that the RBI framework, which allows for a one-time settlement, should have prevented the resolution plan from being authorized. He further contended that the application filed in 2018 should be given another look because the respondents lacked a policy to handle any potential OTS offers.
The respondents on the other hand contended that CIRP proceedings had commenced and monetorium was in force and appropriate authority to deal with the matter at hand would be the NCLT.
The Bench noted that in 2018, respondent number one received a one-time settlement offer. After the OTS proposal was turned down in 2023, the resolution plan was presented for review in July 2024, and the committee of creditors accepted it that same month.
The judge observed that even though the petitioner approached the court with a significant delay, no explanation was provided. The Court observed that this was a sign that the petitioner was attempting to delay the IBC process. The bench further reaffirmed that the main goal of the IBC is to conclude CIP processes in a timely manner, citing numerous Supreme Court rulings.Therefore, it was determined that the rejection will not be compromised in any manner if there is no board-approved policy in place at the time of the rejection.
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The panel of Justice Moushumi Bhattacharya viewed that the petitioner’s best course of action would be to approach the National Company law Tribunal, as section 60(5) of the IBC code designates the National Company law Tribunal as the proper body to handle any disputes arising out of insolvency proceedings. The bench explained that the non obstante clause introduced in section 238 of the IBC law supersedes other statutes.
Returning to the question of whether a sole financial creditor can entertain an OTS after the corporate debtor enters CRIP, the bench pointed out that, in accordance with section 12A of the IBC, once a CIRP proceeding has been admitted, it becomes an of in Rem proceeding, requiring the consent of at least 90% of the CoC. The bench acknowledged the respondents’ arguments, noting that 90% of the CoC would need to approve an offer for an OTS and that a single financial creditor could not do so.
While dismissing the petition, the bench noted that there was an unexplained delay in approaching the court and that even otherwise the appropriate forum would be the NCLT.
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