Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that insolvency proceedings can be revived even if the settlement agreement between the parties does not expressly provide for such revival, provided the adjudicating authority has already granted liberty to revive in case of default. The Bench comprising Justice Mohammad Faiz Alam Khan (Member-Judicial), Justice Mohammad Faiz Alam Khan (Member-Judicial), Indevar Pandey (Member-Technical) allowed an appeal filed by Dnyaneshwar Shankar Unde, proprietor of Swadarshan Dairy, and restored the Section 9 petition originally filed against Shukla Dairy Pvt. Ltd.

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Background

The appellant had initiated proceedings under Section 9 of the IBC for recovery of a debt amounting to ₹1.49 crore. During the pendency of the matter, the parties entered into a Memorandum of Understanding (MoU) on 06.11.2020 to settle the dispute. In view of the settlement, the NCLT disposed of the petition on 16.02.2021, specifically recording that the matter stood closed “with liberty to get this application revived, in case settlement fails.” According to the appellant, the respondent subsequently breached the settlement terms, leaving an outstanding amount of over ₹1.10 crore. This led the appellant to file a restoration application. However, the NCLT dismissed it on 10.05.2024, holding that there was no clause in the MoU permitting revival of the main petition in case of default.

Submissions

The appellant argued that the NCLT had erred in ignoring its own earlier order that expressly allowed revival if the settlement failed. It was submitted that the respondent had entered into the MoU only to evade admission of the CIRP petition and later stopped honoring its obligations, which amounted to dishonest conduct.

The respondent, however, claimed that the entire settlement amount had already been paid, and hence there was no ground for revival. This contention was disputed by the appellant, who pointed out that only ₹39.40 lakh had been paid, leaving a balance of ₹1.10 crore unpaid.

NCLAT’s Observations

The Appellate Tribunal found that the NCLT had committed a patent error in dismissing the restoration application. It emphasized two key reasons:

1. The NCLT’s own order dated 16.02.2021 had categorically granted liberty to the appellant to seek revival in case of settlement failure.

2. The respondent could not be permitted to “blow hot and cold in the same breath”—having avoided admission of CIRP by agreeing to a settlement and later defaulting on payment.

The Bench further observed that this issue had been addressed in similar circumstances in Archangels Distributors Pvt. Ltd. v. Ideal Financing Corporation Ltd., CA (AT) (Ins.) No. 1143 of 2024, where revival of proceedings was also permitted despite absence of a revival clause in the settlement.

Decision

Allowing the appeal, the NCLAT set aside the impugned order dated 10.05.2024 and restored the original petition CP (IB) 239 of 2020 to its file. The Tribunal clarified that the respondent would be at liberty to raise its defense regarding alleged full payment before the NCLT in the revived proceedings. The parties were directed to appear before the adjudicating authority on 27.10.2024 for further proceedings. By this ruling, the NCLAT has clarified that the absence of a revival clause in a settlement agreement does not bar revival of insolvency proceedings if the adjudicating authority has already reserved liberty to restore the case. The decision reinforces the principle that parties cannot use settlements to circumvent CIRP proceedings and then evade payment obligations.

Appearance

For Appellant: Mr. Malak Bhatt, Ms. Neeha Nagpal, Mr. Shreyansh Chopra, Advocates.

For Respondents: Mr. Jha Amlendu Kumar, Ms. Disha Choudhary, Advocates.

Cause Title: Dnyaneshwar Shankar Unde, Proprietor of Swadarshan Dairy V. Shukla Dairy Pvt. Ltd.

Case No: Comp. App. (AT) (Ins) No. 1269 of 2024

Coram: Justice Rakesh Kumar Jain (Member-Judicial), Justice Mohammad Faiz Alam Khan (Member-Judicial), Indevar Pandey (Member-Technical)