Application U/S 7 Of IBC Withdrawn After Settlement Agreement Can Be Revived If Settlement Terms Are Breached By Corporate Debtor: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) has held that the right of the financial creditor to seek revival of the original application filed under Section 7 of the Code cannot be taken away merely because a settlement agreement was reached, if the corporate debtor failed to comply with the terms of the settlement agreement. The present appeal has been filed against an order passed by the Adjudicating Authority by which it allowed the revival of the Application filed under section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) by the Anchor Point Developers Pvt. Ltd. to initiate Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. The Appellant submitted that the impugned order restoring the First CP was erroneous since the Financial Creditor had withdrawn the First CP unconditionally following an out of court settlement executed between the Corporate Debtor and Financial Creditor. It was further contended that once the Settlement Agreement had been entered into, the original debt no longer subsisted and hence there was no valid ground for filing the revival application. In reply, the Respondent submitted that clauses of the Settlement Agreement clearly contemplated that the parties had agreed to forbear from initiating any legal proceedings subject to compliance of obligations stipulated in the Settlement Agreement. The Tribunal noted that while allowing the withdrawal application, the Adjudicating Authority waived the requirement of filing the settlement terms despite being informed of the settlement agreement. Therefore, the fact that the settlement terms were brought to the notice of the Adjudicating Authority remains undisputed. The Tribunal perused the terms of the Settlement Agreement and observed that clause 6 of the Agreement clearly bars the continuation or initiation of the legal proceedings only when the terms of the agreement are complied with. However, in the present case, the corporate debtor failed to fulfill the obligations which have been impliedly admitted by it in its pleadings. It further observed that the Adjudicating Authority was aware of the settlement agreement when the withdrawal application was allowed and had therefore waived the need for formally filing it. In the facts and circumstances, since the corporate debtor admitted the breach of the conditions of the agreement, the financial creditor was entitled to revive the original petition filed under section 7 of the Code. It held that if this right of the financial creditor is taken away, it would unfairly prejudice the financial creditor and unjustly benefit the corporate debtor. On top of that the Adjudicating Authority has acted in a fair manner by giving an opportunity to the corporate debtor to contest the restoration application. Accordingly, the present appeal was dismissed. Case Title:Transcon Skycity Private Limited Versus Anchor Point Developers Private Limited Case Number: Company Appeal (AT) (Insolvency) No. 631 of 2025 Judgment Date: 09/07/2025 For Appellant : Mr. Ravi Prakash, Sr. Advocate with Mr. Aditya Dewan, Ms. Himangi Kapoor, Advocates. For Respondent : Mr. Ramji Srinivasan, Sr. Advocate with Mr. Atul S. Mathur, Mr. Prabal Mehrotra, Ms. Shefali Munde, Mr. Umang Katariya, Mr. Arjun Bhatia, Advocates Click Here To Read/Download The Order

Application U/S 7 Of IBC Withdrawn After Settlement Agreement Can Be Revived If Settlement Terms Are Breached By Corporate Debtor: NCLAT

Mohd Malik Chauhan

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