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A unprecedented question arose before the Mumbai Bench of NCLT. The question was if corporate debtor who filed an application for initiating insolvency process against itself, be allowed to withdraw it application at the end of the process on the ground that its offer of one-time settlementis acceptable to the sole financial creditor.
This case pertains to corporate debtor SBM Paper Mills Ltd, which was carryingpapers trading activity throughout the country. SBM Paper Mills had filed an application before NCLT declaring itself to be solvent and that insolvency proceeding to be initiated against the company. The application was accepted by the NCLT Mumbai Bench October 2017.
To decide on the aforesaid question the Tribunal said, the Laws governing financial transactions must not be static due to one of the fundamental reason that the economic condition of the society keeps on fluctuating depending upon the government policies and market conditions.
The tribunal said its initial reaction was that how it is justifiable on the part of an applicant who himself moved an application u/s 10 of IBC to declare itself insolvent &at later stage suo-moto seeks permission for withdrawal of the said application.
The Tribunal further said this application is not a simplistic withdrawal of insolvency application but also is coupled with a proposal of onetime settlement. The Tribunal said Allahabad Bank who is the only Creditor of the Company has already examined the proposal and knows all the pros & cons of the withdrawal application & undisputedly one time settlement is moreover more economically advantageous to the Bank.
The Tribunal allowed the Petitioner to withdraw his insolvency application however discouraging such practice it said - This Code shall not be made a tool for deferment of payment of liabilities which ought to happen due to declaration of "moratorium". The bench imposed cost of Rs 5, 00,000 as to the cost of the litigation.
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