M/s. Prakash Corporates vs Dee Vee Projects Limited

Per P. Mohan Raj, Member, (Judicial)

The Petitioner ("Operational Creditor-OC") has filed this Petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC, 2016") to initiate Corporate Insolvency Resolution Process ("CIRP") against the Respondent ("Corporate Debtor-CD") for defaulting the sum of Rs.13,36,52,632/- payable towards the services rendered by the OC. The CD filed a Counter on 13.07.2021, which was returned by the Registry to comply certain defects therein. Till date the defects were never rectified by the CD, despite a rejoinder having been filed by the OC. However, the respective Counsel for the OC and CD made their submissions.

Thus, when the matter is in a part-heard stage, the OC reported that it will withdraw the Petition, since a Settlement was arrived at between the OC and CD. Pursuant thereto, the OC and CD filed a Joint Memo on 22.12.2021 annexing a copy of the Settlement Deed dated 20.12.2021 executed between them, and prayed to dispose of the Petition accordingly. The aforesaid Joint Memo and the Settlement Deed were perused on 23.12.2021.

As per the Settlement, the OC agreed to receive a sum of Rs.11,88,00,000/- towards full and final settlement of dues from the CD, and the CD agreed to pay the said amount in 13 instalments commencing from 23.12.2021 and terminating 30.09.2022. Further, it is seen in the Settlement Deed that the OC has incorporated certain Clauses whereby the OC has reserved liberty to file an application to revive/restore the instant CP(IB) No.179/CTB/2020 in the event the CD committed a default in complying with the Settlement Deed. The said Clauses are extracted below: -

This Tribunal, albeit not provided for in the IBC, 2016, but in order to encourage settlements to facilitate the continuance and rehabilitation of the CD, as distinct from liquidating it, is in fact inclined to allow the OC to withdraw the Petition, without granting any liberty. Patently, the liberty sought by the OC under the aforesaid Clauses is an equitable relief. However, in accordance with the statutory provisions in the IBC, 2016, and the applicable Rules and Regulations, or with the analogous provisions in the Code of Civil Procedure, 1908 ("CPC") this Tribunal is sceptical about the aforesaid Clauses constraining it to question their maintainability.

In response, Mr. S.K. Acharya, the Counsel for the OC elaborately argued in support of their maintainability by invoking Rule 11 of the National Company Law Tribunal ("NCLT") Rules, 2016, and relied upon the orders of this Tribunal and other Adjudicating Authorities, and a Judgment of the Hon'ble Supreme Court in support of granting such a relief. The Counsel for the CD left the matter to the discretion of Tribunal.

In view of the aforesaid facts and circumstances, the only point that need to be considered herein is: -

Before adverting to the aforesaid Rule 11, it is necessary to look into the provisions respectively enabling the withdrawal of a CIRP and the restoration of disposed applications. The provisions applicable to withdrawal of a CIRP are tabulated below, viz.:

As regards the revival or restoration of disposed applications, only Rule's (48) and (49) in the NCLT Rules, 2016, are applicable. Rule (48) permits restoration of an application dismissed for default or decided in the absence of the applicant; and, Rule (49) permits restoration of an application decided ex-parte.

It is thus patent without any ambiguity from the aforesaid statutory provisions relating to withdrawal and restoration of applications, that the OC can neither settle post admission nor seek liberty to restore the applications, which have been finally disposed of by this Tribunal. If so, the next question to be answered is as to whether the liberty could be granted to the OC by invoking the inherent powers conferred in Rule 11 of the NCLT Rules, 2016, and more so since the CD has not objected to granting such a liberty to the OC. The Rule of NCLT Rules 2016 is parimetria to section 151 of Code of Civil Procedure.

At this juncture, assuming for a moment and for argument's sake that the analogous provisions in the CPC could be made applicable to this Tribunal, the question that whether such a liberty could be granted to the OC has to be culled out from applying the provisions found in Order XXIII, CPC. The said Order XXIII deals with recording of compromise and withdrawal of suits, and the relevant Rules therein are Rules (1), (3) 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 above Rule does not restore or revive the earlier suit before the same Court that has granted the liberty, but only permits filing of a fresh suit.

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 in the same Court before which the suit was compromised. Only under Order XIII, Rule 3A, the Court which disposed of the suit could 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 OC is not entitled to any liberty under Order XXIII, Rule 3A, since the Settlement Deed dated 20.12.2021 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 s 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.

