Financial Creditors Cannot Be Forced To Accept OTS From Borrowers Who Repeatedly Default On Settlements: NCLAT

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has ruled that financial creditors cannot be compelled to accept a one-time settlement (OTS) proposal from a borrower who has repeatedly failed to honour earlier settlement commitments.

The bench of Judicial Member Justice Mohd Faiz Alam Khan and Technical Member Naresh Salecha observed,

“Moreover, the financial creditor could not be compelled to accept the OTS proposed by the Appellant, more so when, on earlier occasions, the Appellant has not honoured the OTS and has not deposited the 10% amount of the OTS within the time stipulated.”

The ruling came in an appeal filed by Sudarshan Aithal K, suspended director of Distribution Logistics Infrastructure Private Limited, challenging the Mumbai bench of the National Company Law Tribunal's decision to admit insolvency proceedings against the company.

The company, formerly known as Vikram Logistics Limited, had borrowed money from a consortium of lenders for its container train project. After defaulting on repayments, it approached the lenders with a settlement proposal of ₹580 crore in January 2025. The amount was subsequently increased to ₹590 crore.

The consortium, led by Bank of Baroda, conditionally accepted the revised proposal and asked the company to deposit ₹59 crore as an upfront payment by October 7, 2025, before the lenders could seek internal approvals. However, the company failed to make the deposit. The lenders rejected and returned the OTS proposal in April 2026.

Meanwhile, the Bank of India had approached the NCLT seeking insolvency proceedings against the company. The NCLT admitted the application in May 2026.

During the appeal, the lenders assigned their debt to JM Financial Asset Reconstruction Company Limited for ₹621 crore. The suspended director argued that the company had offered ₹631 crore to settle the debt, which was higher than the assignment amount. He also pointed out that the insolvency proceedings would affect the company's 120 employees and expressed willingness to pay the settlement amount.

The lenders opposed the appeal, pointing out that the company had repeatedly failed to honour its commitments. Apart from failing to deposit the initial ₹59 crore, it had also failed to fulfil its subsequent commitment to pay ₹631 crore in two instalments during the appeal.

The NCLAT noted that the company had not disputed the existence of the financial debt or the default. It also observed that the company had failed to honour its commitment to deposit 50% of the ₹631 crore offer by July 9, 2026, and the remaining amount by July 20, despite the tribunal directing it to make the payments.

The tribunal held that financial creditors could not be compelled to accept another settlement proposal after the borrower repeatedly failed to honour earlier commitments. It upheld the NCLT's decision to admit insolvency proceedings and dismissed the appeal.