NCLT Delhi Permits SpiceJet Insolvency Plea Withdrawal but Imposes Rs 15 Lakh Costs on Both Parties

Background and Overview

The National Company Law Tribunal (NCLT), Delhi Bench, on August 19, 2026, permitted aircraft lessor Aviator ML 29641 Limited to withdraw its insolvency petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) against SpiceJet Limited. However, the Tribunal imposed costs of Rs 15 lakh on both parties for disclosing their settlement at the eleventh hour, after orders had already been reserved in the matter.

The order, passed by a special coram of Judicial Member Mahendra Khandelwal and Technical Member Anu Jagmohan Singh, directed Aviator ML and SpiceJet to pay Rs 7.5 lakh each to the Prime Minister’s National Relief Fund within seven days. The withdrawal order will take effect only after proof of payment is produced before the NCLT Registry.

The Underlying Dispute

Aviator ML 29641 Limited, an aircraft leasing company, filed a petition under Section 9 of the IBC in 2024 against SpiceJet Limited, alleging an operational debt default of Rs 58.64 crore. Section 9 of the IBC permits operational creditors (suppliers of goods or services) to initiate the Corporate Insolvency Resolution Process (CIRP) against a corporate debtor for unpaid operational debts exceeding the prescribed threshold.

SpiceJet, India’s budget airline, has faced multiple insolvency petitions from lessors and vendors over the past several years. The airline has been under significant financial stress, with several creditors approaching the NCLT seeking to initiate insolvency proceedings. By August 2026, at least eight insolvency petitions were pending against SpiceJet before the NCLT Delhi Bench, including the one filed by Aviator ML.

The Last-Minute Settlement

The case took a dramatic turn when, during the hearing on August 17, 2026, SpiceJet informed the Tribunal that it had reached an agreement with Aviator ML. The airline acknowledged its outstanding liability and disclosed that it had made an initial payment of USD 500,000 under a settlement agreement that had been signed overnight. The settlement came after the Tribunal had already reserved orders in eight insolvency petitions against SpiceJet.

The timing of the settlement drew sharp criticism from the Tribunal. The NCLT observed that the parties had been given ample opportunity to resolve their dispute during the pendency of the proceedings, yet chose to announce a settlement only after the matter had been heard at length and orders had been reserved. The Bench reportedly described the conduct as a “mockery of the entire system.”

The NCLT’s Order: Withdrawal with Costs

On August 19, 2026, the NCLT passed its order in the Aviator ML petition. The key elements of the order are:

• Permission to Withdraw: Aviator ML was permitted to withdraw its Section 9 petition against SpiceJet.

• Costs of Rs 15 Lakh: The Tribunal imposed costs of Rs 7.5 lakh on each party (Aviator ML and SpiceJet), totalling Rs 15 lakh, to be deposited with the Prime Minister’s National Relief Fund within seven days.

• Conditional Withdrawal: The withdrawal will take effect only after proof of payment of costs is filed with the NCLT Registry. If the parties fail to make the payment, the matter will be relisted.

• No Incorporation of Settlement Terms: The Tribunal refused to incorporate the settlement terms or any revival clause in its order, signalling that the Tribunal would not act as an enforcer of private settlement agreements.

Why Costs Were Imposed on Both Parties

The imposition of costs on both the petitioner (Aviator ML) and the respondent (SpiceJet) is unusual in IBC proceedings. Typically, costs are imposed only on the party whose conduct warrants such imposition. The NCLT’s decision to penalise both sides reflects its disapproval of several aspects of the parties’ conduct:

• Waste of Judicial Time: The Tribunal had invested significant judicial time hearing the matter, including constituting a special coram and reserving orders, only for the parties to announce a settlement at the last possible moment.

• Belated Settlement: Both parties had multiple opportunities to settle during the pendency of the case but chose to do so only after orders were reserved, suggesting a lack of good faith in the proceedings.

• Overnight Settlement Agreement: The fact that the settlement was reached and documented overnight, between a hearing date and the order date, raised questions about whether the IBC process was being used as a pressure tactic rather than a genuine insolvency resolution mechanism.

• Conduct of the Petitioner: Aviator ML was penalised for filing an IBC petition that was ultimately resolved through settlement, suggesting the petition may have been used as a collection tool rather than a genuine insolvency remedy.

