NCLT on reviving Insolvency Applications after breach of Consent Terms

The Mumbai Bench of NCLT very recently halted a (questionable) practice, which is prevalent at the admission stage under the Insolvency and Bankruptcy Code, 2016 (IBC)..Typically, Insolvency Applications under Section 9 of the IBC are filed against Corporate Debtor(s) with an intent to recover an operational debt. More often than not, such Insolvency Applications result in the parties entering into Consent Terms stipulating a repayment schedule of the operational debt so as to prevent an order of admission and consequential insolvency..Accordingly, while passing final orders for such Insolvency Applications, some applications are either ‘dismissed’, or are ‘disposed of with the liberty to the Operational Creditor to revive the same in the event of default, if any, made by the Corporate Debtor’. For instance, this order of the Chennai Bench was disposed off with an option of revival..An order granting liberty to revive an application, used liberally by several benches, however has no legal grounds. As noted by the Mumbai bench in a case filed by Tata Power Trading Co. Ltd. against Indusar Global Ltd, there is no provision under the IBC enabling an Operational Creditor to ‘revive’ an Application previously withdrawn / disposed of in terms of Consent Terms..While in the Indusar Global case, the application was simply dismissed at the admission stage, it is unclear on what legal basis are these applications being granted the option of revival. Or to take this a step further, if any of these Consent Terms have actually been breached, on what basis are such applications being ‘revived’..The aforesaid ruling may alter the contents of Consent Terms that are executed on a day to day basis before various NCLT across India and NCLAT..The Application for revival of the Insolvency Application was filed by Naresh Trivedi, Madhur Rai and Rajeev Panday instructed by RRG & Associates who appeared for Tata Power, the Operational Creditor. And the Insolvency Application was opposed by Nausher Kohli and Harsh Gokhale instructed by DSK Legal appearing for Indusar Global, the Corporate Debtor..Note: The article wrongly mentioned Dharma Raj as having filed the Application for revival of the Insolvency Application. The error is regretted..(Read the Order)