In a rare move, NCLAT Principal Bench orders closure of insolvency proceedings despite procedural non-compliance under Section 12A of IBC, emphasizing settlement of creditor claims and resolution of CIRP costs within fixed timelines.
New Delhi, 7 September 2026: The National Company Law Appellate Tribunal (NCLAT), Principal Bench, has pronounced a significant judgment in the matter of Deepak Modi v. Shalfeyo Industries Private Limited, closing the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, Shalfeyo Industries Private Limited. The decision highlights the Tribunal's pragmatic approach in balancing procedural mandates under the Insolvency and Bankruptcy Code, 2016 (IBC) with the commercial realities of resolution and settlement.
Background:
The CIRP against Shalfeyo Industries was initiated on 16 August 2022 by Prime Impex, the Operational Creditor, over a relatively small claim of approximately Rs. 11.90 lakhs. Axis Bank Limited was the sole Financial Creditor with a larger claim exceeding Rs. 1 crore. During the CIRP, the Resolution Professional (RP), Mr. Umang Jain, was appointed, and the Committee of Creditors (CoC) was formed with Axis Bank as the sole member.
The proceedings were marked by complexities including reconstitution of the CoC, liquidation resolution, and repeated disputes over claims and CIRP costs. Notably, the Financial Creditor's dues were fully settled by the Appellant, Mr. Deepak Modi, who also offered to pay the full claim of the Operational Creditor. However, procedural hurdles, especially non-compliance with Form FA and the inability to furnish a bank guarantee for CIRP costs as required under Regulation 30A of the CIRP Regulations, impeded withdrawal of the CIRP under Section 12A.
Key Legal Contentions and Tribunal's Analysis:
The Adjudicating Authority had earlier dismissed the withdrawal application on the grounds that the application was filed by the suspended director (instead of the RP), lacked CoC approval, and did not comply with procedural requirements including a bank guarantee for CIRP costs.
However, the NCLAT took cognizance of subsequent developments where the Financial Creditor's claim was fully paid, the Operational Creditor agreed to accept Rs. 18 lakhs in full settlement (enhanced from an earlier Rs. 17 lakhs offer), and the Appellant undertook to pay CIRP costs as determined by the Adjudicating Authority. The Tribunal noted that the CIRP had reached a procedural and substantive stalemate with no viable resolution plan in sight, and continuation of the CIRP would only result in wastage of resources.
Importantly, the Tribunal emphasized that while compliance with Section 12A and Regulation 30A is ordinarily mandatory, exceptional circumstances such as full settlement of creditor claims and an ongoing dispute over CIRP costs may render such procedural compliance impractical. The RP's legitimate interest in recovery of CIRP costs was acknowledged, with a clear directive for their adjudication within four weeks.
Directions and Outcome:
The NCLAT disposed of the appeal with the following directions:
1. The CIRP proceedings against Shalfeyo Industries Pvt. Ltd. stand closed subject to the payment of Rs. 18 lakhs by the Appellant to Prime Impex within two weeks as full and final settlement.
2. The Adjudicating Authority is directed to determine the CIRP costs in the pending application within four weeks, considering claims from the RP and submissions from the Appellant.
3. The Appellant shall pay the determined CIRP costs within two weeks from the order of the Adjudicating Authority.
The Tribunal also closed all pending interlocutory applications and refrained from imposing any costs.
Significance:
This judgment is a notable example of judicial pragmatism in insolvency jurisprudence, balancing strict procedural norms with the commercial objective of efficiently resolving insolvency. The NCLAT's decision underscores that the continuation of CIRP must serve a meaningful purpose aligned with the Code's objectives, and where a stalemate arises despite creditor settlements, closure of CIRP is warranted to conserve judicial and economic resources.
The ruling also reiterates the importance of CIRP cost determination and the Resolution Professional's right to recover legitimate expenses, ensuring that cost considerations do not hinder amicable closure of insolvency proceedings.
Legal practitioners and stakeholders in insolvency matters may view this judgment as guidance on the interplay between procedural compliance under Section 12A of the IBC, creditor settlements, and CIRP cost disputes.
Bottom Line:
Corporate Insolvency Resolution Process (CIRP) under Section 12A of the Insolvency and Bankruptcy Code (IBC), 2016 - Appeal challenging the rejection of withdrawal application - CIRP proceedings closed in view of settlement and procedural stalemate, subject to conditions for payment of claims and CIRP costs.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016, Sections 12A and 33(2) and CIRP Regulations, 2016, Regulation 30A
