NCLAT New Delhi (27.01.2023) In Vinay Gupta Vs. Ashika Credit Capital Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 92 of 2023] held that;
Default in settlement agreement is only a by-product which has permitted revival of Section 7 application but in no manner affect the claim in the original application which is financial debt under Section 7 application.
In the present case Application under Section 7 was filed claiming financial debt and it was not initiated on the basis of any settlement agreement. Settlement agreement which was entered during the pendency of the insolvency proceedings was breached, hence, what is revived is original application.
Excerpts of the order;
27.01.2023: Heard learned counsel for the Appellant. This appeal has been filed against the order dated 11.01.2023 by which order the Adjudicating Authority has admitted Section 7 application filed by the Financial Creditor.
# 2. The application under Section 7 was filed by the Financial Creditor against the Corporate Debtor where a settlement took place between the parties on 05.08.2019 and the Adjudicating Authority passed following order on 06.08.2019 permitting the application to be withdrawn:
“Ld. Counsels submits that an agreement has been arrived at between the parties. In view of the same the petitioner wishes to withdraw the present petition. He, however, seeks liberty to seek restoration of this petition in the event of default on any of the terms of the compromise. Dismissed as withdrawn. Liberty is granted.”
# 3. Subsequent to the order dated 06.08.2019, the settlement agreement was not complied with and default was committed in making payment as was promised by the Corporate Debtor. An application for restoration of petition being RA-32/2021 was filed by the Financial Creditor on which following order was passed on 22.11.2021:
“RA-32/2021: This is restoration application filed by Authorised Representative of Financial Creditor. It is submitted that vide order dated 06.08.2019, the matter was withdrawn as settled. However, a liberty was granted to revive the Petition in the event of default. The Applicant submits that since there is a default in payments, therefore, they are seeking revival of the application.
RA-32/2021 is allowed.
Dr. Pankaj Garg representing the Respondent is present. Both the parties are directed to file the short-written synopsis of not more than 3 pages each. List it for hearing on 20th January, 2022.”
# 4. After revival of the application, the Adjudicating Authority heard the parties and after noticing the fact that the debt and default is there on part of the Corporate Debtor has admitted Section 7 application by the impugned order. The Adjudicating Authority also noticed that cheques issued by the Corporate Debtor in pursuance of the settlement were deposited and returned unpaid.
# 5. Learned counsel for the Appellant challenging the order contends that any debt which is due for breach of settlement cannot be a financial debt. He submits that there was no disbursement against the time value of money when there was settlement agreement, hence, the application ought not to have been admitted. In his submissions he relied on judgment of this Tribunal in “Amit Kumar Agrawal vs. Tempo Appliances Pvt. Ltd., 2020 SCC Online NCLAT 1202”.
# 6. We have considered submission of learned counsel for the Appellant and perused the record.
# 7. Present is a case where application under Section 7 was filed by the Financial Creditor claiming its financial debt. On said application, Corporate Debtor entered into settlement due to which the application was withdrawn with liberty to revive if any default is committed. The revival of the application under Section 7 was consequent to the liberty granted by the Court. When application was revived, the application which was filed initially by the Financial Creditor was restored and treated to be the original Section 7 application. It cannot be said that what is to be considered was only the default under the settlement agreement. Default in settlement agreement is only a by-product which has permitted revival of Section 7 application but in no manner affect the claim in the original application which is financial debt under Section 7 application.
# 8. The judgment which has been relied by learned counsel for the Appellant was a case where there was settlement between the parties and on account of default in the settlement, application under Section 7 was filed and the Court held that default in settlement agreement is not financial debt. The said case is clearly distinguishable from the present case. In the present case Application under Section 7 was filed claiming financial debt and it was not initiated on the basis of any settlement agreement. Settlement agreement which was entered during the pendency of the insolvency proceedings was breached, hence, what is revived is original application.
# 9. The Adjudicating Authority has considered in detail the facts and circumstances before coming to conclusion that there is debt and default on part of the Corporate Debtor. We, thus, are of the view that there is no ground to interfere with the impugned order. We, thus, dismiss the Appeal.
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