NCLT Chandigarh Refuses To Restrain Sale Of White Water's Panchkula Land After CIRP Set Aside

The National Company Law Tribunal (NCLT) at Chandigarh recently held that once a corporate insolvency process is set aside and the payment directed by the Supreme Court is complied with, it cannot restrain a company from dealing with its assets in the absence of a statutory moratorium that arises only upon admission of insolvency proceedings.

A Bench of Judicial Member Khetrabasi Biswal and Technical Member Shishir Agarwal said, “Once the CIRP is set aside and gets terminated, the CoC stands disbanded and becomes functus officio. Any recognition of claims during a period of CIRP that has since been declared void or set aside, cannot form the basis for an interlocutory restraint on a solvent company's assets. It does not provide a ground for this Tribunal to interfere with the commercial autonomy of a Respondent No.1 against which no insolvency proceeding is currently pending.”

The tribunal was dealing with a plea by Kamal Kant Dewan seeking to restrain White Water Hospitality Pvt. Ltd. from selling its only immovable asset, a 102-acre parcel of land in Panchkula. Insolvency proceedings against the company had been admitted in 2019 on a plea by V.I.R. Foods Ltd., and Dewan had submitted claims and was part of the committee of creditors.

The admission order was later set aside by the appellate tribunal, and the Supreme Court subsequently set aside both the appellate and original orders while recording that the company would pay about 52.64 lakh rupees, along with interest, to V.I.R. Foods Ltd., leaving certain issues to be examined by the Tribunal.

Dewan argued that his claims as a financial creditor were still pending and that the Supreme Court's order required compliance subject to the Tribunal's consideration. He said the proposed sale of the land would defeat his rights and make any possible revival of insolvency proceedings meaningless. T

The company countered that no insolvency process was in force after the earlier orders were set aside and the payment directed by the Supreme Court had already been made. It also disputed Dewan's status as a financial creditor, saying the amounts were part of a joint venture investment tied to future project cash flows and not a debt presently payable.

The Tribunal rejected the plea, holding that the Supreme Court's directions had been complied with and there was no scope to revive the insolvency process. It clarified that the power to restrain a company from dealing with its assets flows from a moratorium imposed when insolvency proceedings are formally admitted under the law.

“The power of this Tribunal to restrain a Corporate Debtor from dealing with its assets is a statutory power derived from the imposition of a Moratorium under Section 14. Such a moratorium is a mandatory consequence of an active admission Order,” the bench said.

It added that once the admission order was set aside, the company was no longer under insolvency restrictions, its board had regained control, and it was free to function as a going concern. In these circumstances, the tribunal held it had no authority to injunct the sale of the land and dismissed the application.