Facts of The Case:
Mona pharmachem supplied pharma products to Uttara foods and feeds pvt. Ltd. The
Petitioner states that the amount is due in respect of medicines supplied to the
Respondent for which bills were raised from 10.6.2014 to 25.4.2015. The payment
is pending for the first invoice itself which was raised on 10.6.2014 and fell
due on 9.8.2014. Even though the Respondent has made part payment for three of
the invoices subsequently raised, still there is an outstanding of Rs.
22,26,672/-. The Operational Creditor says that the invoices provide for 24%
interest per annum on the delayed payment and has claimed interest in addition
to the principle due of Rs. 22,26,672/-.
Mona Pharmachem, the Petitioner/Operational Creditor herein, filed this
Insolvency and Bankruptcy Petition against the Respondent/Corporate Debtor,
Uttara Foods and Feeds Private Limited, claiming that a sum of Rs. 22,26,672/-
along with interest is unpaid and the first date of default happened on
9.8.2014. The Petitioner initiated this proceeding against the Respondent under
section 9 of Insolvency and Bankruptcy Code, 2016 (the Code) read with Rule 6 of
the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,
2016 (the Rules) seeking reliefs.
A demand notice was given by the operational creditor on 15th of march, 2017
under IB code to the corporate debtor, but the corporate debtor didn’t give a
reply for the same. A prior notice was already given by the operational creditor
to the corporate debtor which expired on 13th of march, 2017. The corporate
debtor didn’t have any interest in paying back the money to the corporate
This could be seen as the corporate debtor didn’t reply to any of the notices
given by either the corporate debtor or the judiciary.
Henceforth, a petition was filed by mona pharmachem on 9th June, 2017 under the
NCLT and thereby provided all the required bills, invoices, bank account
statements, demand notices to the tribunal and submitted in front of the court.
A notice was sent by the court to the corporate debtor to appear before the
court, but the corporate debtor paid no interest in adhering to the orders of
The court admitted the case being satisfied by the evidences provided by the
corporate creditor and thereby provided a judgement in favour of the corporate
creditor. Further this case was admitted into the insolvency process by the IB
board. Later, the corporate creditor filed for a out of court settlement to
reach a understanding with the corporate debtor. NCLT thereby accepted the
This was challenged by the Uttara foods and feeds pvt. Ltd before the hon’ble
The NCLT of Mumbai bench passed a judgement in the favour of the corporate
creditor. In its judgement, the court prohibited the corporate debtor from
altering the assets of the company till the due amount is paid to the corporate
creditor. Further, the court also prohibited from transfer of legal rights over
the assets of the company. The court ordered that any goods that are being
supplied to the debtor be suspended immediately. The court ordered the case to
be presented for insolvency resolution process so as to follow a plan of action
to recover the loans or liquidate the required assets of the company.
After the appeal by Uttara foods and feeds pvt. Ltd. Before the hon’ble supreme
court, it was ordered that the Government should amend the provision regarding
the inherent power of NCLT and NCLAT to allow withdrawal of petitions filed
under Insolvency Code in case the matter is settled by the parties. Under Rule 8
of the Insolvency and Bankruptcy Board (Application to Adjudicating Authority)
Rules, 2016, Adjudicating Authority cannot exercise their inherent powers to
allow withdrawal of petition after it has been admitted by the Adjudicating
Authority. As a result, appeals against order of NCLAT are being filed before
Supreme Court which alone can exercise its powers under Article 142 of the
Constitution to allow withdrawal of cases filed under Insolvency Code where
agreement has been reached between the parties. The Supreme Court has directed
that order of copy that has to be sent to Ministry of Law and Justice
The moot point which arises is that the Supreme Court has not given a new
dimension to the Insolvency Code by allowing withdrawal of petitions filed under
the Insolvency Code after parties reach agreement to settle their financial
disputes at any stage of insolvency proceedings against a corporate debtor. This
also raises another relevant issue as to the fate of other creditors who have
not been able to settle their dues with the corporate debtor.
Thus, the supreme court admitted the case thereby over ruling the NCLT judgement
for out of court settlement after the admission of the case under the insolvency
Economic analysis of the case:
Through this judgement, the hon’ble Supreme Court observed that NCLT and NCLAT
do not have inherent powers to allow settlement of dispute post admission by the
insolvency resolution mechanism and will be ruled by provisions of IBC. The
rationale behind this judgement is that once the insolvency resolution admits
the case, then a collective mechanism commences to complete the process, the
order by the NCLT or NCLAT to out of court settlement post admission might
affect the interests of other creditors.
In Lokhandwala Kataria Construction Pvt. Ltd vs Nisus Finance and Investment
Manager LLP, similar nature of facts could be seen. This is because, the
recovery of loans by the corporate creditor should be considered as a collective
action but the individual interest shouldn’t be weighed over others interests.
