The NCLAT maintains the constitution of the COC in the CIRP of Bombay Rayon Fashions Ltd.

The National Company Law Appeals Tribunal (“NCLAT”), New Delhi Bench, consisting of Judge M. Venugopal (Judicial Member) and Sri Kanthi Narahari (technical member), while ruling on an appeal filed in Prashant Agarwal vs. Vikash Parasprampuriahas suspended the constitution of the Committee of Creditors (“CoC”) in connection with the corporate insolvency resolution process (“CIRP”) of Bombay Rayon Fashions Ltd. The ordinance was adopted on 15.06.2022.

Background Facts

Vikash Parasprampuria (“Operating Creditor/Defendant”) is the sole owner of Chiranjilal Yarn Traders and had supplied goods to Bombay Rayon Fashions Limited (“Corporate Debtor”), which is a listed company. Nine invoices were issued by the Operational Creditor which were accepted by the Debtor Company without any objection, protest or dispute and partial payments were also made on certain invoices. When the debtor company did not release the balance payments, the operational creditor sent them reminder letters followed by a notice of formal notice under section 8 of the IBC dated 05.11.2020 , which was delivered but no response was received from the debtor company.

Proceedings before NCLT Mumbai

The operational creditor had filed an application under Section 9 of the Insolvency and Bankruptcy Code 2016 (“IBC”) before the NCLT Mumbai Bench, requesting the opening of a CIRP against the debtor company, for default of payment of Rs.1.60,87,838/-, where the principal amount was Rs. 97,87,220/- and the remainder was interest. The default date was 01.11.2020.

To justify compliance with Rs. 1 Crore threshold to initiate the CIRP, the operational creditor relied on the NCLAT judgment in Pavan Enterprises v Gammon IndiaCompany Appeal No.148 of 2018, in which it was held that “If, under an agreement, interest is payable to the operational or financial creditor, the debt will include interest”. Therefore, the threshold of Rs. 1 crore was met by including the component of interest. No response was filed by the Debtor Company.

NCLT Decision

The NCLT Mumbai bench see an order dated 07.06.2022 had found that the Debtor Company had repeatedly by its letter, its invoices and by making a partial payment acknowledged its liability. The bench ruled that the Section 9 claim was complete in all respects, as required by law, because the debtor company had defaulted on payment of the debt amount. Accordingly, the claim was allowed and CIRP was commenced against the debtor company. Mr. Santanu T Ray has been appointed as the Interim Resolution Professional.

Proceedings before NCLAT

The appellant, Prashant Agarwal, had appealed against the order of 07.06.2022 before the NCLAT. The Respondent proposed a settlement on the basis that it would be satisfied if the Appellant paid the principal amount as well as the cost of the CIRP for the settlement. The appellant has not yet requested instructions on the proposed settlement.

The court formation suspended the constitution of the CoC in the debtor company’s CIRP, while the CIRP process would otherwise continue. The case was then listed on 07.07.2022 for the Appellant to accept or reject the Respondent’s proposed settlement.

Case title: Prashant Agarwal vs. Vikash Parasprampuria, Company Appeal (AT) (Ins.) No. 690 of 2022

Applicant’s lawyer: Mr. Abhijeet Sinha, Mr. Palzer Moktan, Mr. Nausher Kohli, Ms. Dipti Das, Mr. Sunil Vyas, Mr. Deep Morabia, lawyers

Counsel for the Respondent: Mr. Viraj Parikh, Mr. Madhur Mahajan, Mr. Saurabh Pandya, lawyers for R-1. Ms. Rubina Khan for the IRP.

Click here to read/download the order

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