Factual Background 

In this Case IDBI Trusteeship Services Ltd. v. Nirmal Lifestyle Ltd Before the Adjudication Authority, the appellant-Financial Creditor filed a Section 7 Insolvency and Bankruptcy Code, 2016 (IBC) application, alleging a default and the execution of a consent term between the appellant and the respondent. The suspended director of the Corporate Debtor submitted an application under Section 12-A IBC for the withdrawal of the Section 7 IBC application Petition based on the consent terms, and this application was approved by a decision dated 09-02-2022. The appellant filed a request with the Adjudication Authority for the resurrection of the CIRP proceedings against the Corporate Debtor in the Company Petition after the respondent defaulted on payment following the withdrawal of the Company Petition. By ruling dated December 21, 2022, the Adjudication Authority rejected the appellant’s request and noted that neither in the IBC is there a particular provision for the reopening of the Company Petition when it is withdrawn following settlement. To contest the contested order made by the adjudication authority, the appellant filed the current appeal with the NCLAT.

Parties Contentions 

The appellant argued that the consent term explicitly stated that the settlement would be cancelled and that the company petition could be revived in the event of default and that the adjudicating authority had not granted any freedom on account of the settlement in the order dated February 9, 2022.

The respondent argued that the Adjudicating Authority wasn’t wrong in denying the request for the company petition’s resurrection.

Analysis of NCLAT Verdict

The NCLAT Division Bench, composed of Justice Ashok Bhushan and Justice Barun Mitra Technical Member, has ruled that the CIRP process against the Corporate Debtor can be reinstated if the parties’ agreement terms contain a revival clause in the event that the Corporate Debtor commits any default.

The NCLAT noted that the Adjudicating Authority erred in rejecting the appellant’s preferred revival motion because the consent condition expressly contains a resurrection clause in the event of default. The NCLAT further noted that since the consent term served as the foundation for the aforementioned ruling and the consent terms included such a remedy, there was no need for particular liberty in the adjudicating authority’s order.

The NCLAT commented that because the consent terms were a component of the Section 12-A IBC application, the adjudicating authority had acknowledged their presence in its order. According to the NCLAT, rejecting a revival would deny the Financial Creditor its legal remedy when the consent term itself contains a resurrection clause in the case of default and default having been committed by the Corporate Debtor. Given the explicit provisions of the settlement that served as the foundation for the withdrawal of the Company Petition, the Order’s omission of specific liberty is of no consequence. As part of admitting the current appeal, the NCLAT invalidated the contested ruling made by the adjudicating authority and declared that the company petition had been resurrected before it.