Aayush Prashant Agarwal Vs Uma Export Limited (NCLAT Delhi)
Summary: The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, considered whether a Corporate Insolvency Resolution Process (CIRP) could be terminated following full settlement between an operational creditor and the corporate debtor after admission of an application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The appeal was filed by Aayush Prashant Agarwal, suspended director of Epic Yarns Private Limited, against the NCLT Mumbai order dated 23 July 2026 admitting the company into CIRP. The appellant submitted that the entire outstanding liability of Uma Export Limited had been discharged through an amicable settlement dated 6 August 2026 and sought termination of the insolvency proceedings. The NCLAT, however, examined the effect of the Insolvency and Bankruptcy Code (Amendment) Act, 2026, particularly the substituted Section 12A governing withdrawal of admitted insolvency applications.
The CIRP was initiated on 23 July 2026, and Klass Insolvency Resolution Professionals Private Limited was appointed as the Interim Resolution Professional (IRP). The IRP published the required public announcement and informed the Tribunal that Epic Yarns remained a going concern engaged in yarn manufacturing with approximately 600 workers. Although the suspended directors had not transferred control and custody of the company to the IRP, the latter had received a claim of Rs. 1,28,58,295 from the Employees Provident Fund Organisation. No Committee of Creditors (CoC) had yet been constituted. Meanwhile, the parties settled the operational debt through payments of Rs. 50,00,000 on 23 July 2026 and Rs. 2,57,05,145 on 6 August 2026, aggregating to Rs. 3,07,05,145. Their settlement agreement expressly recognised that withdrawal of CIRP would remain subject to the applicable provisions of the IBC, applicable regulations and necessary approvals.
The principal legal issue concerned the amended Section 12A of the IBC, substituted by Act No. 6 of 2026 with effect from 26 May 2026. The provision permits withdrawal of applications admitted under Sections 7, 9 or 10 on an application made by the resolution professional with approval representing 90 per cent of the voting share of the CoC. Significantly, Section 12A(2) prohibits withdrawal before constitution of the CoC and after the first invitation for submission of resolution plans has been issued. The Tribunal observed that the amended provision introduced more stringent requirements for withdrawal and contained a non-obstante clause. Accordingly, the fact that an operational creditor had received full payment could not by itself justify bypassing the statutory withdrawal procedure after CIRP had commenced.
The appellant relied upon Basant Kumar Upadhyay, Ex-Director of Gardenia India Ltd. Vs Kuber Shree Construction Company & Anr. and Jagmal Vs Mangal Sales Corporation Through its Proprietor & Anr., where the NCLAT had closed insolvency proceedings after settlement. However, the Tribunal distinguished both decisions because the settlements in those matters had occurred before commencement or admission of CIRP. In contrast, the settlement concerning Epic Yarns was executed on 6 August 2026, after admission on 23 July 2026. The Tribunal further observed that the earlier Basant Kumar Upadhyay decision preceded the amendment to Section 12A. Consequently, neither precedent justified immediate closure of CIRP in disregard of the amended statutory procedure.
The NCLAT ultimately disposed of the appeal and interlocutory application without directly terminating CIRP. It granted liberty to the IRP to make an appropriate application before the NCLT in accordance with Section 12A and requested the NCLT to dispose of such application within 15 days of receipt, in accordance with law. The decision establishes an important distinction between settlement before admission and settlement after commencement of insolvency proceedings. It emphasises that parties seeking withdrawal following admission must comply with the amended statutory conditions rather than relying solely on settlement or satisfaction of the original operational debt. The Tribunal’s order did not itself approve withdrawal, terminate the CIRP or discharge the IRP.
Cases Discussed
1. Basant Kumar Upadhyay, Ex-Director of Gardenia India Ltd. Vs Kuber Shree Construction Company & Anr. (NCLAT Delhi); Company Appeal (AT) (Ins.) No. 957 of 2025; 11/07/2025 — The Tribunal had closed CIRP where settlement preceded commencement of insolvency proceedings. Distinguished because the present settlement occurred after CIRP admission and the earlier decision preceded the 2026 amendment to Section 12A.
2. Jagmal Vs Mangal Sales Corporation Through its Proprietor & Anr. (NCLAT Delhi); Company Appeal (AT) (Ins.) No. 687 of 2026 — The Tribunal had considered a settlement completed before the order admitting the corporate debtor into CIRP. Distinguished because the present settlement was executed after the admission order. The decision date is not specified in the supplied order.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
Company Appeal (AT) (Insolvency) No. 1366 of 2026 is filed against the order under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to the ‘IBC, 2016’) dated 23.07.2026 of Ld. NCLT, Mumbai Bench-VI in CP (IB) No. 898/MB/2025 wherein M/s Epic Yarns Pvt. Ltd. (hereinafter referred to the ‘Corporate Debtor’ or ‘CD’) is admitted into Corporate Insolvency Resolution Process (hereinafter referred to the ‘CIRP’) and Klass Insolvency Resolution Professionals Pvt. Ltd. is appointed as the Interim Resolution Professional (hereinafter referred to the ‘IRP’).
