NCLT Rejects CIRP Withdrawal Despite Settlement: Upholds Collective Creditor Interests Over Individual Resolution under IBC S.12A - 2025-03-21

NCLT Mumbai Bench Refuses CIRP Withdrawal for Syska LED , Prioritizing Creditor Collective

Mumbai, March 18, 2025 – The National Company Law Tribunal (NCLT), Mumbai Bench, Court-II, has rejected an application seeking withdrawal of the Corporate Insolvency Resolution Process (CIRP) initiated against Syska LED Lights Private Limited. In a judgment pronounced on March 18, 2025, the bench comprising Hon’ble Shri K.R. Saji Kumar (Member, Judicial) and Hon’ble Shri Anil Raj Chellan (Member, Technical) dismissed IA.No.5979/2024, thereby upholding the continuation of CIRP despite a settlement reached between the original Operational Creditor and Syska LED .

Background of the Case

The CIRP was initiated against Syska LED based on an application by Operational Creditor, Sunstar Industries. Following the initiation, Mr. Debashis Nanda was appointed as the Interim Resolution Professional (IRP). Subsequently, Sunstar Industries, having reached a settlement with Syska LED , filed an application under Section 12A of the Insolvency and Bankruptcy Code (IBC), seeking withdrawal of the CIRP. However, numerous Financial Creditors and Operational Creditors, including IDFC First Bank, State Bank of India, and Dixon Technologies , intervened, objecting to the withdrawal.

Arguments for Withdrawal

The Applicant, represented by Adv. Harsh Kesharia , argued that the procedural requirements under Section 12A and Regulation 30A of the CIRP Regulations were met, as Form FA for withdrawal was duly submitted. Sr. Adv. Gaurav Joshi, representing Sunstar Industries, contended that the Adjudicating Authority’s role is limited to procedural compliance and ensuring no abuse of process or fraud. They argued that once the original creditor settles, the withdrawal should be permitted, and other creditors are free to pursue independent legal remedies. Adv. Manoj Kumar Garg, representing the Suspended Director of Syska LED , highlighted the company's temporary financial setbacks due to COVID-19 and the prospective investment from Mutares, a private equity firm, aimed at revitalizing the company and settling creditor dues through a One Time Settlement (OTS).

Objections from Intervening Creditors

Represented by various counsels including Adv. Nausher Kohli (IDFC), Adv. Pulkit Sharma (SBI), and others, the Intervenors vehemently opposed the withdrawal. They argued that CIRP is a collective proceeding, not merely a recovery mechanism for a single creditor. Referencing the Supreme Court’s judgment in GLAS Trust Company LLC Vs. BYJU Raveendran & Ors. ( Byjus ), they asserted that unilateral settlements undermine the IBC's framework and potentially prejudice other creditors. They emphasized that allowing withdrawal would defeat the purpose of CIRP, especially considering the significant outstanding debts to numerous creditors. Intervenors also argued that settlement with just the initiating creditor, without addressing dues to all, could be preferential and against the spirit of equitable treatment of creditors under the IBC.

NCLT’s Analysis and Decision

The NCLT bench meticulously analyzed the submissions and referred to key precedents, including Swiss Ribbons Pvt. Ltd. v. Union of India , and the Byjus judgment. The Tribunal highlighted that once CIRP is initiated, it transforms into a collective proceeding ( in rem ), involving all stakeholders. The bench quoted the Supreme Court in Swiss Ribbons :

> “It is clear that once the Code gets triggered by admission of a creditor's petition under Sections 7 to 9, the proceeding that is before the adjudicating authority, being a collective proceeding, is a proceeding in rem.”

The NCLT emphasized that Section 12A and Regulation 30A grant discretionary power to the Adjudicating Authority to "allow" or "disallow" withdrawal, not mandate automatic approval upon procedural compliance. The bench observed that the total claims against Syska LED exceeded ₹223 Crore, while the settlement was only with the initiating Operational Creditor for a significantly smaller amount. The Tribunal noted the lack of concrete settlement proposals with the majority of creditors and the potential for multiple litigations if CIRP was withdrawn.

> “The intent of the IBC is to discourage individual actions for enforcement and settlement to the exclusion of the general benefit of all the creditors.”

Ultimately, the NCLT concluded that allowing withdrawal in this case would be detrimental to the objectives of the IBC, potentially prejudicing the interests of numerous creditors and undermining the collective insolvency resolution process. Consequently, IA 5979/2024 was dismissed, and the CIRP for Syska LED Lights Private Limited was ordered to continue. The Intervention Applications and Interlocutory Applications filed in opposition to the withdrawal became infructuous as a result of this decision.

Implications of the Judgment

This judgment reinforces the principle that CIRP under the IBC is a collective mechanism designed to address insolvency in a comprehensive and equitable manner. The NCLT's decision underscores that while settlements are encouraged, they cannot override the fundamental objectives of the IBC, particularly the protection of all creditor interests once CIRP has commenced. The ruling clarifies that NCLT holds discretionary power under Section 12A to adjudicate withdrawal applications, especially when objections from other stakeholders are raised, ensuring that the spirit of the IBC as a collective resolution framework is upheld.