ELP Note: NCLT rejects withdrawal of case even after parties propose settlement

The National Company Law Tribunal (NCLT), Kolkata Bench, has in its recent ruling in the case of Parker Hannifin India Private Limited v/s Prowess International Private Limited, ruled on the aspect of withdrawal of insolvency petition based on a settlement arrived at between the disputant parties after it has been admitted under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC).

Factual Matrix:

An application was filed by Parker Hannifin India Private Limited against Prowess International Private Limited for initiating corporate insolvency resolution process under section 8 and 9 of the IBC. Vide its order dated 20 April 2017, the NCLT admitted the aforesaid petition and inter alia appointed an interim insolvency resolution professional, declared moratorium, directed for public announcement.

A public announcement was issued as per the above order and progress report was submitted by the interim insolvency resolution professional. An application was then filed with the NCLT for withdrawal of the petition based on a settlement arrived at between Parker Hannifin India Private Limited and Prowess International Private Limited.

Findings of the NCLT: 

Based on the above factual background, the NCLT dismissed the application for withdrawal of the petition, and held as follows:

1. After the admission of the petition, it acquires the character of representative suit and through publication in the newspapers, other creditors get a right to participate in the insolvency resolution process, and therefore, petition cannot be dismissed on the basis of compromise between the operational creditor and corporate debtor;

2. From a perusal of section 9(5)(ii)(b) of the IBC, if repayment of the debt amount is made by the corporate debtor, then NCLT has power to reject the petition, before admission of the petition.