NCLAT Rules, Revival Of Company Petition Permissible On Default Of Settlement Terms Despite Absence Of Liberty In NCLT's Withdrawal Order
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Mohd. Faiz Alam Khan (Judicial Member) and Mr. Indevar Pandey (Technical Member), has held that a company petition withdrawn pursuant to a settlement agreement between the parties can be revived upon default of settlement terms, even if the withdrawal order passed by the NCLT does not expressly reserve liberty for revival. The Tribunal clarified that when the withdrawal is based on recorded settlement terms containing a revival clause, the absence of express liberty in the NCLT’s order is immaterial.
The appeal arose from an order dated 21 February 2023 passed by the National Company Law Tribunal (NCLT), Mumbai Bench, Court-V, which dismissed the restoration application (IA No. 7 of 2023) filed by M/s 5MF & G Pvt. Ltd. seeking to revive Company Petition (IB) No. 696/MB/2021 against M/s BMI Wholesale Trading Pvt. Ltd. The NCLT had rejected the restoration plea solely on the ground that its earlier withdrawal order dated 11 April 2022 did not expressly grant liberty to revive the petition in the event of default.
The appellant submitted that the company petition had been withdrawn not unconditionally, but pursuant to consent terms executed on 4 April 2022, which were duly placed on record before the NCLT. Under the settlement, the respondent had agreed to pay a settlement amount of ₹3,10,87,725 in full and final discharge of all claims, with an initial payment of ₹10 lakh followed by 20 monthly instalments up to November 2023. Importantly, Clause 12.3 of the consent terms explicitly provided that in the event of default by the respondent in making payment, the appellant would be entitled to seek revival of the company petition.
It was contended that the NCLT, while allowing withdrawal of the petition on 11 April 2022, had recorded that the matter had been settled and that the consent terms dated 4 April 2022 were taken on record. Therefore, the withdrawal was based on settlement, not a simpliciter withdrawal. The appellant argued that the NCLT committed a manifest illegality in dismissing the restoration plea on a hyper-technical ground, ignoring the binding terms of settlement and the clear stipulation allowing revival in case of default.
Despite being served, the respondent failed to appear before the NCLAT and was proceeded ex parte. The Appellate Tribunal, after perusing the record, noted that the withdrawal application filed before the NCLT explicitly referred to the settlement terms, including the clause permitting revival in the event of default. The Bench observed that the respondent had defaulted in honouring the payment schedule, and despite notice of default dated 28 November 2022, no payment was made.
Referring to the consent terms, the Tribunal noted that Clause 12.3 categorically entitled the appellant to revive the petition upon default. The Bench held that since the withdrawal order was passed on the basis of these consent terms, the absence of express liberty in the order did not deprive the appellant of its right to seek revival. It remarked that the withdrawal before the NCLT was not a simpliciter withdrawal but one based on a settlement—and such a distinction is crucial in determining post-default remedies. The Tribunal observed: “The fact that no such liberty was granted by the NCLT while passing the withdrawal order would not be of any consequence, as the order was passed only on the basis of the settlement entered into between the parties. The consent terms were also taken on record. Thus, the withdrawal was not simpliciter but based on settlement, which itself contained a stipulation of revival in case of default.”
The Bench relied on its earlier decisions in IDBI Trusteeship Services Ltd. v. Nirmal Lifestyle Ltd. (Company Appeal (AT) (Insolvency) No. 117 of 2023), Pooja Finlease Ltd. v. Auto Needs (India) Pvt. Ltd. (2022 SCC OnLine NCLAT 3883), and Himadri Foods Ltd. v. Credit Suisse Funds AG (2021 SCC OnLine NCLAT 48), where it was held that once a settlement containing a revival clause is placed on record and default occurs, the creditor is entitled to seek restoration of the petition despite the absence of express liberty in the NCLT’s withdrawal order.
The Bench further referred to Finsbury Global FZE v. Uttam Sucrotech International Pvt. Ltd. (Company Appeal (AT) (Insolvency) No. 796 of 2023, decided on 12 February 2024) and Ahluwalia Contracts (India) Ltd. v. Jasmine Buildmart Pvt. Ltd. (2023 SCC OnLine NCLAT 579), reiterating that a petition withdrawn pursuant to a settlement can be revived if the debtor defaults in payment and such a revival clause is part of the consent terms recorded by the tribunal. Holding that the NCLT had erred in dismissing the restoration application on a technical ground, the NCLAT observed: “The Adjudicating Authority committed a manifest illegality in rejecting the restoration application on the hyper-technical ground that no liberty for revival was expressly provided in the withdrawal order, despite the settlement itself containing a clear stipulation permitting revival in case of default.”
Accordingly, the NCLAT allowed the appeal, set aside the NCLT’s impugned order dated 21 February 2023, and restored Company Petition (IB) No. 696/MB/2021 to the NCLT, Mumbai Bench, for disposal in accordance with law. In conclusion, the Tribunal reaffirmed that where a settlement agreement recorded by the NCLT provides for revival of proceedings upon default, such revival can be sought even in the absence of an explicit liberty in the withdrawal order, since the consent terms themselves form the substantive basis of withdrawal.
Appearance
For Appellant: Mr. Atharv Gupta, Advocate.
For Respondent : -
Cause Title: 5MF &G Private Limited Versus BMI Wholesale Trading Private Limited
Case No: Company Appeal (AT) (Insolvency) No. 521 of 2023
Coram: Justice Mohd Faiz Alam Khan, Mr. Indevar Pandey (Technical Member)
