NCLAT stays admission of an Insolvency Petition against Reliance entities based on an Out-of-court Settlement

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Jun 01, 2018

NCLAT stays admission of an Insolvency Petition against Reliance entities based on an Out-of-court Settlement

By orders dated May 15, 2018 and May 18, 2018, the NCLT Mumbai had admitted a petition filed under Section 9 of the IBC by Ericsson India Private Limited (‘Ericsson’) against Reliance Communications Limited (‘RCom’), Reliance Infratel Limited (‘RIL’) and Reliance Telecom Limited (‘RTL’). RCom, RIL and RTL, along with certain financial creditors / the Joint Lenders’ Forum, had approached the NCLAT, seeking a stay on the ground that the CIRP would prejudice recovery. On May 30, 2018, the NCLAT passed an order staying the CIRP till September 30, 2018, to enable RCom to pay Ericsson Rs. 550 crore (approx. US$ 80 million) (out of the Rs. 1150 crore (approx. US$ 167 million) due) and settle the matter (‘NCLAT Order’).

The NCLAT has granted a stay on the orders dated May 15, 2018 and May 18, 2018 passed by the NCLT Mumbai, taking into consideration the stand of the parties that if the CIRP was allowed to continue, financial and operational creditors may suffer more loss. The NCLAT Order mandates the resolution professionals to allow the managements of RCom, RIL and RTL to function and has stayed the CIRP until further orders.

This is arguably a precedent on the proposition that even after an operational creditor’s petition is admitted by the NCLT and the CIRP commences, the process can be reversed / stayed if the dues of the operational creditors are settled.

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