NCLT Dismisses Restoration Plea by Shashi Bhushan Nagar Against Sri Ganraj Buildcon for Settlement Default

NCLT Dismisses Restoration Plea by Shashi Bhushan Nagar Against Sri Ganraj Buildcon for Settlement Default

The National Company Law Tribunal (NCLT), comprising Member (Judicial) Bachu Venkat Balaram Das and Member (Technical) Reena Sinha Puri, has dismissed a restoration application filed by financial creditor Shashi Bhushan Nagar seeking to revive a withdrawn insolvency petition against Sri Ganraj Buildcon Pvt. Ltd. The Tribunal held that the Insolvency and Bankruptcy Code (IBC) cannot be used as a recovery mechanism for breach of a settlement agreement, especially when no liberty to restore was sought or granted.

The Road to Withdrawal: A Settlement That Never Held

The dispute traces back to a loan of ₹1,86,95,051 advanced by Nagar to the corporate debtor between 2015 and 2020, repayable by March 2021. After default, Nagar filed a Section 7 petition (IB-517/2023) in September 2023. On January 19, 2024, both parties informed the NCLT that the matter had been settled, and the petition was dismissed as withdrawn. Nagar later claimed that the corporate debtor had promised to clear dues by July 31, 2024, and even allotted a flat (Unit No. 405) as additional security. However, when the debtor failed to pay and further defaulted on an extended deadline of September 30, 2024, Nagar sought restoration of the original petition.

A Clash of Contentions: Default vs. Procedural Bar

Nagar argued that the corporate debtor induced him to withdraw the petition by promising payment and executing a settlement agreement (Ikrarnama) on January 19, 2024. He claimed part payment of ₹1.53 lakh was made and that the debtor admitted default in meetings, as evidenced by WhatsApp chats.

The respondent countered fiercely, asserting that the withdrawal was unconditional—no settlement terms were placed on record, and no liberty to revive was granted by the NCLT. They pointed to the order dated January 19, 2024, which merely recorded a statement of settlement and dismissed the petition. The respondent further argued that the alleged cash loans violated the Income Tax Act, and the purported Ikrarnama was actually a sale agreement for flats, not a settlement of financial debt. Citing settled law, they contended that IBC is not a debt recovery forum.

Legal Precedents That Foreclosed Revival

The NCLT leaned heavily on three key NCLAT judgments. In Krishna Garg & Anr. vs. Pioneer Fabricators Pvt. Ltd. , the appellate tribunal held that settlement terms must be filed and incorporated in the court’s order with an express liberty to revive; otherwise, breach of a private settlement does not entitle restoration. Similarly, SRLK Enterprises LLP vs. JALAN Transolutions (India) Ltd. distinguished a simpliciter withdrawal (by mere statement) from a withdrawal where settlement is on record and liberty to restore is explicitly sought. Finally, Amrit Kumar Agrawal vs. Tempo Appliances Pvt. Ltd. clarified that breach of a settlement agreement does not create a “financial debt” under Section 5(8) of the IBC, as the obligation to pay must arise from a disbursal against the time value of money.

Key Observations from the Tribunal

The NCLT scrutinized the Ikrarnama presented by Nagar. It observed:

> “Nowhere in the said agreement, there is any mention about a default clause as well as seeking liberty to revive/restore the Section 7 application or taking any other legal recourse.”

The bench further noted:

> “In our considered opinion, the Applicant is seeking recovery on the ground of breach of the sale agreement. In such a situation, the IBC is not the correct remedy.”

Emphasizing the absence of any liberty in the original withdrawal order, the Tribunal stated:

> “Moreover, in the absence of any liberty being sought either in the agreement or in the order dated 19.01.2024 passed by this Adjudicating Authority, the prayer for restoration of IB-517/ND/2023 cannot be entertained.”

Final Verdict: No Revival, But Other Doors Remain Open

The NCLT dismissed Rest. Appl. 137/2024, rejecting Nagar’s bid to restore the Section 7 petition. However, the Tribunal explicitly left the applicant free to pursue “appropriate legal recourse available under law, if so advised.” The ruling reinforces the principle that the IBC is a resolution mechanism, not a recovery tool, and that parties must diligently safeguard their rights by incorporating revival clauses in settlement agreements that are placed on the court’s record.