Monday, 2 January 2023

AVANT Garde Clean Room & Engg. Solutions Private Limited, Vs. HLL Biotech Limited, - Once the lis is validly settled between the parties and accepted by the Court, the lis attains a quietus and terminates since the cause of action for the lis has merged with the final order of settlement.

 NCLT Kochi (02.11.2022) in AVANT Garde Clean Room & Engg. Solutions Private Limited, Vs. HLL Biotech Limited, [ Restoration Application (IBC) No. 02/KOB/2022 In CP(IB) No.02/KOB/2021]  held that;

  • Once the lis is validly settled between the parties and accepted by the Court, the lis attains a quietus and terminates since the cause of action for the lis has merged with the final order of settlement. 

  • If the terms thereof are violated by any of the parties thereto, the breach thereof provides a fresh cause of action to take appropriate action against the party concerned. However, it shall not under any circumstances restore or revive the cause of action, which had already merged with the final order of settlement.

  • Further the default of payment of settlement agreement do not come under the default of operational debt, this also might be the reason to refuse to grant main relief and granted only an alternative prayer of the memo.

  • When there is no specific order granting liberty to approach this Authority (NCLT), for restoration of dismissed petition, this application cannot be entertained.

  • It is established position of law that if any relief claimed in the petition/memo, which is not expressly granted by the order, shall be deemed to have been refused.

 

Excerpts of the order;

# 1. This application has been filed under Rule 11 of NCLT Rules, 2016 to restore Petition C.P.No.2 /KOB/2021 which was disposed on 29.01.2021.The brief facts of the case necessary to dispose of this application are as follows:

 

# 2. The petitioner/operational creditor has filed a petition C.P.No.2/KOB/2021 under section 9 of IBC, 2016 to initiate CIRP against the respondent/corporate debtor for the default of Rs.7,93,49,287/- When the matter was listed, on 29.01.2021, on the first hearing date the applicant filed memo seeking permission to withdraw the petition in view of settlement dated 11.01.2021 arrived between the parties, with liberty to restore the petition in the event of default committed by the respondent. In pursuance of memo filed by the petitioner the C.P.No.2/KOB/2021 was disposed of as withdrawn with liberty to initiate appropriate proceeding before the competent authority in case the corporate debtor failed to honour the commitment made by them in the settlement memo. Now this application has been filed for restoration alleging that the respondent committed a grave default of the terms of the Deed of Settlement.

 

# 3. The respondent filed a detailed counter apart from challenging the restoration application, the respondent also countered the maintainability of main petition itself and stated that the default amount mentioned in the main petition is not an operational debt.

 

# 4. Without adverting to the merits of the main petition, we restrict the point to the extent of this restoration petition. The points for consideration are as follows:

  • 1. Whether the competent authority mentioned in the order passed in C.P.No.2/KOB/2021 dated 29.01.2021 exclude or include this Adjudicating Authority (NCLT)?

  • 2. Whether the CP No. 2/KOB/2021 is to be restored?

 

Points: 1 & 2.

# 5. Before adverting to the afore said points it is necessary to look into the position of law whether the Adjudicating authority can grant liberty to restore the petition which was finally disposed of as withdrawn. The provisions of law applicable to withdrawal of a CIRP are tabulated below: -

 

Statute (Act or Rules or Regulations)

Provision (Section or Rule or Regulation)

The IBC,2016

1) Proviso to Section 7- deemed withdrawal before admission on the failure of the financial creditor to comply with the modifications within 30 days thereof, and

2) Section 12A - withdrawal of application admitted under Sections 7,9, and 10

The IB (Application to Adjudicating Authority) Rules,2016

Rule 8 permitting withdrawal of the application made under rules 4,6, or 7, as the case may be, on a request made by the applicant before its admission

The Insolvency & Bankruptcy  Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

1) Sec. 12A, IBC, 2016, R/w Regulation 30A (1) (a) before the constitution of the committee, by the applicant through the IRP, and

1) Sec. 12A, IBC, 2016, R/w Regulation 30A (1) (b) after the constitution of the committee, by the applicant through the IRP or the RP, as the case may be

 

# 6. It is thus patent without any ambiguity from the aforesaid statutory provisions relating to withdrawal that the Financial/ Operational creditor can withdraw the petition either before the admission or after the admission into CIRP. As regards the revival or restoration of disposed applications, only Rule’s (48) and (49) in the NCLT Rules, 2019, are applicable. Rule (48) permits restoration of an application dismissed for default or decided on merits in the absence of the applicant; and, Rule (49) permits restoration of an application decided exparte.

