Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson), Barun Mitra (Member - Technical), and Arun Baroka (Member - Technical), dismissed an appeal against the order passed by the National Company Law Tribunal (NCLT), Jaipur Bench. The tribunal emphasized that once the corporate debtor has liquidated the entire debt, it cannot be subjected to insolvency proceedings. Additionally, it held that consent terms between parties can only be legally enforced if ratified by the court.

Background

United Futuristic Trade Impex Pvt. Ltd. had filed an application under Section 9 of the Insolvency and Bankruptcy Code (IBC) for the recovery of an operational debt amounting to Rs. 5.54 Crores, which included an interest component of Rs. 92,59,040. The Adjudicating Authority, NCLT Jaipur, observed that the Corporate Debtor, Varaha Infra Ltd., had already cleared the principal amount of Rs. 4.61 Crores, with only the interest component remaining unpaid. The Corporate Debtor assured that the remaining amount would be paid in part by the next month.

Also Read: Demand Notice Issued U/S 13(2) Of SARFAESI Act Without Obligating Guarantor To Make Payment Is Not An Invocation Of Guarantee, Rules NCLT Mumbai

Despite the payments made, the appellant contended that they were inconsistent with the consent terms agreed upon between the parties. The Adjudicating Authority, after reviewing the payments, dismissed the Section 9 application on the grounds that the corporate debtor had fully settled the debt. Aggrieved by this decision, the appellant filed an appeal before the NCLAT.

Contentions of the Parties

The appellant argued that during the pendency of the Section 9 application, consent terms were entered into by the parties. According to the appellant, the payments made by the corporate debtor were not in compliance with these terms. Since the agreed terms had not been adhered to, the appellant asserted that the Section 9 application should not have been dismissed.

Conversely, the respondent contended that a total sum of Rs. 6.17 Crores had already been paid, which exceeded the claimed operational debt of Rs. 5.54 Crores. Given that the total debt, including interest, had been discharged, the respondent argued that the Section 9 application was not maintainable.

NCLAT’s Judgment

The NCLAT upheld the order of the NCLT, finding no infirmity in the decision to reject the Section 9 application. It reasoned that since the corporate debtor had already discharged the entire debt, it could not be subjected to insolvency proceedings. The tribunal emphasized that for an application under Section 9 of the IBC to be admitted, the primary requirement is the existence of an unpaid operational debt that meets the threshold limit.

Also Read: NCLT Hyderabad Rules, Any Default Falling Within Section 10-A Period Of IBC Must Be Excluded When Calculating Total Outstanding Debt

A crucial aspect of the tribunal’s ruling was its position on the enforceability of consent terms. The NCLAT noted that while consent terms were entered into by the parties, they had not received court approval. Therefore, they could not be legally enforced in insolvency proceedings. The tribunal held: “The submission of the appellant that consent terms ought to have been enforced does not commend us since the consent terms do not have the approval of the court so as to become enforceable.” Further, the tribunal clarified that if the appellant believed additional amounts were still payable under the consent terms, they were free to pursue other legal remedies outside the IBC framework.

Verdict

The NCLAT dismissed the appeal, affirming the NCLT's decision to reject the Section 9 application. The tribunal found that the corporate debtor had already discharged the entire debt, including the interest component, and therefore could not be subjected to insolvency proceedings. Additionally, it held that the consent terms, not being ratified by the court, could not be enforced under the IBC.

Appearance

For Appellants: Mr. Balaji Harish Iyer, Mr. Utkarsh Joshi, Ms. Kanishka Sharma, Advocates.

Cause Title: United Futuristic Trade Impex Pvt Ltd. v. Varaha Infra Ltd.

Case No: Company Appeal (AT) (Insolvency) No. 480 of 2025

Coram: Justice Ashok Bhushan [Chairperson], Barun Mitra [Member (Technical)], Arun Baroka [Member (Technical)]

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