The National Company Law Appellate Tribunal has reaffirmed that a court-recorded settlement in insolvency proceedings is not a mere negotiation but a binding judicial instrument. Where parties secure the withdrawal of a Corporate Insolvency Resolution Process (CIRP) through consent terms, subsequent material default triggers an automatic right to revive the original proceedings, provided the liberty to do so was expressly reserved.
Background & Facts
The Dispute
Axis Bank Ltd. (Financial Creditor) extended credit facilities to M/s. Chintamani's Jewellery Arcade Private Limited (Corporate Debtor), which defaulted on repayments. The Financial Creditor initiated Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016, by filing Company Petition [CP (IBC) No. 508/MB/2023] before the National Company Law Tribunal, Mumbai, on 28.04.2023.
Key Facts
- The Adjudicating Authority admitted the Section 7 petition on 23.02.2024 and appointed Mr. Prashant Jain as Interim Resolution Professional (IRP).
- The Financial Creditor filed a formal financial claim of Rs. 11,86,51,305.50 with the IRP.
- Respondent No. 2, Mr. Chintamani Kaigaonkar, suspended director of the Corporate Debtor, filed an appeal before NCLAT as Company Appeal (AT) (Ins.) No. 463 of 2024, challenging the admission order.
- During pendency of the appeal, the Corporate Debtor approached the Financial Creditor for settlement.
- On 17.04.2024, an interim settlement letter was issued, which was formalized into Consent Terms dated 27.04.2024.
- Under the Consent Terms, the Corporate Debtor agreed to:
- Pay Rs. 1.50 Crores upfront before execution
- Repay the remaining Working Capital Term Loan in 13 monthly installments
- Service interest at 3-month Repo Rate + 4.30% p.a. (effective 10.80% p.a.)
- Pay monthly interest on both term loan and demand cash credit facilities
- Clause 8(b) of the Consent Terms explicitly provided: "The Financial Creditor shall be entitled to revive the said Company Petition No. 508/IB (MB) 2023 in the event of any default of the present letter on the part of the Borrower."
- On 27.04.2024, the Consent Terms were placed on record before NCLAT.
- On 09.05.2024, NCLAT disposed of the appeal, set aside the NCLT’s admission order, and granted liberty to the Financial Creditor to revive the appeal "if any occasion arises."
- The Company Petition before NCLT was formally withdrawn on 03.06.2024.
Procedural History
- 28.04.2023: Section 7 application filed by Axis Bank Ltd. before NCLT Mumbai
- 23.02.2024: NCLT Mumbai admitted Section 7 petition; IRP appointed
- 09.05.2024: NCLAT disposed of appeal (CA(AT)(Ins.) No. 463 of 2024) upon Consent Terms; liberty to revive granted
- 03.06.2024: NCLT Mumbai formally withdrew CP (IB) No. 508/MB/2023
- July - December 2024: Corporate Debtor made partial payments totaling Rs. 0.70 Crores against Rs. 3.30 Crores due
- 10.07.2024: One installment of Rs. 0.55 Crores paid in eight delayed tranches, concluding on 14.11.2024
- September - December 2024: No payments made; undisputed default of Rs. 2.60 Crores principal + accrued interest
- 17.12.2024: Axis Bank issued Revocation Letter (Ref: AXISB/SAG/PRK/2024-25/411) revoking restructuring
- 06.03.2025: Respondent No. 1 informed Bank of proposed sale of residential property in Pune
- 07.03.2025: Bank accepted proposal and directed deposit of Rs. 15,00,000
- 18.03.2025: Bank issued Provisional NOC for property sale
- 17.03.2025: Purchaser paid Rs. 10,00,000 as earnest money
- 28.03.2025: Bank withdrew NOC and forfeited Rs. 15,00,000
- 09.01.2025: Restoration Application filed under Rule 11 of NCLAT Rules, 2016
Relief Sought
The Financial Creditor seeks:
- Recall of NCLAT’s order dated 09.05.2024
- Restoration of Company Appeal (AT) (Ins.) No. 463 of 2024
- Revival of CIRP proceedings under CP (IB) No. 508/MB/2023
- No costs claimed
The Legal Issue
The central question was whether a financial creditor may revive a dismissed insolvency appeal under a court-recorded consent term when the corporate debtor commits a material, continuing default, and whether subsequent attempts to arrange funds through third-party transactions can override the clear terms of that settlement.