2. On 30.07.2026, the Ld. Sr. Counsel for the Appellant informed this Tribunal that settlement talks are going on between the parties.
2.2 On 10.08.2026, this Tribunal was informed that an application being I.A. No. 5601 of 2026 has been filed for early listing of this appeal and to inform that the matter has been amicably settled and entire alleged dues have been paid. The Ld. Counsel for the Respondent-Creditor also affirmed this submission.
2.3 Since the entire payment was received by the Creditor who had filed an application under Section 9 before the Ld. NCLT, the impugned order was kept in abeyance till the next date of hearing and the IRP was asked to file status report.
2.4 The status report has been e-filed by the IRP on 12.08.2026. The IRP has submitted that public announcement in terms of Section 15(1)(c) of the IBC, 2016 regarding the commencement of the CIRP of the Corporate Debtor was made on 25.07.2026 and it was published in two newspapers based in Mumbai on 26.07.2026 as the registered office of the Corporate Debtor is situated in Vile parle West, Mumbai City, Mumbai. The public announcement was also uploaded on the designated website of Insolvency and Bankruptcy Board of India (hereinafter referred to the ‘IBBI’). The IRP submitted that the Corporate Debtor is a going concern and is engaged in the yarn manufacturing business and has approximately 600 workers. It is submitted that the Corporate Debtor filed its returns up to 31.03.2025. The IRP, however, stated that control and custody of the Corporate Debtor have not yet been handed over by the Suspended Board of Directors to the IRP. The IRP as on date has received only one claim, from a statutory authority, namely, Employees Provident Fund Organisation (EPFO) amounting to Rs. 1,28,58,295/-. He submitted that as per Regulation 12 of the CIRP Regulation, the last date for verification and admission of claims is 13.08.2026 and the report certifying the constitution of the Committee of Creditors (hereinafter referred to the ‘CoC’) is required to be submitted by 15.08.2026. It is stated that in the meantime the IRP has received Form-A dated 06.08.2026 as prescribed under Regulation 30A along with a memorandum of agreement from Uma Exports Limited on 08.08.2026 proposing settlement of the matter.
3. Through I.A. No. 5601 of 2026 filed on 06.08.2026, the Applicant/Appellant-Aayush Prashant Agarwal, suspended director of the Corporate Debtor has submitted that the Appellant and the Operational Creditor have amicably resolved all their disputes and differences and have entered into a comprehensive settlement agreement. It is pleaded that as no CoC has been constituted and even the claim of the sole financial creditor of the Corporate Debtor, namely State Bank of India has not been received, the continuation of the CIRP will serve no useful purpose. It was submitted that present appeal and the application be allowed, the impugned order be set aside and the CIRP initiated against the Corporate Debtor be terminated and the IRP discharged from further responsibilities.
4. We have heard the Ld. Sr. Counsel for the Appellant and the Ld. Counsel for the Respondent and with their able assistance have perused the records.
4.2 Admittedly, the operational creditor and Corporate Debtor have settled the dispute and have entered into a settlement agreement dated 06.08.2026, which is placed on record. The settlement agreement is a tripartite agreement between the Appellant as suspended director of Corporate Debtor, Uma Exports Limited and the Corporate Debtor. As per the settlement agreement Rs. 50,00,000/- has been paid on 23.07.2026 and further sum of Rs. 2,57,05,145/- on 06.08.2026 by RTGS. It shall be relevant to consider para 6 and 7 of the settlement agreement, which records as under:
“6) It is acknowledged by the Parties that the Company of the First Party being Epic Yarns Pvt. Ltd is presently undergoing the Corporate Insolvency Resolution Process pursuant to the order dated 23.07.2026 passed by the Hon’ble Adjudicating Authority, whereby a moratorium under the provisions of the Insolvency and Bankruptcy Code, 2016 has come into effect. The Parties further acknowledge and agree that any withdrawal or closure of the CIRP shall be subject to due compliance with the applicable provisions of the IBC, the rules and regulations framed thereunder, including the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, and such approvals or orders as may be required from the Hon’ble Adjudicating Authority or any other competent authority.
