18 March 2024 Bankruptcy & Insolvency Law >> Business & Commercial Law   |   Business Laws >> Business & Commercial Law  

Companies facing financial hardship often find themselves caught in a web of debt. But a recent court decision in Mumbai, offers a glimmer of hope. The ruling protects a struggling company from an aggressive creditor, highlighting the power of insolvency resolution processes to provide a fresh start.

Background:

The unnamed company, undergoing a Corporate Insolvency Resolution Process (CIRP) as per India's Insolvency and Bankruptcy Code (IBC), had a resolution plan approved by the National Company Law Tribunal (NCLT) in December 2017. This plan outlined how the company would settle its debts with creditors, including the Respondent in this case. However, the Respondent, one of the company's creditors, had previously filed a petition with a separate body, the Micro and Small Enterprises Facilitation Council (MSEFC), seeking a higher amount than what was agreed upon in the NCLT's resolution plan. After the plan's approval, the MSEFC awarded the Respondent a larger sum. The Respondent then initiated legal action to recover the full amount awarded by the MSEFC, leading to a warrant of attachment being placed on the company's current account.

Challenging the Attachment:

The company contested the attachment by filing an interim application in court. The company argued that the NCLT-approved resolution plan was legally binding on all creditors, including the Respondent. As per the plan, the company's dues to the Respondent were already settled.

Court's Reasoning:

The court sided with the company, citing Section 31 of the IBC. This section states that a resolution plan approved by the NCLT is binding on all stakeholders involved, including creditors.

The court further bolstered its decision by referencing a relevant Supreme Court judgement. The case of Ghanshyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited emphasized the concept of a "clean slate" for companies undergoing CIRP. This principle suggests that a company's past liabilities are addressed through the resolution plan, allowing for a fresh start.

Conclusion:

With the court's order, the attachment on the company's current account was lifted. The company's dues to the Respondent are now settled as per the terms of the NCLT's resolution plan, providing much-needed financial relief.

  INSOLVENCY AND BANKRUPTCY CODE, 2016