In addition to this by, ordering out of court settlement, the appeals placed by
the aggrieved parties would be of vain and a pure waste of time of the judiciary
thereby reducing the effectiveness of judiciary in the nation. After the
admission of the petition by the tribunal, it acquires the character of
representative suit and triggers a publication in newspapers thereby encouraging
other creditors to get a right to participate in the insolvency resolution
process. IBC does not allow the petition to be dismissed on the basis of a
compromise between the operational creditor and corporate debtor as it would
affect the interests of other creditors.
Through the Provision of the power to the NCLT to halt the resolution process
while considering the settlement agreement could help avoid complications like
the one that has arisen in the Binani Cement resolution in which the defaulting
promoters and UltraTech, which came in behind winning bidder Dalmia Bharat, have
struck a deal to take over the promoters’ stake.
The judgement by the supreme court in uttara foods case involves restricting the
NCLT from providing for the halt in resolution process, but this is an
economically ineffective move as by the provision to halt the resolution process
by the NCLT and NCALT, this will bring an opportunity to the banks and the
corporate creditors to minimize their losses on defaulting loans as after
gathering the 90% support of the lenders and creditors effectively gives likely
buyers an opportunity to enter into one-time settlement with banks, operational
creditors and employees/workmen while bankruptcy proceedings are on. 
Current research states that out of 2,700 cases that have been referred to NCLT
by operational creditors, close to 2,000 were withdrawn before admission since
the dispute was settled outside court. This could be understood by the reason
that out of court proceedings are effective in nature and also doesn’t reduce
the goodwill of the corporate debtor as once, a suit is filed on the corporate
debtor, it reflects the corporate insolvency and ineffective management system
of the organisation thereby reducing the goodwill of the organisation in the
public. If this kind of action is completely supported by the supreme court,
this might turn out to be a effective move as this is a speedy process and also
the judiciary could place its focus on other important aspects.
Even after the strict ruling laid down by the Supreme Court, the NCLT and NCALT
did not adhere to the decision of the apex court and allowed the out of court
settlement after the admission of the case for insolvency process under IBC.
The economic impact of the judgement of this case is opposite to that of the
previous case analysis of mobilox case where the judiciary process is fastened
as a result of the defining the existence of dispute in a case, in the present
case, this judgement creates a burden on the judiciary of the nation thereby
increasing the judicial process of the case. In this case, the appellant didn’t
appear before the court for more than two hearings thereby not reaching a
judgement by the hon’ble court. This would result in the late payment of the
bills by the debtor or even might result in the non-payment thereby creating a
economic harm to the nation reducing, the profits, investments, aggregate demand
and finally GDP of the economy of the country.
But this judgement is not being followed by the NCLT and NCALT, thereby
indicating no impact on the economy. This could be observed in argoh
infrastructure developers case where the NCALT provided for settlement post
admission. In another case of phoenix global DMCC case, the NCLT tribunal of
Chennai set aside the resolution process as there was no advertisement of the
settlement thereby creating no harm to the interests of other creditors.
Thus, the judgement passed by the supreme court is based on the interests on the
general public and made from the point of view as a policy maker but this
judgement is not economically efficient but it could be declared that there was
no much impact on the economy by this judgement as these judgement were not
considered as a precedent by many NCLT and allowed for settlement post admission
by the resolution process by the way of creating a fact making the prior
The main objective of the insolvency and bankruptcy code, 2016 is the protection
of interests of the creditors and debtors. In the case of creditors, the code
supports and takes appropriate actions for the recovery of the loans thereby
protecting the creditors’ interests and in the case of debtors, the code takes
actions against overburdening for the repayment of the loans leading to shut
down of business entities. In the above-mentioned cases, the supreme court is
doing the same.
In mobilox case, the SC is laying down directions and precedents thereby
easing the judiciary process and leading to fast repayment of loans. In the
Uttara foods and feeds case, the judgement laid down by the SC is restricting
actions of the NCLT and NCALT in the interest of all the creditors instead of
weighing the interests of one individual creditor.
Here it could be observed that the judiciary is safe guarding the interests of
all the creditors instead of passing an economically efficient judgement. The
NCLT takes this judgement into consideration and adapts its judgements according
to the facts of that case. Thus it could be concluded that the Insolvency And
Bankruptcy Code of 2016 is a economically efficient law creating a positive
impact on the economy of the country.
- Lokandwala kataria construction pvt. Ltd. Vs. nisus finance and
investment managers llp, 140CLA215
- New corporate law treatise, IBC, 2016 - Tribunal to be empowered to
discontinue Insolvency Resolution Process in case of settlement between
- Supra note, 11
- Narmada construction pvt. Ltd. v/s. argoh infrastructure developer pvt.
Ltd., cp. (I.B) No. 16/9/NCLT/AHM/2017
- Phoenix global dmcc vs a & a trading pvt. Ltd., cp no. / 500(IB)/cb/2017ind/1471.