Desh Bhushan Jain Vs Abhay Kumar (NCLAT Delhi)
The case “Desh Bhushan Jain vs. Abhay Kumar” involves an appeal by the erstwhile Director of Angel Promoters Pvt. Ltd. (Corporate Debtor, CD) against an order passed by the National Company Law Tribunal (NCLT) Delhi, which admitted an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). This application was filed by multiple financial creditors seeking resolution for a loan default amounting to Rs. 3,34,07,686, including interest. The NCLT’s order imposed a moratorium and appointed Abhay Kumar as the Interim Resolution Professional (IRP).
Background
In 2015, Angel Promoters Pvt. Ltd. availed a loan of Rs. 3,25,00,000 from the financial creditors. However, the CD defaulted in repaying the loan, prompting the financial creditors to file a petition under Section 7 of the IBC (first petition). During the pendency of this petition, both parties reached a settlement on July 26, 2018, agreeing that the CD would pay Rs. 4,34,00,000 towards the loan amount, plus Rs. 49,27,988 as interest, through a series of post-dated cheques.
Settlement Agreement and Default
Following the settlement, the first petition was withdrawn, but the CD failed to make timely payments as per the agreed schedule. The post-dated cheques either bounced or the CD requested extensions. Consequently, the financial creditors filed another petition under Section 7 (second petition) seeking resolution for the unpaid amount of Rs. 3,34,07,686. The NCLT admitted this second petition, which led to the current appeal by the CD’s erstwhile director.
Appeal and Interim Orders
During the preliminary hearing of the appeal on January 18, 2024, the appellant expressed willingness to pay the claimed amount and was allowed to deposit Rs. 3,34,07,686 with the NCLAT. Further hearings saw the appellant arguing that the amount paid should be adjusted against the principal, reducing their liability to Rs. 3.24 crore plus interest. However, the financial creditors contended that the CD owed Rs. 4.10 crore after adjustments.
Appellant’s Arguments
The appellant argued that defaults on the settlement agreement should not constitute a valid ground for filing a petition under Section 7. They cited a precedent from “Raj Singh Gehlot vs. Vistra (ITCL) India and Ors.” to support their claim that a petition under Section 7 based on a settlement agreement is impermissible. Additionally, the appellant highlighted that during the pendency of the second petition, they had paid Rs. 87 lakh, which should not be adjusted towards interest but rather deducted from the principal amount.
Financial Creditors’ Response
The financial creditors argued that the CD’s actions constituted a deliberate breach of the settlement agreement and that the second petition was based on the original debt and subsequent default, not the settlement agreement itself. They contended that allowing the CD’s argument would incentivize defaulting parties to breach settlements with impunity, undermining the IBC’s objectives. They also stated that the Rs. 87 lakh payment was correctly adjusted towards accrued interest, as per Section 60 of the Indian Contract Act, 1872.
NCLAT’s Decision
The NCLAT dismissed the appeal, rejecting the appellant’s reliance on the Raj Singh Gehlot case, clarifying that the initial petition was based on a legitimate debt and default, and the settlement was an arrangement to resolve this default. The tribunal emphasized that the CD’s repeated defaults justified the second petition and that allowing the appellant’s arguments would undermine the IBC’s framework.
