In S.N. Global Minerals LLP v. Aksa Paper Mills Private Limited, the Hon’ble National Company Law Tribunal, Ahmedabad Bench held that revival of insolvency proceedings upon breach of a settlement recognised by a judicial order does not amount to using the insolvency process as a recovery mechanism but merely restores the legal consequence that had already been adjudicated.
The dispute arose from an insolvency application filed by the operational creditor against the corporate debtor for non-payment of operational dues. During the pendency of the proceedings, the parties entered into a settlement agreement under which the corporate debtor agreed to pay a total amount of ₹2,69,38,653 in installments.
In view of the settlement, the National Company Law Appellate Tribunal had set aside the earlier admission of the insolvency petition while granting liberty to the creditor to revive the proceedings in the event of breach of the settlement terms.
The operational creditor subsequently approached the Hon’ble NCLT seeking revival of the insolvency proceedings on the ground that the corporate debtor had failed to honour the settlement. It was contended that while a substantial portion of the settlement amount had been paid, an amount of ₹39,38,653 remained outstanding.
The corporate debtor opposed the application and argued that insolvency proceedings cannot be used as a mechanism for recovery of money and that once the parties had entered into a settlement and substantial payments had been accepted, revival of the insolvency proceedings was not maintainable.
The Hon’ble NCLT examined the legal position and made the following observations:
Where a settlement recorded in a judicial order is breached, revival of insolvency proceedings does not amount to initiating a fresh recovery action.
Such revival merely restores the legal consequence of an earlier adjudicated insolvency proceeding.
Acceptance of partial payments under a settlement does not prevent the creditor from seeking revival of proceedings where the settlement itself contemplates restoration upon default.
A corporate debtor cannot avoid insolvency proceedings after benefiting from a settlement and subsequently failing to honour its obligations.
Accordingly, the Hon’ble NCLT Ahmedabad Bench allowed the application for revival and restored the insolvency proceedings against the corporate debtor. The Tribunal also directed the operational creditor to deposit ₹2,00,000 towards the initial insolvency resolution process expenses.
The judgment reiterates that breach of a settlement recorded by a judicial order can justify revival of insolvency proceedings and such revival does not convert the insolvency framework into a recovery mechanism.
