Revival of Section 9 IBC Petition Permissible When Settlement Terms Provide for Restoration, Holds NCLAT
- REEDLAW
- Aug 29
- 3 min read
Updated: Sep 1
REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT) clarified that the revival of a Section 9 IBC petition is legally permissible if the settlement agreement explicitly contains a clause allowing restoration upon default. The decision underscores the enforceability of settlement terms and their impact on insolvency proceedings.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain and Justice Mohammad Faiz Alam Khan (Judicial Members) and Mr. Indevar Pandey (Technical Member), while adjudicating a Company Appeal, held that the revival of a Section 9 IBC petition is permissible when a settlement agreement expressly provides for restoration upon default. The Tribunal emphasised that the contractual terms governing settlement between parties have binding force and must be given effect, particularly when they reserve the right to revive proceedings in the event of non-compliance.
The National Company Law Appellate Tribunal (NCLAT), through Justice Mohd. Faiz Alam Khan allowed an appeal filed under Section 61(1) of the Insolvency and Bankruptcy Code, 2016, challenging the order of the National Company Law Tribunal (NCLT), Mumbai Bench, dated 21.02.2023. The impugned order had dismissed a restoration application filed by the appellant seeking revival of Company Petition No. 696 of 2021. The respondent was duly served but did not appear and was proceeded ex parte.
The dispute arose from a supply arrangement between the appellant and the respondent in 2017, under which garments were supplied against purchase orders and invoices. Despite initial payments, the respondent defaulted on clearing outstanding invoices, resulting in the appellant issuing a demand notice on 23.12.2020 for an operational debt of ₹4.14 crore, which included principal and interest. On non-payment, the appellant filed a petition under Section 9 of the Code before the NCLT.
During the pendency of the petition, the parties entered into a settlement on 04.04.2022, wherein the respondent agreed to pay ₹3.10 crore in full and final settlement, including an immediate payment of ₹10 lakh and the balance through 20 instalments. The consent terms contained a specific clause (12.3) allowing revival of the petition upon default by the respondent. Acting on this settlement, the appellant withdrew the petition through a memo dated 11.04.2022, and the NCLT dismissed the petition as withdrawn, taking the consent terms on record. However, the respondent defaulted on the agreed payment schedule, prompting the appellant to seek restoration in terms of the consent agreement.
The NCLT rejected the restoration application on the ground that the withdrawal order did not expressly grant liberty to revive the petition. The NCLAT held this approach to be erroneous, observing that the withdrawal was not a simpliciter withdrawal but based on consent terms, which were taken on record and included a revival clause. It relied on its earlier judgments, including IDBI Trusteeship Services Limited v. Nirmal Lifestyle Limited, REEDLAW 2023 NCLAT Del 05537 and Finsbury Global FZE v. Uttam Sucrotech International Pvt. Ltd., to reiterate that where settlement terms recorded by the tribunal expressly permit revival on default, such right cannot be denied.
The NCLAT concluded that the adjudicating authority committed a manifest illegality by dismissing the restoration application on a hyper-technical ground. It allowed the appeal, set aside the impugned order, and restored the original company petition to be decided by the NCLT in accordance with law. No order was passed as to costs.
Mr. Atharv Gupta, Advocate, represented the Appellant.
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