Tribunal Denies Direct Appeal to Set Aside Insolvency Admission Despite Settlement, Emphasizes Compliance with Section 12A Procedures
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) Principal Bench in New Delhi reiterated the importance of adhering to statutory procedures under the Insolvency and Bankruptcy Code (IBC) for withdrawal of an admitted Corporate Insolvency Resolution Process (CIRP) application. The case, titled Vijaybhai Dhanjibhai Detroja v. Vidres India Ceramics Private Limited, involved an appeal to set aside an order admitting a Section 9 application due to a post-admission settlement.
The appeal, filed by Mr. Vijaybhai Dhanjibhai Detroja, a shareholder and suspended director of Sanford Vitrified Pvt. Ltd., challenged the National Company Law Tribunal (NCLT) Ahmedabad Bench's decision to admit a CIRP against the corporate debtor. This admission was based on an operational debt claim by Vidres India Ceramics Pvt. Ltd., amounting to ?2,26,40,900. During the appellate proceedings, the parties reached a settlement agreement on September 12, 2026, acknowledging the remaining payable amount as ?1,13,04,399.
Despite the settlement, the NCLAT, comprising Justice Mohammad Faiz Alam Khan and Mr. Naresh Salecha, declined the appellant's request to directly annul the admission order. The tribunal emphasized that once a CIRP is initiated, any withdrawal must comply with the amended Section 12A of the IBC, which mandates an application by the resolution professional with a 90% voting share approval from the Committee of Creditors (CoC).
The bench cited the recent amendment to Section 12A, which has tightened the criteria for withdrawal of insolvency proceedings, prohibiting such actions before the CoC's constitution or after issuing the first invitation for resolution plans. The NCLAT highlighted that the mere absence of a constituted CoC does not permit bypassing this statutory mechanism.
In light of these provisions, the tribunal directed the Interim Resolution Professional (IRP) to proceed with an application to the Adjudicating Authority under Section 12A, placing the settlement agreement and the operational creditor's consent on record. The NCLAT urged the NCLT to expedite the consideration of this application, preferably within 15 days, taking into account the settlement's post-admission nature and the current CIRP status.
This judgment underscores the judiciary's commitment to upholding the integrity of the insolvency resolution framework, ensuring that even consensual settlements adhere to the statutory processes established by the IBC.
Bottom Line :
Insolvency and Bankruptcy Code, 2016 - Post-admission settlement in Section 9 proceedings - NCLAT cannot directly set aside admission order in exercise of Rule 11 of NCLAT Rules, 2016 when CIRP has already commenced - After 2026 amendment to Section 12A, withdrawal of admitted application must follow statutory mechanism through Resolution Professional before Adjudicating Authority - Even where CoC is not yet constituted and Operational Creditor consents to settlement, settlement has to be placed before NCLT under Section 12A.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 9, 12A, 61; National Company Law Appellate Tribunal Rules, 2016 Rule 11.
