NCLT Can Revive Insolvency Petition Post-Settlement Default Using Inherent Powers Under Rule 11: NCLT Mumbai - 2025-08-11

NCLT Mumbai Revives Insolvency Plea Against Bhumiraj Builders After Settlement Default, Cites Inherent Powers

Mumbai, India - The National Company Law Tribunal (NCLT), Mumbai Bench, has allowed the restoration of an insolvency petition against Bhumiraj Builders Pvt. Ltd. after the company defaulted on a restructuring agreement. The Bench, comprising Judicial Member Nilesh Sharma and Technical Member Sameer Kakar, held that the Tribunal possesses the inherent power under Rule 11 of the NCLT Rules, 2016, to revive proceedings to meet the ends of justice, especially when the initial withdrawal was permitted with an express liberty to revive.

The ruling came in an application filed by Edelweiss Asset Reconstruction Company Limited (Edelweiss), which sought to revive its insolvency petition initially filed in 2021 over a debt of more than ₹381 crore.

Case Background

The case originated from a Company Petition filed by Edelweiss against Bhumiraj Builders in 2021 under Section 7 of the Insolvency and Bankruptcy Code (IBC). During the proceedings, the parties entered into a Restructuring Agreement on November 4, 2023, to settle the dispute.

Based on this agreement, the NCLT, on November 10, 2023, allowed Edelweiss to withdraw the petition. Crucially, the order granted Edelweiss the "liberty... to revive the CP, by filing an Affidavit in the event of failure of any of the conditions in the restructuring agreement, without filing a fresh CP." The order specified that upon default, the petition would be treated as if the withdrawal had never occurred.

Edelweiss alleged that Bhumiraj Builders defaulted on payment tranches due in August and November 2024, breaching the terms of the settlement. Consequently, Edelweiss revoked the agreement and filed the present application to restore the original insolvency petition, claiming updated dues of over ₹614 crore.

Arguments of the Parties

Edelweiss's Contentions: * The primary argument rested on the NCLT's order dated November 10, 2023, which explicitly granted the right to revive the petition upon default. * The Restructuring Agreement itself contained clauses allowing for the re-initiation of withdrawn legal proceedings. * The Tribunal’s inherent powers under Rule 11 of the NCLT Rules, 2016, can and should be invoked to prevent an abuse of process and to ensure justice is served. * They cited several judgments from the National Company Law Appellate Tribunal (NCLAT), such as IDBI Trusteeship Services Ltd. v. Nirmal Lifestyle Ltd. , which affirmed the Tribunal's jurisdiction to restore petitions when a settlement fails.

Bhumiraj Builders' Contentions: * The IBC does not contain any provision for the revival or restoration of a withdrawn petition. * The NCLT lacks jurisdiction to use its inherent powers, arguing that parties cannot confer jurisdiction by consent. * The Restructuring Agreement constituted a novation of the original contract, creating a new cause of action. Therefore, Edelweiss should file a fresh petition based on the new default, not revive the old one. * They accused Edelweiss of acting unfairly by withholding No-Objection Certificates (NOCs) for the sale of project units, thereby engineering the default. * The company is solvent, and the project is 85% complete, making insolvency proceedings a mere recovery tool, which is contrary to the spirit of the IBC.

Tribunal's Analysis and Findings

The NCLT rejected the arguments put forth by Bhumiraj Builders, finding them to be without merit. The Bench underscored the finality of its November 10, 2023 order, which was never challenged by either party.

In its order, the Tribunal observed:

"After hearing the parties and going through the documents, this Tribunal is of the view that when express permission was given by the Tribunal as per the Order dated 10.11.2023 to the Applicant to revive the CP and as the said order had assumed finality, and taking into consideration a catena of judgments as placed by the Applicant’s Counsel, this Tribunal has all the authority under Rule 11 of the NCLT Rules, 2016 to revive the C.P. (IB)/1210(MB)2021 since defaults have been committed in the restructuring agreement."

The Bench referenced several NCLAT precedents which established that in cases where a settlement agreement (which formed the basis of withdrawal) is breached, the Tribunal has the jurisdiction to restore the original petition. Citing the NCLAT's decision in Krishan Kumar Mittal , the Bench noted that Rule 11 exists to prevent "unscrupulous Corporate Debtors" from escaping proceedings by making commitments they do not honor.

The Tribunal dismissed the respondent's defenses regarding the merits of the case and the alleged unfair conduct of Edelweiss, stating that such arguments could only be considered after the main petition is revived and heard.

Final Decision

The NCLT allowed Edelweiss's application, ordering the restoration of the original Company Petition. The registry was directed to renumber the petition and list it for hearing on August 22, 2025. This decision reinforces the principle that settlement agreements made under the aegis of the court must be honored, and failure to do so can result in the revival of original proceedings, preventing debtors from using settlements as a tactic to delay or evade insolvency.