NCLAT Closes Insolvency Process Despite Failure Of Statutory Withdrawal Mechanism

The National Company Law Appellate Tribunal at New Delhi, has closed the insolvency proceedings against Shalfeyo Industries Private Limited.

It held that although the statutory mechanism for withdrawing the proceedings under Section 12A could not be completed, keeping the Corporate Insolvency Resolution Process alive would serve no meaningful purpose.

A bench of Judicial Member Justice Mohammad Faiz Alam Khan and Technical Members Arun Baroka and Indevar Pandey observed:

“We are of the view that, the company is a viable entity and keeping the CIRP alive merely because the earlier statutory withdrawal mechanism could not be completed, would be huge wastage of precious resources in terms of time of Tribunals which could be productively used to dispose other important proceedings.”

The appeal was filed by suspended director Deepak Modi against the Jaipur Bench of the National Company Law Tribunal's refusal to permit withdrawal of the CIRP.

The CIRP was initiated on August 16, 2022 at the instance of Prime Impex, whose operational debt was approximately ₹111.90 lakh. Axis Bank was the sole financial creditor and had filed a claim of approximately Rs. 1.04 crore.

During the CIRP, Modi discharged Axis Bank's entire claim. The bank subsequently stated that it had no subsisting financial claim against the Corporate Debtor.

Modi also sought to settle Prime Impex's claim. In an affidavit dated 29 July 2026, he undertook to pay ₹117 lakh to Prime Impex as full and final settlement and to bear the CIRP costs as determined by the NCLT.

At the hearing on 5 August 2026, Modi increased the offer to ₹118 lakh. Prime Impex agreed to accept the amount as full and final settlement.

The NCLAT noted that no resolution plan was available and that the CoC had resolved to proceed towards liquidation. It also noted that several settlement efforts had been made during the CIRP.

The Tribunal acknowledged that the original Section 12A application had not complied with the prescribed procedure. It noted that the application had to be made by the creditor who initiated the CIRP, in Form FA, along with a bank guarantee equivalent to the CIRP costs.

However, the CIRP costs had not been crystallised, so the amount of the required bank guarantee could not be determined. Prime Impex was also unwilling to provide the bank guarantee, making the statutory withdrawal mechanism impracticable in the circumstances.

The NCLAT held that Modi's undertaking to pay the CIRP costs as determined by the NCLT protected the Resolution Professional's legitimate interests. Continuing the CIRP merely because the statutory withdrawal mechanism could not be completed would instead waste judicial resources.

Accordingly, the Tribunal closed the CIRP, directing Modi to pay ₹118 lakh to Prime Impex within two weeks. The NCLT was directed to determine the CIRP costs within four weeks, after which Modi must pay the amount determined.