 

# 7. In the IBC 2016 or in NCLT Rules 2016 there is no provision available to grant liberty to restore the finally disposed of petition as withdrawn. Not only in IBC, 2016 there is no such provision available in any other Act. In this situation it is better to see the provisions available in Code of Civil Procedure,1908. Of course, CPC is not applicable to the proceedings under IBC, 2016 but an analogy enshrined in Code of Civil Procedure 1908 can be applied. Order XXIII CPC deals with recording of compromise and withdrawal of suits and the relevant Rules therein are Rules (1) and (3A).

 

Under Order XXIII. Rule 1 (3), the Court can grant liberty to file fresh suit on the same cause of action only when there is any formal defect in the plaint, which liberty is however subject to limitation. It is also to be noted that the said Rule does not permits to restore or revive the earlier suit which was dismissed as withdrawn.

 

Under Order XXIII, Rule 3 the suit can be disposed of on a compromise. However, there is no reference about the restoration or revival of a disposed case Only under Order XIII, Rule 3A, the court which disposed of the suit set aside the compromise decree and restore the suit to the original position on its file. However, Rule 3A is strictly applicable only if the consent of a party to the compromise decree was obtained by fraud or misrepresentation.

 

Thus, the petitioner is not entitled to any liberty under Order XXIII, Rule 3A, since the Settlement Deed dated 11.01.2021 is voluntarily executed between the OC and CD on mutually agreed conditions without alleging any fraud, coercion or misrepresentation. Further, the Settlement Deed is analogous to passing a money decree directing its payment by instalments as provided in Order XX, Rule 11, CPC, but even the said provision does not provide for restoration of the disposed suit in the event the judgment Debtor commits default.

Once the lis is validly settled between the parties and accepted by the Court, the lis attains a quietus and terminates since the cause of action for the lis has merged with the final order of settlement. If the terms thereof are violated by any of the parties thereto, the breach thereof provides a fresh cause of action to take appropriate action against the party concerned. However, it shall not under any circumstances restore or revive the cause of action, which had already merged with the final order of settlement.

 

# 8. From the discussion it is clear that there is no legal backing to grant liberty to restore the petition which was finally disposed of as withdrawn. Now we see the present case in our hand. This application has been filed for restoration; without obtaining any liberty to file such petition. The difference appears from the relief sought in the memo filed by the petitioner and the relief granted by this Adjudicating Authority. prove this. The relief/prayer sought in the memo is as follows:

  • “In the event of any default in balance payment as per the Memorandum of Settlement, the Petitioner/Applicant shall have the liberty to initiate appropriate proceedings before the NCLT and/or any other legal remedy available at the time of recovery of the original amount outstanding including the Interest after deducting the payment of Rs.2,20,00,000/- (Rupees Two Crores Twenty Lakhs Only) made under the Memorandum of Settlement.”

 

The relief granted by this Authority as follows:

  • In the event of the settlement of the issue between the parties and the Memo filed by the counsel for the applicant for withdrawal of the Application, nothing survives for further consideration in this matter. Hence this CP(IB)/02/KOB/2021 stands disposed of as withdrawn. The applicant is at liberty to initiate appropriate proceedings before the competent authority, in case the Corporate Debtor failed to honour the commitment made by them in the settlement memo. No order as to costs.

 

# 9. In the memo the petitioner specifically prayed to grant liberty in the event of default to initiate appropriate proceedings before the NCLT and/or any other legal remedy available. From the reading of above passage, it is clear that the applicant prayed in the memo an alternative prayer of either to grant liberty to initiate proceeding before NCLT or alternatively to grant any other remedy available. This Adjudicating Authority chosen to grant alternative remedy accordingly granted liberty to initiate appropriate proceedings before the competent authority. No liberty is granted to approach NCLT to revive the petition. This conscious refusal to grant liberty to revive the withdrawn/dismissed petition might be because as discussed supra there is no provision available in the existing laws either in IBC 2016 or in any other Acts or Rules or Regulations to grant such a liberty. Further the default of payment of settlement agreement do not come under the default of operational debt, this also might be the reason to refuse to grant main relief and granted only an alternative prayer of the memo. When there is no specific order granting liberty to approach this Authority (NCLT), for restoration of dismissed petition, this application cannot be entertained. It is established position of law that if any relief claimed in the petition/memo, which is not expressly granted by the order, shall be deemed to have been refused. In these circumstances it is answer that the competent authority mentioned in the order dated 29.01.2021 of this Authority exclude the NCLT. Thus, the first point is answered.

