The National Company Law Appellate Tribunal has clarified that a settlement offer by a suspended director of a corporate debtor, made before the constitution of the Committee of Creditors, triggers a mandatory duty on the Adjudicating Authority to evaluate the debtor’s solvency and other relevant factors before approving withdrawal under Regulation 30A(1)(a) of the CIRP Regulations. This ruling reinforces the in rem nature of CIRP and introduces a structured framework for balancing creditor interests with entrepreneurial rehabilitation.
Background & Facts
The Dispute
The appellant, Suyog Suryakant Talekar, is the suspended director of the corporate debtor, Trivenimudrai Project Ltd. The corporate debtor faced a corporate insolvency resolution process (CIRP) initiated by the second respondent, Baij Nath Ram Nath (India) Private Limited, an operational creditor, under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). The National Company Law Tribunal, Mumbai Bench, admitted the CIRP on 13.01.2026. The appellant, though not a creditor, now seeks to withdraw the CIRP by offering a settlement with the petitioning operational creditor.
Key Facts
- The corporate debtor was admitted to CIRP on 13.01.2026 following a default in payment of an operational debt
- The appellant, as suspended director, was not a party to the original petition but has since proposed a settlement with the petitioning creditor
- The settlement offer was made after admission to CIRP but before the constitution of the Committee of Creditors (CoC)
- The appellant filed a Memorandum of Settlement with the NCLAT on 06.04.2026, the date of this judgment
- The Interim Resolution Professional (IRP) has collected or is in the process of collating claims but has not yet constituted the CoC
- The IRP’s initial cost and remuneration remain unpaid by the petitioning creditor
Procedural History
- 13.01.2026: Adjudicating Authority (NCLT, Mumbai) admitted CIRP under Section 9 IBC in C.P.(IB) 265/MB/C-VI/2025
- 13.03.2026: NCLAT passed an interim order permitting the IRP to collate claims
- 06.04.2026: Appellant filed application before NCLAT with Memorandum of Settlement; appeal filed challenging admission order
- 06.04.2026: NCLAT delivered judgment on Company Appeal (AT) (Ins) No.247 of 2026 and I.A. No.1534 of 2026
Relief Sought
The appellant seeks withdrawal of the CIRP under Section 12A IBC read with Regulation 30A(1)(a) of the CIRP Regulations, based on the proposed settlement with the petitioning operational creditor. The appellant also seeks direction for the IRP to facilitate the settlement process and for the Adjudicating Authority to consider the offer.
The Legal Issue
Can an Adjudicating Authority approve withdrawal of a CIRP under Regulation 30A(1)(a) IBC based solely on a settlement between the corporate debtor’s suspended director and the petitioning creditor, or must it independently assess the corporate debtor’s solvency and other relevant factors?
Arguments Presented
For the Appellant
The appellant’s counsel, Mr. Aastik Dhingra, argued that the settlement offer made by the suspended director, though post-admission, is bona fide and pre-dates CoC formation. He relied on Glas Trust Company LLC v. Byju Raveendran (2025) 3 SCC 625 to assert that Regulation 30A(1)(a) permits withdrawal if the settlement is genuine and the CIRP has not progressed to the CoC stage. He emphasized that the IBC’s objective of promoting entrepreneurship requires flexibility to allow redemption before irreversible procedural steps are taken.
For the Respondent
The respondents, represented by Ms. Purva Kohli and others, did not oppose the withdrawal per se but highlighted that the IRP’s initial costs remain unpaid. They submitted that the Adjudicating Authority must ensure that the settlement does not prejudice other creditors and that the corporate debtor’s overall financial health is verified before withdrawal. They did not contest the applicability of Glas Trust but urged strict compliance with its procedural mandates.
The Court's Analysis
The NCLAT, per Justice N. Seshasayee, undertook a comprehensive interpretation of Regulation 30A(1)(a) and the jurisprudential evolution following Uttara Food & Feeds, Swiss Ribbons, and Glas Trust. The Court held that while the settlement between the debtor’s director and the petitioning creditor is a material circumstance, it cannot be the sole basis for withdrawal.
"The phrase 'consider all relevant factors' cannot be considered as a phrase without a purpose, or limited to only those facts which will go to the aid of the creditors."
The Court emphasized that once a CIRP is admitted, the proceeding assumes an in rem character, affecting all creditors. Therefore, the Adjudicating Authority must not merely rubber-stamp settlements but must evaluate whether the corporate debtor is solvent despite the default to the petitioning creditor. The Court rejected the notion that CIRP is merely a recovery mechanism, noting that the Code’s presumption of insolvency upon default is a procedural trigger, not a factual conclusion.
The judgment identified six illustrative factors that must be considered:
- Whether any financial creditor has classified the CD’s account as NPA and if more than one year has elapsed since such classification
- Whether the CD has been declared a wilful defaulter or its account declared fraudulent
- Whether any decree for recovery of money exists against the CD
- The list of creditors and status of defaults to other creditors
- Pending litigation affecting the CD’s solvency
- Evidence of solvency, creditworthiness, and the asset-debt ratio, including balance sheets for relevant years
The Court clarified that this list is not exhaustive but provides necessary objectivity. The Adjudicating Authority must weigh these factors alongside the views of other creditors, even if they object to withdrawal.
The Court also addressed the unpaid IRP fees, noting that while the IBC does not prescribe consequences for non-payment by the petitioning creditor, Rule 11 of the NCLT Rules grants inherent powers to the Adjudicating Authority to address such procedural defaults. It directed that processing of the Section 12A application shall commence only upon payment of the IRP’s initial cost.
The Verdict
The NCLAT dismissed the appeal but directed the appellant to submit the settlement offer to the IRP, who shall file an application under Section 12A IBC before the Adjudicating Authority. The Adjudicating Authority shall consider the application only after the IRP’s initial cost is paid in advance. The Authority must evaluate the settlement in light of the six illustrative factors enumerated in the judgment. If the Section 12A application fails, the appellant may revive this appeal. No costs were awarded.
What This Means For Similar Cases
Settlements Are Not Automatic Exit Routes
- Practitioners must now prepare comprehensive dossiers supporting settlement applications under Regulation 30A(1)(a), including balance sheets, creditor lists, and evidence of solvency
- Merely producing a settlement deed with the petitioning creditor is insufficient; the Adjudicating Authority will demand objective proof of the CD’s financial health
- Suspended directors must act promptly - delays beyond CoC formation will likely render Regulation 30A(1)(a) inapplicable
IRP Costs Are a Prerequisite for Processing
- Failure to pay the IRP’s initial remuneration will halt the Section 12A process, regardless of the settlement’s merits
- Petitioning creditors must be advised to settle IRP fees before filing settlement applications
- Adjudicating Authorities may invoke Rule 11 of the NCLT Rules to enforce payment or impose conditions
Solvency Assessment Is Now Central to CIRP Withdrawal
- The judgment shifts the focus from creditor consent to corporate viability
- Financial institutions and operational creditors must now anticipate that settlements may be approved even if they object, provided the CD’s balance sheet supports solvency
- Legal teams should advise clients to retain at least three years of audited balance sheets and financial statements to support potential settlement applications