Arguments Presented
For the Appellant/Petitioner
The Financial Creditor argued that the Respondents committed a deliberate, substantial, and continuing breach of the Consent Terms dated 27.04.2024. Out of Rs. 3.30 Crores due between July - December 2024, only Rs. 0.70 Crores was paid, and even those payments were delayed and fragmented. Clause 8(b) of the Consent Terms explicitly granted the right to revive the CIRP upon default. The NCLAT’s order dated 09.05.2024 expressly reserved liberty to revive the appeal, making the restoration an automatic consequence of breach. The Respondents’ conduct was a tactical maneuver to stall CIRP, secure vacation of the admission order, and evade liability. The subsequent sale negotiations in March 2025 were irrelevant, as defaults had already occurred and were undisputed.
For the Respondent/State
The Corporate Debtor contended that the defaults were not willful but due to financial hardship. It emphasized its efforts to liquidate the debt through the proposed sale of a residential property in Pune, including payment of Rs. 15,00,000 as earnest money and receipt of a Provisional NOC from the Bank. The Bank’s acceptance of partial payments and issuance of NOC demonstrated ongoing willingness to settle. The IBC’s objective is resolution, not punitive recovery, and revival of CIRP would defeat this purpose. The delay was attributable to a third-party purchaser, not the Debtor’s malafide intent.
The Court's Analysis
The Tribunal emphasized that the disposal of the appeal was not unconditional but expressly contingent upon compliance with the Consent Terms. The order dated 09.05.2024 was not a final adjudication on merits but a procedural closure predicated on the Debtor’s performance. The liberty clause was not a mere formality but a critical safeguard to prevent abuse of settlement mechanisms.
"A settlement recorded before a judicial forum cannot be permitted to remain contingent upon future possibilities, proposed transactions or anticipated receipts. Once the settlement formed the very basis for setting aside the CIRP admission order, strict compliance with the terms thereof became obligatory."
The Tribunal rejected the argument that subsequent efforts to sell property could excuse prior defaults. The obligations under the Consent Terms were personal and absolute. The issuance of a Provisional NOC and acceptance of Rs. 15,00,000 did not constitute waiver of rights or condonation of default. The Bank’s conduct reflected willingness to explore alternatives, not abandonment of contractual rights.
The Tribunal further held that revival of the appeal was not a shift from resolution to recovery, but enforcement of a judicially sanctioned settlement. The IBC’s purpose of value maximization does not override the sanctity of court-recorded agreements. The breach was neither technical nor minor - it was substantial, continuing, and undisputed.
The Tribunal noted that the Respondents did not dispute the default figures or the terms of the Consent Terms. Their defense rested entirely on extraneous circumstances, which could not override the binding nature of the agreement.
The Verdict
The Restoration Application is allowed. The order dated 09.05.2024 disposing of Company Appeal (AT) (Ins.) No. 463 of 2024 is recalled. The appeal is restored to its original number. The Corporate Insolvency Resolution Process under CP (IB) No. 508/MB/2023, previously withdrawn on 03.06.2024, is revived. No costs are awarded.
What This Means For Similar Cases
Settlement Terms Are Judicially Binding, Not Negotiable Post-Breach
- Practitioners must treat consent terms recorded before NCLAT or NCLT as binding judicial instruments, not private agreements
- Any material breach - whether partial payment, delay, or non-payment - triggers automatic revival rights if explicitly reserved
- Post-default negotiations or third-party transactions cannot extinguish pre-existing contractual or judicial rights
Liberty Clauses Are Enforceable, Not Discretionary
- Courts will enforce liberty clauses strictly; their purpose is to deter settlement abuse
- Financial creditors need not prove malafide intent - only material breach and existence of a reserved revival right
- The burden shifts to the debtor to prove full compliance, not to justify non-compliance
IBC’s Resolution Objective Does Not Override Contractual Compliance
-
The IBC’s goal of value maximization cannot be invoked to excuse clear default under court-recorded settlements
-
Settlements are tools for resolution, not shields for evasion
-
Revival of CIRP after breach is not punitive but restorative of the original legal position
-
Always draft consent terms with explicit revival clauses
-
Document all defaults with payment schedules and correspondence
-
Do not assume that partial payments or goodwill gestures waive rights
-
Revival applications under Rule 11 are viable when breach is material and liberty is reserved
