NCLAT Dismisses Appeal: Enforces Strict Adherence to Procedural Law in Compromise Orders

Appeal dismissed as Tribunal emphasizes execution proceedings over recall applications for non-compliance with compromise terms.

In a recent decision by the National Company Law Appellate Tribunal (NCLAT) in Chennai, the Tribunal dismissed an appeal by Shri Rokadoba Maharaj Ginning & Pressing Pvt. Ltd. against Sri Venkatesa Mills Limited, reiterating the importance of adhering to procedural laws under the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016. The appeal sought to recall a compromise order due to non-compliance, but the Tribunal emphasized that execution proceedings should be the recourse for enforcing such orders.

The case stems from a compromise order passed on September 25, 2018, where Sri Venkatesa Mills, the Corporate Debtor, agreed to pay Rs.25,00,000 to the Operational Creditor, Shri Rokadoba Maharaj Ginning & Pressing Pvt. Ltd. Despite the order's finality, the Corporate Debtor failed to comply with its terms, leading to multiple recall applications by the Appellant, which the Tribunal refused to entertain.

In its judgment, the Tribunal noted that Rule 11 of the NCLT Rules, concerning inherent powers, cannot substitute the execution of a compromise order. Justice Sharad Kumar Sharma, presiding over the case, articulated that recall applications for non-compliance with compromise terms constitute an abuse of the process of law. Instead, Section 424 of the Companies Act should guide the execution of such orders, treating them as final adjudications.

The Appellant’s attempt to revive the Company Petition through a recall application was deemed inappropriate. The Tribunal clarified that final orders based on compromise should not be revived unless explicitly permitted by those orders. The repeated filing of recall applications was criticized for attempting to circumvent the procedural requirements laid out in the Companies Act.

The decision underscores the NCLAT's commitment to upholding the integrity of procedural laws, emphasizing that compromise orders carry the weight of final decrees. The Tribunal's stance is clear: execution proceedings, not recall applications, are the correct legal avenue for addressing non-compliance in such matters.

The case highlights the critical importance for parties in similar disputes to adhere strictly to procedural laws and terms of compromise, as any deviation could lead to dismissal of their appeals and potential legal repercussions.

Bottom Line:

The procedural law under the Companies Act and I&B Code must be strictly adhered to, and Rule 11 of NCLT Rules cannot be used as a substitute for the execution of a compromise order, which is a final adjudication.

Statutory provision(s): Companies Act, 2013 Section 424, Insolvency and Bankruptcy Code, 2016, Rule 11 of NCLT Rules

Shri Rokadoba Maharaj Ginning & Pressing Pvt. Ltd. v. Sri Venkatesa Mills Limited, (NCLAT)(Chennai) : Law Finder Doc Id # 2822395