• Conduct of the Respondent: SpiceJet was penalised for allowing the matter to reach the stage of reserved orders before making payments, indicating a pattern of delay in meeting its financial obligations.

The Broader Context: IBC as a Collection Tool

The NCLT’s order in the SpiceJet case reflects a growing judicial concern about the misuse of IBC proceedings as a debt recovery mechanism rather than a genuine insolvency resolution tool. The IBC was enacted to provide a time-bound process for resolving insolvency, not to serve as a pressure tactic for creditors to extract payments from debtors.

The Supreme Court has addressed this concern in several decisions. In Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018), the Court emphasised that the IBC should not be used as a substitute for debt recovery proceedings. Similarly, in Swiss Ribbons Pvt. Ltd. v. Union of India (2019), the Court upheld the constitutional validity of the IBC but cautioned against its misuse.

The trend of last-minute settlements in IBC proceedings, particularly in cases involving operational creditors under Section 9, has been a recurring concern. When creditors file IBC petitions primarily to coerce debtors into payment rather than to genuinely pursue insolvency resolution, it burdens the already overburdened NCLT system and diverts judicial resources from genuine insolvency cases.

Impact on Other Insolvency Petitions Against SpiceJet

The Tribunal also de-reserved its orders in seven other insolvency petitions against SpiceJet and directed that they be placed before the regular coram for consideration. This means that while the Aviator ML petition has been resolved, SpiceJet continues to face significant insolvency litigation from other creditors.

The airline’s financial situation remains precarious, and the outcome of the remaining petitions will be critical to its survival as a going concern. Market observers will be closely watching whether SpiceJet can settle these remaining claims or whether one of the petitions will ultimately succeed in triggering the CIRP.

Legal Framework for Withdrawal of IBC Petitions

The withdrawal of insolvency petitions under the IBC is governed by Rule 8 of the National Company Law Tribunal Rules, 2016, read with Section 12A of the IBC (for applications admitted under Section 7 or 9). For petitions that have not yet been admitted (where the CIRP has not commenced), the petitioner may seek withdrawal with the Tribunal’s permission.

Section 12A of the IBC, introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2018, provides that the Adjudicating Authority may allow the withdrawal of an application admitted under Section 7 or 9 with the approval of 90 per cent of the voting share of the Committee of Creditors. However, where the petition has not been admitted and no CIRP has commenced (as in the SpiceJet case), the withdrawal is governed by the Tribunal’s inherent powers and the NCLT Rules.

The Tribunal’s power to impose costs arises from its inherent jurisdiction under Rule 11 of the NCLT Rules, which allows the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal. The imposition of costs payable to the Prime Minister’s National Relief Fund (rather than to the opposing party) underscores the Tribunal’s view that the judicial resources wasted by the last-minute settlement represent a loss to the public, not merely to the parties.

Precedents for Cost Imposition in IBC Proceedings

The NCLT and NCLAT have imposed costs in several previous cases where parties were found to have misused or abused the IBC process. In Edelweiss Asset Reconstruction Company Limited v. Sachet Infrastructure Pvt. Ltd. (NCLAT, 2019), the NCLAT upheld the imposition of costs where the corporate debtor had settled the claim after the CIRP had been initiated, causing significant wasted judicial and administrative effort.

More recently, the NCLT Bench in Mumbai imposed costs on an operational creditor who filed successive Section 9 petitions against the same corporate debtor for disputed claims, holding that such conduct amounted to an abuse of the IBC process. These precedents indicate a growing judicial trend towards deterring parties from treating the IBC as a pressure mechanism for debt recovery.

Key Takeaways

• The NCLT is increasingly willing to impose costs on parties who waste judicial time through last-minute settlements in IBC proceedings, signalling a zero-tolerance approach to such conduct.

• Operational creditors should carefully consider whether filing an IBC petition is a genuine insolvency remedy or merely a pressure tactic. If the latter, they risk being penalised with costs.

• Corporate debtors who delay settlements until after orders are reserved face reputational damage and cost penalties, in addition to the underlying liability.

• The NCLT’s refusal to incorporate settlement terms into the withdrawal order underscores that the Tribunal will not serve as a guarantor of private settlements.

• Parties in IBC proceedings should pursue settlement negotiations early and in good faith, ideally before the matter is reserved for orders.