 

# 10. On the applicant side relies upon the Apex court Judgment Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited (Civil Appeal No. 9405 of 2017) there it is held that pre-existing dispute means dispute exist before the receipt of demand notice and also relies upon NCLAT Order Passed in Prashant Agarwal Vs. Vikash Parasrampuria and Anr (Company Appeal (AT) (Ins) No. 690 of 2022) in this order it is held that threshold amount includes both principal debt amount as well as interest on delayed payment which clearly stipulated in the invoices itself. These two citations are deals with merits of the main petition. As observed in the beginning we restrict the discussion limited to this restoration Application, not extended to the points relating to main petition since the main petition is not on file; accordingly, these two citations are not relevant to decide this restoration application.

 

# 11. On the Applicant side relies upon order passed by this Authority dated 28.01.2021 passed M/s Sri Ramani Resorts and Hotels Pvt Ltd vs. M/s Sree Bhadra Parks and Resorts Limited. (IA No.02/KOB/2021 in IBA/13/KOB/2020) there this Authority granted liberty to the petitioner to file fresh application if the corporate debtor has not complied the conditions stipulated in the settlement. When the petitioner filed an application to restore the dismissed petition, instead of filing fresh petition, there this Authority observed that merely on technicalities the request cannot be refused and allowed restoration application. The point involved therein is whether restoration application is maintainable when the Authority granted liberty to file fresh petition, in our case according to the respondent no liberty was granted to the applicant in any manner to approach NCLT, in this situation the facts of this citation not applicable to our case. On the applicant side relies upon NCLAT order dated 28.04.2022 passed in ICICI Bank Limited Vs. M/s. OPTO Circuits (India) Limited (Company Appeal (AT) (CH) (Insolvency) No.146 of 2021) this is an appeal preferred by the financial creditor against the order of Adjudicating Authority where the prayer of the petitioner to grant liberty to resume the petition in the event of default committed by the Respondent was refused instead relief was granted to file fresh company petition. The appeal was allowed. Here admittedly the applicant not preferred any appeal against the refusal to grant liberty to approach NCLT, thus the order dated 29.01.2021 passed on memo become final. Thus, the facts of this appeal is distinguishable and applicable to the facts of this case. The one another Citation relies by the Applicant is NCLAT order dated 18.07.2022 passed in Pooja Finelease Limited Vs. Auto Needs (India) Private Limited (Company Appeal (AT) (Insolvency) No.103 of 2022) in this case the petitioner filed an application under Rule 11 of NCLT Rules,2016 before the Adjudicating Authority praying on the basis of settlement arrived with corporate debtor seeking permission to withdraw the petition with liberty to revive the application in the event the respondent defaulted the terms of settlement. The adjudicating simply allowed the petition; when the petitioner filed revival petition it was dismissed by the Adjudicating Authority, in appeal the NCLAT allowed the appeal observing that when the Adjudicating Authority allowed the application, it means the consent terms also taken on record and financial creditor was entitled to revive the petition. In our case in the order dated 29.01.2021 it is consciously refused to grant liberty to approach NCLT and granted liberty to approach before the competent authorities, in the situation this citation also not applicable to the facts of this case. Thus, all the citations relied by the Applicant not helpful to improve the case of the applicant.

 

# 12. The last but not least point is, in the application, the applicant stated that the disposed petition to be revived for the recovery of the outstanding operational debt due from the corporate debtor. Time and again it has been expressed and explained by the Apex Court that the Provisions of IBC,2016 is not of money recovery proceeding; but here the intent of applicant reveals that the applicant invoices the provisions of IBC,2016 so as to enforce recovery against the corporate debtor; the same should not be allowed. In the circumstances, it is answered to second point that CP No.02/KOB/2021 cannot be restored.

 

# 13. In view of the answers arrived to the points this application is DISMISSED. No cost.

 

# 14. The Registry is directed to send e-mail copies of the order forthwith to all the parties and their Ld. Counsel for information and for taking necessary steps,

 

# 15. Certified Copy of this order may be issued, if applied for, upon compliance of all requisite formalities.

 

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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.