NCLT Dismisses Plea for Refund of Payments Made to Ericsson by Reliance Group

Tribunal Rules Payments Made Under Supreme Court Directive, Not Subject to Refund Under IBC Provisions

In a significant ruling, the National Company Law Tribunal (NCLT) Mumbai Bench dismissed the applications filed by Anish Nanavaty, the Resolution Professional for Reliance Telecom Ltd. and Reliance Communications Ltd., seeking the refund of payments made to Ericsson India Private Limited. The Tribunal held that the payments, totaling approximately Rs. 550 crores, were made under the directive of the Supreme Court to purge contempt and therefore do not qualify as preferential transactions under the Insolvency and Bankruptcy Code, 2016 (IBC).

The case revolved around a series of transactions made post-commencement of the Corporate Insolvency Resolution Process (CIRP) against the Reliance Group companies, which were subsequently challenged by the Resolution Professional as being preferential and in violation of the moratorium imposed under Section 14 of the IBC. The Tribunal found that the payments were made by third parties and not from the assets of the corporate debtor, thereby ruling out any contravention of the moratorium.

The Tribunal also emphasized that the payments were directed by the Supreme Court as part of contempt proceedings, where the Reliance Group was ordered to pay Ericsson to purge the contempt. This decision was based on undertakings given by Reliance Group's representatives to the Supreme Court, which were linked to the settlement of debts owed to Ericsson, an operational creditor.

The NCLT highlighted that the principle of restitution, which involves restoring benefits derived from a wrong, was not applicable in this case as no assets or property of the corporate debtor were involved in the transaction. Moreover, the Tribunal noted that the CIRP process is in rem and remains unaffected by such payments, as the creditor's entitlements towards their debts due remained unchanged.

In conclusion, the Tribunal dismissed the applications for refund, stating that the payments made to Ericsson were not preferential transactions under Section 43 of the IBC, nor were they in violation of the moratorium under Section 14, as they were ordered by the Supreme Court to settle a contempt issue. The decision marks a significant interpretation of the IBC provisions concerning transactions made under judicial directives.

Bottom Line:

Insolvency and Bankruptcy Code, 2016 - Payments made to a creditor post-commencement of CIRP but pursuant to the directions of the Hon'ble Supreme Court to purge contempt cannot be treated as preferential transactions under Section 43 or in violation of Section 14 of the Code.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 43, 14, 60(5).

Anish Nanavaty Resolution Professional v. Ericsson India Private Limited, (NCLT) : Law Finder Doc Id # 2820819