CIRP Cannot Be Sustained If Default Is Cured Before Admission Of Section 9 Application: NCLAT New Delhi

The National Company Law Appellate Tribunal, Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member – Technical), has ruled that the application u/s 9 of the IBC, 2016, cannot be sustained if the operational debt is settled before the date of admission. Background of the Case Section 9 IBC application, seeking CIRP of the corporate debtor, was filed by the operational creditor. During the pendency of proceedings, the operational creditor and the corporate debtor entered into a settlement by way of an agreement dated June 28, 2025. Information with regard to the settlement was not filed with the adjudicating authority, thus, the adjudicating authority admitted the application on June 30, 2025, and ordered the initiation of the CIRP of the corporate debtor. Aggrieved by the order of NCLAT, the corporate debtor preferred an appeal before the NCLAT. It argued that since the debt had been settled before the admission date, the CIRP should be set aside. The NCLAT stayed the CIRP on July 07, 2025, and asked the operational creditor to file an affidavit confirming the settlement. Affidavit of the Operational Creditor It submitted that during the pendency of the Section 9 petition, the corporate debtor approached the operational creditor for the settlement of the dues. However, the settlement between them was not finalized, and the NCLT reserved its order on May 06, 2025. Subsequently, the settlement talks between them again started, and the matter was settled by the agreement dated June 28, 2025. However, immediately after that, on June 30, 2025, i.e., on the first day after summer vacations, the petition was listed for the pronouncement, due to which the parties could not inform the NCLT about their settlement agreement, and the NCLT pronounced the order. The operational creditor submitted that all its claims had been settled and there was no subsisting default on the date of initiation of the CIRP. Observations of the NCLAT The tribunal observed that the settlement between the parties was executed prior to the date of admission. Also, the operational creditor acknowledged that the default no longer existed on the date of admission of the application. The bench set aside the CIRP while upholding that the CIRP cannot be sustained if the default is cured before the admission of the section 9 petition. The bench observed that in view of the settlement between the parties on 28.06.2025, prior to order date 30.06.2025, there was no debt existing for admission of the Section 9 application hence we close the CIRP. Case Title: Basant Kumar Upadhyay v. Kuber Shree Construction Company & Anr. Case Number: Company Appeal (AT) (Ins) No. 957/2025 For Appellant: Mr. Abhijeet Sinha, Ld. Sr. Advocate with Mr. Rishi Kumar Awasthi, Mr. Ishaan Raj, Ms. Heena Kochar, Mr. Anuj Tiwari, Ms. Kaanchi Ahuja, and Mr. Vaibhav Vats, Advocates For Respondent: Mr. Akshay Sharma, Counsel for Respondent No. 1 (Operational Creditor) Mr. Atul Bhatia, Counsel for Respondent No. 2 (IRP), along with Mr. Narender Kumar Sharma, IRP Bench: Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member – Technical) Judgment Date: 11/07/2025 Click Here To Read/Download The Order

CIRP Cannot Be Sustained If Default Is Cured Before Admission Of Section 9 Application: NCLAT New Delhi

Mohd.Rehan Ali

Tags