Tribunal Restores CIRP After Company Fails to Honour Court-Approved Repayment Settlement, Reinforcing Creditor Rights Under IBC

In a significant judgment reinforcing the credibility of court-approved settlements under the Insolvency and Bankruptcy Code (IBC), the National Company Law Appellate Tribunal (NCLAT) has revived insolvency proceedings against Chintamani's Jewellery Arcade Pvt. Ltd. after finding that the company failed to comply with the repayment obligations agreed upon with Axis Bank.

The appellate tribunal allowed a restoration application filed by Axis Bank, holding that the jewellery company had committed a "material and continuing breach" of the settlement terms that had earlier led to the closure of insolvency proceedings.

With the latest order, the Corporate Insolvency Resolution Process (CIRP) against the Mumbai-based company stands revived before the National Company Law Tribunal (NCLT), Mumbai, bringing the company back under the formal insolvency resolution framework.

NCLAT Recalls Earlier Order

A three-member bench comprising Justice N. Seshasayee, Arun Baroka, and Indevar Pandey recalled its earlier order dated May 9, 2024, which had set aside the insolvency admission after both parties informed the tribunal that they had reached an amicable settlement.

The tribunal observed that the settlement formed the very foundation of the earlier order. Since the company failed to honour the agreed repayment schedule, the basis of that order no longer existed.

The bench held that the defaults were substantial rather than technical and therefore justified the restoration of insolvency proceedings.

According to the tribunal, the settlement expressly provided Axis Bank the liberty to seek revival of the insolvency process if the borrower failed to comply with its commitments.

Background of the Dispute

The dispute originated after Axis Bank extended multiple credit facilities to Chintamani's Jewellery Arcade for its business operations.

Following repayment defaults, the bank initiated insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016, before the National Company Law Tribunal (NCLT), Mumbai.

After examining the financial default, the NCLT admitted the insolvency petition on February 23, 2024, and appointed an Interim Resolution Professional (IRP) to manage the affairs of the company during the Corporate Insolvency Resolution Process.

The company's suspended management subsequently challenged the admission order before the NCLAT.

Settlement Temporarily Halted Insolvency

During the pendency of the appeal, both parties entered into settlement terms on April 27, 2024.

As part of the agreement, Chintamani's Jewellery Arcade made an upfront payment of ₹1.5 crore and agreed to clear the remaining outstanding dues through a structured repayment schedule spread over several months.

Taking the settlement on record, the NCLAT set aside the insolvency admission order and terminated the CIRP on May 9, 2024.

However, the tribunal specifically reserved the right for Axis Bank to approach the court again if the company defaulted on any instalment under the settlement.

This safeguard has now become the basis for reviving the insolvency proceedings.

Axis Bank Alleged Major Repayment Defaults

Axis Bank later filed a restoration application before the appellate tribunal, alleging that the borrower had failed to comply with the agreed repayment schedule.

According to the bank, repayments amounting to ₹3.30 crore were scheduled between July and December 2024.

However, the company reportedly paid only ₹70 lakh, leaving a substantial portion of the dues unpaid despite repeated opportunities.

The bank argued that such repeated defaults defeated the very purpose of the settlement and justified restoration of the insolvency proceedings.

After reviewing the payment records and settlement documents, the tribunal accepted the bank's arguments.

Tribunal Emphasises Sanctity of Settlement Agreements

The NCLAT observed that settlements recorded before judicial forums are legally binding and cannot be treated as mere informal arrangements.

The bench stated that once insolvency proceedings are withdrawn based on mutually agreed settlement terms, strict compliance becomes mandatory.

Failure to honour those commitments allows financial creditors to revive insolvency proceedings without restarting the litigation process from the beginning.

The judgment reinforces the principle that borrowers cannot use settlement agreements merely as a means to delay insolvency while continuing to default on repayments.

Revival of CIRP: What Happens Next?

With the restoration of the Corporate Insolvency Resolution Process, the insolvency proceedings before the NCLT Mumbai will resume.

The Interim Resolution Professional may once again assume responsibilities under the Insolvency and Bankruptcy Code, subject to directions issued by the tribunal.

During the CIRP, a moratorium on certain legal actions may continue, and the Committee of Creditors (CoC) will evaluate possible resolution plans submitted by interested investors.

If no viable resolution plan is approved within the prescribed timeline, the company could eventually move towards liquidation under the provisions of the IBC.

Positive Signal for Banks and Financial Institutions

The ruling is expected to strengthen confidence among banks and financial institutions in using negotiated settlements during insolvency proceedings.

Financial creditors often agree to restructuring or settlement proposals to maximize recoveries while avoiding lengthy legal disputes.

By allowing restoration of insolvency proceedings after material defaults, the NCLAT has reaffirmed that settlement agreements carry legal enforceability and that borrowers cannot escape accountability after obtaining relief from the tribunal.

The judgment is likely to encourage greater discipline among corporate borrowers entering into court-approved repayment arrangements.

Broader Implications for the Insolvency Framework

India's Insolvency and Bankruptcy Code has significantly improved the country's debt recovery mechanism by providing time-bound resolution of financially distressed companies.

Judicial decisions such as this strengthen the effectiveness of the framework by ensuring that negotiated settlements remain credible and enforceable.

Legal experts believe the ruling will discourage strategic defaults and improve the confidence of lenders in resolving stressed assets through the insolvency process.

As India's banking sector continues to address non-performing assets (NPAs), such judgments are expected to support faster recoveries while preserving the integrity of the insolvency ecosystem.

Outlook

The revival of insolvency proceedings against Chintamani's Jewellery Arcade highlights the judiciary's firm stance on enforcing court-approved settlement agreements. While negotiated settlements remain an important mechanism for resolving financial disputes, the ruling makes it clear that borrowers must strictly adhere to repayment commitments once those agreements receive judicial approval.

For banks, the judgment strengthens legal protection under the Insolvency and Bankruptcy Code and reinforces confidence in settlement-based recoveries. For corporate borrowers, it serves as a reminder that failure to honour agreed repayment schedules can quickly result in the restoration of insolvency proceedings and loss of legal protection.

Key Highlights

• NCLAT has revived CIRP against Chintamani's Jewellery Arcade after allowing Axis Bank's restoration application.

• Tribunal found the company had materially breached the court-approved settlement agreement.

• Earlier insolvency proceedings were withdrawn after the company paid ₹1.5 crore upfront and agreed to a structured repayment schedule.

• Axis Bank alleged that only ₹70 lakh was paid against ₹3.30 crore due between July and December 2024.

• Insolvency proceedings before the NCLT Mumbai will now resume.

• The ruling reinforces the legal enforceability of court-approved settlements under the Insolvency and Bankruptcy Code (IBC) and strengthens creditor rights.