The OC seeking unbridled liberty to restore/ revive the application in the event of a future contingency in fact supersedes the Law of Limitation, 1963. This Tribunal is not empowered to grant such a liberty, since it amounts to adjourning the proceedings sine die. Such an adjournment is not authorised under any Law, since it is against public policy and necessity as defined in Sec.23 of the Indian Contract Act, 1872. The Law of limitation is based on public policy as defined in the legal maxim – interest reipublicae ut sit finis litium (it is for the general welfare that a period be put to litigation). [See, Popat and Kotecha Property Vs. State Bank of India Staff Association reported in 2005 (7) SCC 510]. This is a settled Law.

It is the duty of the Court to consider Limitation even if not set up as a defence. If an action is barred by the Law of Limitation, it is not open to a Court to carve out any fresh period or exclusion. Any exclusion of the periods of limitation must be authorized under the Act.

Thus, when the intention of the OC is contrary to the object of the insolvency statutes the inherent powers conferred thereof cannot be invoked or exercised by this Tribunal. Hence, in the absence of any statutory power or any provisions, this Tribunal cannot grant any liberty, whatsoever, to the OC to pursue an equitable relief even by invoking the inherent powers conferred under the said Rule 11, which is against public policy and necessity, irrespective of the fact that the CD has not objected to granting such a liberty.

The OC has relied upon the following Judgments, viz.:

No doubt the aforesaid five Judgments has granted liberty similar to the one sought by the OC herein. However, none of them discuss about or refer to the powers conferred upon the Tribunal to grant such liberty in the absence of any statutory power in the insolvency statutes or based on the analogous provisions in other statutes.

The Hon'ble Supreme Court in E.S. Krishnamurthy & Ors. Vs. M/s Bharath Hi Tech Builders Pvt. Ltd & Anr., in C.A. No.3325 of 2020. Dated 14.12.2021 held in para 29 as follows:

In view of the aforesaid findings of the Hon'ble Supreme Court, this Tribunal cannot act as a Court of recovery, that is not the object of IBC 2016 In fact, the OC by virtue of the liberty reserved in the impugned Clauses is seeking a facilitation to recover the dues from the CD. The seal of approval to the liberty, if any affixed by the Tribunal, does not put an end to the litigation between the OC and CD. In the disguise of encouraging a settlement, an equitable relief cannot be granted to the parties to prolong the litigation at their whims and fancies.

Last, but not the least, another reason to reject the liberty is that the OC has not filed any petition seeking such a liberty, but instead has only filed a memo along with the Settlement Deed. It is settled Law that no relief can be sought in a memo, since it only informs certain facts to the Court. A memo to be treated as a petition necessitates payment of Court-fees, which has not been paid in the instant case. Thus, in the absence of a petition, a relief prayed for in the memo neither is entertainable nor sustainable. Besides, difficulties and peculiar situations may arise when a petition is restored based on the liberty granted in a future contingency. For instance, if the CD defaults in payment of the last instalment, the defaulted amount might be well below the threshold limit.

In view of the reasons stated above, it is concluded that the cause of action upon which petition was filed merged with the final order of settlement, and that a fresh cause of action will arise if any default is committed by the parties to the settlement, no liberty to restore or revive the petition before this Tribunal can be granted. Even otherwise, after final disposal of the lis either on merits or by settlement this Tribunal becomes functus officio. Thus, the point is answered accordingly.

In the result in view of the Settlement/Compromise Memo filed by the Petitioner Operational Creditor the same is recorded and the instant petition in CP (IB) No. 179/CTB/2020 is hereby dismissed as withdrawn. However, the prayer to grant liberty to the Petitioner Operational Creditor to restore or revive the instant petition in CP (IB) No. 179/CTB/2020 in the event of default committed by the Respondent/Corporate Debtor is hereby Rejected. Since, the main petition in CP (IB) No. 179/CTB/2020 itself is disposed of the IA No.118/CB/2021 filed by the Respondent Corporate Debtor for an appointment of commission to find out work executed by the Operational Creditor at the site also stands DISMISSED.

The registry is directed to send e-mail copies of the order forthwith to all the parties and their counsels for information.

Certified copy of the order may be issued to all the concerned parties, if applied for, upon compliance with all requisite formalities.