NCLAT judgment paves way for companies to exit insolvency process midway, arrive at settlement: Report

In a recent judgment, the National Company Law Appellate Tribunal (NCLAT) held that a company could exit an ongoing insolvency process even as an interim resolution professional had been appointed and a moratorium imposed under the Insolvency and Bankruptcy Code (IBC) by the adjudicating authority, that is the National Company Law Tribunal (NCLT).

The latest move by the NCLAT paves the way for companies to settle claims and end ongoing insolvency cases, according to a report by the Indian Express. The 'corporate debtors' in such cases can thus arrive at a settlement with the lenders, even after initiation of the corporate insolvency resolution process (CIRP) under the IBC.

The report notes that this new window could especially come as a relief to those firms already under the resolution process, with relatively smaller debts. However, all IBC proceedings have been halted for the time being in light of the COVID-19 pandemic. The Centre has suspended insolvency proceedings for the next six months with a proposal to extend the same up to a period of one year. This has been done to cushion firms against the economic fallout of the pandemic and the lockdown that followed, as fresh debts during this period will not attract IBC proceedings.

In the judgment, a bench headed by acting chairperson Justice Bansi Lal Bhat noted that since the operational creditor (who had taken the company to NCLT) and the corporate debtor had "amicably settled the dispute", it allowed the parties to exit the CIRP.

The judgment was passed in the case of Burda Druck India Pvt Ltd, a company that had been taken to the NCLT by its operational creditor Vivek Bansal.

The NCLAT observed, "The Respondent Company is released from all the rigour of law and is allowed to function independently through its Board of Directors with immediate effect. "