IBC provisions cannot be turned into debt recovery proceeding: NCLAT

NCLAT said the provisions of the Insolvency & Bankruptcy Code cannot be turned into a debt recovery proceeding as the idea of this special code is to bring a debtor company back on its feet

The National Company Law Appellate Tribunal on Monday said the provisions of the Insolvency & Bankruptcy Code (IBC) cannot be turned into a debt recovery proceeding as the idea of this special code is to bring a debtor company back on its feet.

Setting aside an order of the National Company Law Tribunal (NCLT) to initiate insolvency proceedings against Coppertun Brewing, the appellate tribunal observed it "clearly fell in error" in admitting the plea "while turning a blind eye" on the evidence of pre-existing disputes between parties.

When an operational creditor seeks to initiate an insolvency process against a Corporate Debtor, it can only be done in clear cases where no real dispute exists between the two, said the National Company Law Appellate Tribunal (NCLAT) bench, comprising Chairperson Justice Ashok Bhushan and Member Barun Mitra.

"What also heavily weighs on our mind is that both in terms of the objectives of the IBC and settled proposition of law as expressed and explained time and again by the Hon'ble Supreme Court, the provisions of IBC cannot be turned into a debt recovery proceeding as the underpinning of this special code is to bring a Corporate Debtor on its feet," the NCLAT order said.

The Cuttack Bench of NCLT had on May 12, 2022, directed to initiate insolvency proceedings against Coppertun Brewing, a company engaged in the business of restaurant/micro-brewery.

This was challenged by a director of the brewing firm before the appellate tribunal NCLAT, contending that there was a pre-existing dispute with the operational creditor, which had rented its premise to the company and later approached the NCLT, claiming default.

The NCLAT also agreed and said prima-facie, there is a sufficient record to show that the two parties were embroiled in a long-standing dispute over the issue of NoC/ compliances for the rented premise.

"We are of the considered opinion that the Adjudicating Authority (NCLT) committed a serious error in admitting Section 9 application in the facts of the present case. The Impugned Order dated May 12, 2022, initiating CIRP of the Corporate Debtor and all other orders pursuant to Impugned Order is therefore set aside," it said.

The appellate tribunal directed to release Coppertun Brewing "from the rigours of CIRP and is allowed to function independently through its board of directors with immediate effect".