Pranav B Prem

The Principal Bench of the National Company Law Appellate Tribunal (NCLAT), New Delhi, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member – Technical), has held that once an operational debt has been fully settled before the date of admission of a Section 9 application under the Insolvency and Bankruptcy Code, 2016, the initiation of the Corporate Insolvency Resolution Process (CIRP) cannot be sustained.

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The appeal was filed by Basant Kumar Upadhyay, former director of the corporate debtor, challenging the order dated 30.06.2025 passed by the Adjudicating Authority (NCLT), which admitted the Section 9 application filed by M/s. Kuber Shree Construction Company, the operational creditor, against Gardenia India Ltd., the corporate debtor. The appellant contended that before the date of admission of the petition, the matter had already been amicably settled through a written agreement executed on 28.06.2025. It was argued that the CIRP, therefore, ought not to have been admitted and deserves to be set aside.

The NCLAT, while issuing notice on 07.07.2025, had stayed the CIRP proceedings and directed the operational creditor to file an affidavit explaining the circumstances relating to the settlement. In response, an affidavit dated 08.07.2025 was submitted by the operational creditor. The affidavit clarified that though earlier discussions on settlement had taken place, they had failed, and the matter was finally reserved for orders by the NCLT on 06.05.2025. It was only thereafter, in the month of June 2025, that fresh negotiations were resumed between the operational creditor and the corporate debtor, culminating in a final written settlement agreement on 28.06.2025.

The affidavit further explained that due to summer vacations, the NCLT reopened only on 30.06.2025. On that very day, without being re-listed or reopened for hearing, the matter was placed for pronouncement, and the order admitting the Section 9 petition and initiating CIRP was passed. As the settlement agreement was executed only two days prior, and the matter was not reopened before pronouncement, the operational creditor could not inform the NCLT about the development. The affidavit clearly stated that as of 30.06.2025, the entire claim of the operational creditor stood satisfied, and no default was pending. It also stated that the operational creditor had no objection to the CIRP being set aside.

The NCLAT took note of these facts and observed that there was no dispute between the parties regarding the execution of the settlement agreement dated 28.06.2025, and the operational creditor had candidly acknowledged in its affidavit that the default was no longer in existence on the date of the admission. The Tribunal also emphasized that when an operational creditor itself admits that its entire claim stood resolved prior to admission of the petition, there is no justification for sustaining a CIRP based on a non-existent default.

The bench observed: “The present is a case where admittedly settlement took place prior to initiation of CIRP and the reason due to which the said settlement could not be informed to the court has already been mentioned by the Operational Creditor in his affidavit... In view of the settlement between the parties on 28.06.2025, prior to order date 30.06.2025, there was no debt existing for admission of Section 9 application.”

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Consequently, the NCLAT allowed the appeal, set aside the order of admission dated 30.06.2025, and directed that the CIRP be closed. The Tribunal also took on record the undertaking of the appellant to make payment of the IRP’s fee and expenses. The counsel appearing on behalf of the IRP submitted that a sum of ₹2,34,830 had been incurred by the IRP, which the appellant agreed to pay within two weeks by way of a demand draft. With this, the CIRP proceedings against Gardenia India Ltd. stood closed and the matter was disposed of.

Appearance

For Appellant: Mr. Abhijeet Sinha, Ld. Sr. Advocate with Mr. Rishi Kumar Awasthi, Mr. Ishaan Raj, Ms. Heena Kochar, Mr. Anuj Tiwari, Ms. Kaanchi Ahuja, and Mr. Vaibhav Vats, Advocates

For Respondent: Mr. Akshay Sharma, Counsel for Respondent No. 1 (Operational Creditor), Mr. Atul Bhatia, Counsel for Respondent No. 2 (IRP), along with Mr. Narender Kumar Sharma, IRP

Cause Title: Basant Kumar Upadhyay V. Kuber Shree Construction Company & Anr.

Case No: Company Appeal (AT) (Ins) No. 957/2025

Coram: Justice Ashok Bhushan [Chairperson], Barun Mitra [Member – Technical]