Revival of insolvency proceedings not contingent on revival clause in settlement: NCLAT

The NCLAT New Delhi Bench has held that insolvency proceedings can be revived even in the absence of a specific revival clause in a settlement agreement, if the respondent breaches the terms of settlement.

The case arose from a Section 9 IBC petition filed by Dnyaneshwar Shankar Unde, Proprietor of Swadarshan Dairy, against Shukla Dairy Pvt. Ltd. for a debt of ₹1.49 crore. During the pendency of the petition, the parties entered into a settlement, pursuant to which the Adjudicating Authority (NCLT) disposed of the matter with liberty to revive in case of failure of settlement. The appellant alleged that the respondent defaulted on the settlement terms and sought restoration of the proceedings.

The NCLT, however, dismissed the restoration application, noting that the MoU did not contain an explicit revival clause. Challenging this order, the appellant argued that the respondent had acted dishonestly by entering into the MoU to stall CIRP and then defaulting on payments, with ₹1.10 crore still outstanding.

The NCLAT found merit in the appellant’s contentions and held that the Adjudicating Authority had erred in dismissing the restoration plea, particularly since liberty to revive had already been granted at the time of disposal. It observed that the respondent could not be permitted to “blow hot and cold,” entering into a settlement to avoid CIRP and later reneging on its obligations.

Placing reliance on its earlier decision in Archangels Distributors Pvt. Ltd. vs. Ideal Financing Corporation Ltd., the Tribunal reaffirmed that revival of insolvency is permissible in such circumstances, even without a revival clause in the settlement.

Accordingly, the NCLAT allowed the appeal, set aside the impugned order, and restored the application.

Dnyaneshwar Shankar Unde, Proprietor of Swadarshan Dairy v. Shukla Dairy Pvt. Ltd. Company Appeal (AT) (Insolvency) No. 1269 of 2024