NCLAT Says It Cannot Allow Insolvency Appeal On Settlement, Corrects 'Inadvertent Error' In Earlier Order

The National Company Law Appellate Tribunal (NCLAT) at Delhi recently clarified that once insolvency proceedings have commenced, they cannot be brought to an end merely on the basis of a private settlement between parties and must follow the statutory process before the adjudicating authority.

A bench of Judicial Member Justice N. Seshasayee and Technical Member Arun Baroka clarified this while correcting an error in its earlier order.

“Therefore, even assuming that the applicant has made any concession before this Tribunal to allow the appeal, we may have to state with humility that we do not have the authority to do the same. The route to be adopted is the one prescribed under Section 12A of the IBC.”

The clarification arose in a case involving Mehul Harish Gosar, a partner of Parorch Developers LLP, and Athena Constructions Ltd., the financial creditor. Gosar had challenged the admission of the firm into the corporate insolvency resolution process before the Mumbai bench of the National Company Law Tribunal.

During the appeal, the parties informed the tribunal that the financial creditor's dues had been settled and requested that the admission order be set aside and the settlement be recorded.

Athena Constructions later pointed out that while the tribunal had set aside the insolvency admission and sent the matter back for consideration, it had also stated that the appeal was “allowed,” which did not reflect its reasoning.

It argued that the tribunal had neither examined the merits nor undertaken the process required to give effect to the settlement, and therefore the wording required correction.

The opposing side maintained that the appeal had been allowed based on the statement made before the tribunal regarding settlement.

“In view of this, the phrase 'the appeal is allowed' in para 7 of the order does not fit either with the law on the subject or with the facts. This inadvertent error is corrected as below.”

The tribunal agreed that the wording was incorrect and replaced it with “the appeal is closed,” while reiterating that the admission order stood set aside and the matter would be dealt with by the adjudicating authority in accordance with law.

It clarified that the parties remain free to pursue their settlement before the tribunal below, and that if the settlement does not go through, the appeal can be revived.