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Nature of Financial Debt does not change on account of breach of consent terms

Cause Title : Priyal Kantilal Patel vs IREP Credit Capital Pvt. Ltd. & Anr., Company Appeal (AT) (Insolvency) No. 1423 of 2022, National Company Law Appellate Tribunal Principal Bench, New Delhi

Date of Judgment/Order : 01.02.2023

Corum : Justice Ashok Bhushan (Chairperson) & Barun Mitra, Member (Technical)

Citied: 

  1. Amrit Kumar Agrawal Vs. Tempo Appliances Pvt. Ltd. [2020 SCC OnLine NCLAT 1202] 
  2. Dr. Gopal Krishnan MS & Anr. Vs. Mr. Ravindra Beleyur & Anr. [CA(AT)(CH)(INS) No. 316 of 2022]

Background

An application under Section 7 was filed by the Financial Creditor- Debenture Holder. Subsequently, a consent terms was entered between the parties with other stakeholders. According to the consent terms, the Financial Creditor-Respondent herein agreed to withdraw the Company Petition. When the consent terms was defaulted, the cheques which were issued by the Corporate Debtor were dishonored. The Financial Creditor instead of reviving earlier company petition, filed a fresh company petition and based his claim on the basis of the initial financial debt as was claimed in the original application and in the application has also given the details of the consent terms and the subsequent event which took place. When the said company petition was admitted by the Adjudicating Authority, appeal was filed against the Impugned Order.

The primary objection of the Appellant was that there being breach of the consent terms, Section 7 application filed by the Financial Creditor was not maintainable since breach of consent terms does not furnish any right to initiate Section 7 Application, since breach of consent terms can not be treated to be financial debt.

Judgment

The NCLAT opined that the judgement  “Amrit Kumar Agrawal” (supra) was a case where section 7 application was filed on the ground of default in payment of settlement agreement where the court held that default in payment of settlement agreement does not constitute a financial debt. The facts of the present case are clearly distinguishable. Present is not a case where Section 7 Application has been filed only on the ground of default in the settlement agreement rather section 7 application has been filed on the basis of original financial debt which was extended by the Financial Creditor to the Corporate Debtor. The mere fact that in earlier company petition, consent terms was arrived, which consent terms was breached by the corporate debtor, the financial debt which was claimed by the financial creditor would not be wiped out nor the nature and character of financial debt shall be changed on account of breach of the consent terms. Permitting such interpretation shall be giving premium to the corporate debtor who breach the consent terms. Another judgement which has been relied on by Learned Counsel for the Appellant is “Dr. Gopal Krishnan MS”, (supra) which is also judgement relying on “Amrit Kumar Agrawal”. The court in the facts of the said case came to the conclusion that debt is not a financial debt. The above judgement is also clearly distinguishable.

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