National Company Law Tribunal has attempted a novel way to resolve default cases by asking the parties to negotiate settlement without exercising the process under Insolvency and Bankruptcy Code.
The Mumbai bench has managed to settle a default case between Housing Development Infrastructure Ltd (HDIL) and Gammon India, with both agreeing to the court's suggestions.
Gammon India is an operational creditor to the real estate company who had a liability of Rs 5.86 crore. The default sum now increases nearly Rs 8 crore including interest. Operational debt is a claim in respect of goods supplied or services rendered. The lender filed for an insolvency petition. The court said admitting the company insolvency would court larger problems for the company, which is already down in the dumps.
"Its reputation will be at stake with so many HDIL projects likely to get affected," said Mukul Kumar Shrawat, a judicial member, who was presiding the division bench of NCLT Mumbai. The benefits of amicable solutions are better than any insolvency proceedings. At the same time, the creditor is also not sure of how much would it recover after completion of bankruptcy proceedings.
“As per NCLT's guidance, we have settled the matter as both the parties agreed to do so. We intent to work with them (Gammon) henceforth too,” said Sarang Wadhawan, MD, HDIL. HDIL has issued a cheque of Rs 5.86 crore in favour of the operational creditor, which has foregone interest amount.
Under Section 53 of IBC, known as Water Fall in legal parlance, secured creditors are ranked third and unsecured creditors at fifth place, in terms of repayment priority after the resolution or liquidation of the defaulter company is over. The lender Gammon India filed application a few months ago. In the second hearing itself, the case met an end without any admission process. The court urged both the parties to go for a settlement as it will be much less time consuming paving the future prospect. It has sought for HDIL's financial statements examining potential ways to generate cash flows, which was perhaps used to repay upfront.
