NCLAT Revives Insolvency Proceedings Against Chintamani Jewellery Arcade After Settlement Breach by Corporate Debtor

The National Company Law Appellate Tribunal (NCLAT) has revived the Corporate Insolvency Resolution Process (CIRP) against Mumbai-based Chintamani's Jewellery Arcade Pvt Ltd after Axis Bank demonstrated that the company had materially breached the terms of a court-recorded settlement. The three-member NCLAT bench recalled its own order dated May 9, 2024, which had set aside the CIRP admission and closed insolvency proceedings on the basis of the settlement, restoring the matter to its original position before the NCLT, Mumbai.

Background: Settlement and Liberty to Revive

Axis Bank had originally initiated insolvency proceedings against Chintamani's Jewellery Arcade, and the NCLT, Mumbai admitted the application and commenced CIRP. During the pendency of the appeal before the NCLAT, the parties arrived at a settlement. On May 9, 2024, the NCLAT took the settlement on record, set aside the CIRP admission order, and closed the insolvency proceedings.

Critically, the NCLAT granted liberty to Axis Bank to revive the appeal in the event of any default under the settlement terms. This conditional liberty clause proved decisive when the corporate debtor subsequently failed to honour its repayment obligations.

The Default: Rs 70 Lakh Against Rs 3.30 Crore Due

Axis Bank filed a restoration application alleging that the corporate debtor had failed to comply with the agreed repayment schedule. The bank submitted that against dues of Rs 3.30 crore falling due between July and December 2024, the company had paid only Rs 70 lakh, leaving a substantial shortfall. Several instalments remained entirely unpaid, constituting a material and continuing breach of the settlement terms.

In practice, settlement defaults in insolvency cases are not uncommon. Corporate debtors, having secured relief from CIRP through a settlement, sometimes lack the financial capacity to honour the agreed repayment schedule, particularly when the underlying business distress that triggered the insolvency proceedings has not been resolved.

The NCLAT's Order: Recall and Restoration

The NCLAT exercised its power to recall its earlier order and restore the insolvency proceedings. The tribunal held that the corporate debtor had committed a material and continuing breach of the court-recorded settlement terms, and the conditional liberty granted to Axis Bank was triggered. Consequently, the CIRP against Chintamani's Jewellery Arcade was revived before the NCLT, Mumbai.

The power of the NCLAT to recall its own orders derives from Rule 11 of the NCLAT Rules, 2016, which grants the appellate tribunal inherent powers to make orders necessary for meeting the ends of justice or to prevent abuse of the process. The Supreme Court in Facit Engineering v. State Bank of India (Neeraj Srivastava), 2023, acknowledged that tribunals retain the power to recall orders passed on settlements where the settlement has been breached.

Legal Framework: Settlements During CIRP

The IBC does not contain an express provision for settlement between the financial creditor and the corporate debtor after admission of a CIRP application. However, the Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, observed that the IBC is a beneficial legislation aimed at resolution, and settlements that achieve the objective of the Code should not be discouraged. Section 12A, inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2018, provides for withdrawal of an application admitted under Sections 7, 9, or 10, with the approval of 90 percent of the Committee of Creditors.

The Chintamani case, however, involved a settlement at the appellate stage, not a Section 12A withdrawal. The NCLAT's approach of recording the settlement and granting conditional liberty to revive the appeal is a well-established practice that predates the Section 12A amendment. The key distinction is that the NCLAT's order was passed in exercise of its appellate jurisdiction, and the liberty clause effectively created a contractual mechanism for the creditor to re-access the insolvency framework without filing a fresh application.

Implications for Settlement-Based Resolutions

The ruling underscores the importance of the liberty clause in settlement-based closures of insolvency proceedings. Without such a clause, a financial creditor whose settlement is breached would need to file a fresh Section 7 application, incurring time and cost. The liberty clause provides a faster route: a restoration application rather than a fresh filing.

In practice, this decision serves as both a precedent and a warning. For creditors, it demonstrates the value of insisting on a liberty clause when agreeing to settle during appellate proceedings. For corporate debtors, it signals that a settlement is not an escape from insolvency but a conditional reprieve, and any default will result in the swift revival of proceedings from the point where they were paused.

Sources and References

• NCLAT Order in Axis Bank v. Chintamani's Jewellery Arcade Pvt Ltd (Restoration of CIRP after settlement breach)

• Insolvency and Bankruptcy Code, 2016, Section 7 (Application by financial creditor), Section 12A (Withdrawal after admission)

• Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17 (IBC as beneficial legislation)

• NCLAT Rules, 2016, Rule 11 (Inherent powers of the tribunal)

• Business Standard, "NCLAT revives Chintamani Jewellery Arcade insolvency on Axis plea," July 2, 2026

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.