Corporate Debtor Failed to Comply with One-Time Settlement Terms: NCLAT Greenlights CIRP Revival [Read Order]

The Principal Bench of the National Company Law Appellate Tribunal (NCLAT) at New Delhi recently dismissed an applicant’s challenge to the revival of its Corporate Insolvency Resolution Process (CIRP), noting that the Adjudicating Authority had rightly restored the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) after the corporate debtor failed to honor the terms of a One-Time Settlement (OTS) that it had accepted.

The appeal filed by Bagh Bahar Appliances Pvt. Ltd. arose from an order passed by the National Company Law Appellate Tribunal (NCLT) in an Interim Application filed by the financial creditor and respondent herein - Unity Small Finance Bank Ltd., seeking revival of CIRP citing breach of settlement terms.

The record reflects that the Section 7 company petition was initially admitted on January 7, 2024, however the order was stayed since the probability of a settlement was at an advanced stage.

The OTS was subsequently sanctioned on January 18, 2024 and the NCLT permitted the financial creditor to withdraw the company petition on January 21, 2025 following statements from both sides and confirmation of the receipt of upfront payment.

Clauses 6 and 7 of the OTS expressly reserved the financial creditor bank’s right to reinstate proceedings against the corporate debtor upon any default and to undertake legal proceedings until all dues were discharged in full.

When the Bank later alleged breach of the settlement schedule, the NCLT allowed revival of the closed company petition, noting that the corporate debtor had failed to comply with the settlement terms.

Aggrieved, the corporate debtor preferred the present appeal.

Manoj Kumar Garg and Anuj Solanki appearing for Bagh Bhar Appliances submitted that once settlement has been entered between the parties and CIRP was withdrawn, there is no jurisdiction to revive the petition since IBC is not a recovery proceeding.

It was further submitted that even if the settlement had been breached, a closed CIRP cannot be revived and that the appellant had paid upfront payments and part instalments

Varsha Banerjee and Ayushi Mishra appeared for the respondent Bank.

The Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member - Technical) noted that the adjudicating authority had allowed the restoration of the company petition due to the corporate debtor’s failure to comply with the settlement terms and that there exists no provisions to carry forward the CIRP process from its termination due to settlement between the parties; in such event the matter would have to be taken up afresh.

Consequently, the NCLAT dismissed the appeal, finding no error in revising the section 7 application as per the terms and conditions in the order passed by the NCLT.

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