The National Company Law Appellate Tribunal (“NCLAT“) has clarified that restoration of a company petition for Corporate Insolvency Resolution Process cannot be denied on a mere technicality. Where a case is withdrawn based on consent terms or a settlement agreement that expressly provides for revival in case of default, the creditor’s right to restoration of the proceedings remains intact. In this case, a creditor had initially withdrawn its petition after the debtor agreed to a settlement with a payment schedule. When the debtor defaulted, the creditor sought restoration of the insolvency proceedings.
In 5MF &G Private Limited vs. BMI Wholesale Trading Private Limited [1], the order of the National Company Law Tribunal (“NCLT”) dismissing a restoration application was challenged before the NCLAT. The NCLT had taken the view that since its earlier withdrawal order did not expressly mention any liberty to revive the proceedings, the creditor could not seek restoration when the debtor defaulted on terms of the settlement agreement. This effectively meant that, despite the settlement terms providing for revival in case of non-payment, the creditor was left without recourse. The creditor, therefore, approached the NCLAT to assert its right to restoration under the consent terms.
The NCLAT observed that the withdrawal order was founded on consent terms executed between the parties, which clearly stipulated revival of the insolvency proceedings upon debtor’s default in adhering to the payment schedule. Since the withdrawal was based on settlement terms that clearly allowed revival in case of default, the creditor’s right to seek restoration of the insolvency proceedings was automatically preserved. Accordingly, the NCLT’s hyper-technical approach in dismissing the restoration application was held to be a manifest illegality.
The NCLAT reiterated that where consent terms containing a revival clause are placed on record at the time of withdrawal, subsequent rejection of restoration upon default is erroneous. Even if the withdrawal order itself does not expressly record liberty to revive, the creditor shall be entitled to restoration of the insolvency proceedings based on the consent terms and the NCLAT set aside the NCLT’s order.
This ruling highlights the importance of how settlements are documented in insolvency matters. When consent terms clearly provide for revival and are placed on record before the tribunal, creditors retain the right to restore proceedings if payments are not honoured. This serves as an effective safeguard for creditors who may otherwise be left without recourse after agreeing to withdraw a case.
For businesses, the key takeaway is straightforward: while settlements can save time and resources, the settlement agreement must be carefully drafted with precise timelines and clear remedies. It is important to include a revival clause in case of default and ensure that the consent term/settlement agreement is formally placed on record before the tribunal. This provides a strong safety net if the other party fails to honour its obligations, protecting creditors from being left without recourse.
For more information about the aforesaid case or its implications you may write to us at: solutions@bridgeheadlaw.com.
Ranit Basu | Partner
Maitri Malde | Senior Associate
Harshada Nirmal | Associate
Views expressed are personal to the authors and do not constitute as legal advice.
[1] Company Appeal (AT) (Insolvency) No. 521 of 2023: 5MF &G Private Limited vs. BMI Wholesale Trading Private Limited.