Settlement in Section 7 or Dropping of Sec. 66 Proceedings does not Automatically End Proceedings under Section 43: NCLT [Read Order]

The Mumbai bench of the National Company Law Tribunal ( NCLT ) has held that settlement in Section 7 or dropping of Sec. 66 of the Insolvency and Bankruptcy Code, 2016 proceedings do not automatically end proceedings under Section 43 of the code.

The application under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 ( “the Code” ) read with Rule 11 of the N.C.L.T Rules, 2016 filed by the Applicant for relief that the Applicant be permanently deleted from the array of Respondent parties in underlying I.A. No. 2524/2020 ( ‘Avoidance IA’ ) in CP( IB ) No. 4258/2019 for the purposes of section 43 of the Code and declaration that an action under section  43 will not lie against it for the same transaction for which the Tribunal has already deleted the Applicant from the array of parties under the Substitution Order dated 09th February, 2023. 

The Tribunal admitted the above-captioned Company Petition filed by the Reserve Bank of India ( RBI ) against the Corporate Debtor, M/s. Dewan Housing Finance Corporation Limited ( DHFL ) and confirmed the appointment of the erstwhile Administrator to perform all functions of the resolution professional under the provisions of the Insolvency & Bankruptcy Code, 2016 ( “the Code” ).  

During the corporate insolvency resolution process ( CIRP ) of the Corporate Debtor, the erstwhile Administrator filed the Avoidance IA impugning certain transactions between the Applicant and the Corporate Debtor, inter alia, under Sections 43 and 66 of the Code. As per the Avoidance IA, the Corporate Debtor fraudulently disbursed loans to the Applicant herein, who in turn transferred the said loan amounts to the respondent parties in the Avoidance IA for the purchase of non-convertible debentures of DHFL. 

The Tribunal approved the resolution plan of erstwhile Piramal Capital & Housing Finance Limited ( erstwhile Piramal ) under section 31 of the Code. The entire resolution plan came to be fully implemented by which the erstwhile Piramal merged into DHFL and the name of DHFL was changed to Piramal Capital & Housing Finance Limited ( PCHFL ). 

 PCHFL preferred a substitution application in the Avoidance IA praying for substituting itself in the place of the erstwhile Administrator for prosecuting the Avoidance IA. The Tribunal allowed PCHFL to be substituted in place of the erstwhile Administrator and thereby pursue the Avoidance IA.   

The Applicant was deleted from the array of Respondent parties in the Avoidance IA for the purposes of transaction classified under section  66 of the Code. However, despite the same, PCHFL continues to maintain that the Applicant has not been deleted from the array of parties for the same transaction under section  43 of the Code.  

 A two-member bench of  Anil Raj Chellan, ( Member Technical ) and Kuldip Kumar Kareer, ( Member Judicial ) observed that merely because the proceedings under section  66 of the Code have been dropped against the Applicant, it would not by itself be sufficient to relieve the Applicant from the rigours of Section 43 of the Code. Further, merely because the Applicant has settled the matter with the Respondent about the loan transaction in proceedings under section 7 of the Code, this by itself would not be sufficient to drop the proceedings under section  43 of the Code. 

The Tribunal held that this application was premature and dismissed the same.

To Read the full text of the Order CLICK HERE

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