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NCLAT Closes Insolvency Process Against Shalfeyo Industries Despite Section 12A Compliance Failure
In a pragmatic ruling, the has closed the of , even though the under could not be fully complied with.
The Tribunal held that keeping the process alive would be a
"huge wastage of precious resources"
when all creditor claims had been settled or offered for settlement.
The Stalemate: A Small Debt Sparks a Protracted CIRP
The case began when , an , initiated insolvency proceedings against Shalfeyo Industries in over a modest operational debt of approximately ₹11.90 lakhs. , the sole , filed a claim of around ₹1.04 crore. The CIRP quickly reached an impasse: the corporate debtor had no meaningful assets, the resolved to pursue , and no emerged.
Over the next two years, suspended director Deepak Modi made multiple efforts to settle. He fully discharged ’s claim—paying ₹1.28 crore against the ₹1.04 crore owed—and offered to pay the entire operational debt. However, the withdrawal process hit a procedural wall.
Why the Failed
Section 12A of the IBC allows withdrawal of CIRP with the approval of 90% of the CoC, but the procedure under requires the applicant (here, ) to file along with a covering the . The had not been crystallised, and was unwilling to provide the . The , relying on the ’s decision in , dismissed Modi’s withdrawal application in , citing non-compliance.
Appellant’s Breaks the Deadlock
On appeal, Modi filed a formal on , to pay ₹17 lakhs to as full settlement and to bear all determined by the NCLT. During the hearing on , he increased the offer to ₹18 lakhs, which accepted. confirmed it had no subsisting claim.
The NCLAT bench—comprising Justice Mohammad Faiz Alam Khan (Judicial Member), Arun Baroka (Technical Member), and Indevar Pandey (Technical Member)—noted that the appellant’s protected the ’s legitimate interest in recovering . The Tribunal observed that continuing the CIRP would serve no resolution purpose, especially since the only unresolved issue——was already pending before the NCLT.
“Keeping the CIRP Alive Serves No Purpose”
The Tribunal made a pivotal observation:
“We are of the view that, the company is a viable entity and keeping the CIRP alive merely because the earlier 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.”
This reasoning underscores the NCLAT’s willingness to look beyond procedural technicalities when the substantive objective of the IBC—resolution of insolvency—has been effectively achieved.
What the Court Ordered
The NCLAT disposed of the appeal with the following directions:
- CIRP Closure: The CIRP against Shalfeyo Industries is closed, subject to compliance with the conditions below.
- Payment to : Deepak Modi must pay ₹18 lakhs to within two weeks of the order.
- Determination: The must determine the in IA No. 160/2023 within four weeks.
- Payment of : Modi must pay the amount determined by the NCLT within two weeks of that determination.
The Tribunal clarified that the ’s fees and expenses would be protected through the pending adjudication, and that no further purpose would be served by prolonging the insolvency process.
Implications
This judgment highlights that courts and tribunals can exercise to close a CIRP when all stakeholder claims are settled, even if the strict procedure under Section 12A and Regulation 30A cannot be followed due to practical difficulties. It reinforces the principle that the IBC’s ultimate goal is resolution, not mere procedural compliance.