7) The Second Party agrees and undertakes to extend its full cooperation for the submission and execution of Form FA and any other documents as may be required before the Interim Resolution Professional/Resolution Professional and/or the Honʼble Adjudicating Authority which shall also include making submission or filing Affidavits or reply supporting this settlement agreement before NCLAT. It is further agreed that all fees, costs and expenses in connection with the CIRP, including the fees and expenses of the IRP/RP, CIRP costs, legal and litigation expenses, and all costs relating to the preparation, execution and filing of Form FA, applications and other documents required for giving effect to this Memorandum of Understanding, shall be borne exclusively by the First Party/Confirming party.”
4.3 The provisions contained in Section 12A of IBC, 2016 regarding withdrawal of an application admitted under Section 7, 9 and 10 have been amended by the IBC (Amendment Act, 2026, Act No. 6 of 2026) on 06.04.2026. The said amendment in Section 12A has been enforced w.e.f. 26.05.2026. The provisions of Section 12A as applicable to this case, after the enforcement of the said amendment, are as under:
“12A. (1) Subject to sub-section (2), the Adjudicating Authority may allow the withdrawal of an application admitted under section 7, 9 or 10, on an application made by the resolution professional, with the approval of ninety per cent. voting share of the committee of creditors in such manner as may be specified.
(2) Notwithstanding anything contained in any law for the time being in force, an application admitted under section 7, 9 or 10 shall not be withdrawn—
(a) before the constitution of the committee of creditors under sub-section (1) of section 21; and
(b) after the first invitation for submission of a resolution plan has been issued by the resolution professional.
(3) The Adjudicating Authority shall pass an order under sub-section (1) within a period of thirty days from the date of receipt of the application:
Provided that if the Adjudicating Authority has not passed an order within such period, it shall record the reasons for such delay in writing.”.
4.4 We note that EPFO has also filed claim of Rs. 1,28,58,295/-.
4.5 The Ld. Sr. Counsel for the Appellant has relied upon the decision of this Tribunal dated 11.07.2025 in the case of Basant Kumar Upadhyay, Ex-Director of Gardenia India Ltd. v. Kuber Shree Construction Company & Anr. in Company Appeal (AT) (Ins.) No. 957 of 2025 wherein the appeal was disposed of noting the settlement. The relevant para no. 6 of the said judgment is as under:
“6. Ld. Counsel for the Operational Creditor has filed an affidavit as noticed above where the settlement dated 28.06.2025 has already been referred and accepted, the reasons have given by the operational creditor as to why it could not be brought into the notice of Adjudicating Authority on 30.06.2025 when the orders was pronounced that the parties have settled. The present is a case where admittedly settlement took place prior to initiation of CIRP and the reason due to which the said settlement could not be informed to the court has already been mentioned by the Operational Creditor in his affidavit who has filed Section 9 application. Ld. Counsel for the IRP submits that IRP has already issued publication in pursuance of the order 30.06.2025. In the facts of the present case, we are of the view that in view of the settlement between the parties on 28.06.2025 prior to order date 30.06.2025 there were no debt existing for admission of Section 9 application hence we close the CIRP. Ld. Counsel for the appellant has undertaken to pay the fee of the IRP and expenses incurred by the IRP within two weeks from today.”
4.6 We note that in the above cited case the settlement had taken place prior to initiation of CIRP whereas in the present case the settlement had taken place after the initiation of CIRP. The CIRP in the present case was initiated on 23.07.2026 whereas the settlement deed is dated 06.08.2026. Further the above cited case is prior to amendment of Section 12A of IBC, 2016. The procedure for withdrawal of application for CIRP has now been made more stringent. The sub-Section 2 of Section 12A begins with a non obstante clause and states that application admitted under Section 7, 9 and 10 shall not be withdrawn prior to the constitution of CoC or after the first invitation for submission of resolution plan has been issued by the Resolution Professional.
4.7 The Ld. Sr. Counsel for the Appellant has also relied upon the judgment of this Tribunal in the case of Jagmal v. Mangal Sales Corporation Through its Proprietor & Anr. in Company Appeal (AT) (Ins.) No. 687 of 2026 wherein this Tribunal has permitted withdrawal of CIRP in view of complete settlement of dues. In this context, we refer to para 3 and 4 of the said judgment which states as under:
“3. On 09.04.2026, the Adjudicating Authority pronounced the Order admitting the CD into CIRP. It is in these circumstances the present appeal has been preferred challenging the aforesaid order. Learned counsel for the appellant submitted that it was the sheer misfortune of the CD that it was drawn into CIRP even though the entire claim of the first respondent had been paid in terms of the settlement deed even before the CD was admitted to CIRP. Indeed, even an application was promptly filed on 26.03.2026, but because some defects were notified, the same could not be brought on record before the final order was passed. Indeed, according to both the parties herein, before the pronouncement of order on 09.04.2026, this aspect was brought to the notice of the learned Adjudicating Authority but the same was not considered.
4. Appearing for the first respondent Shri. Raunak Satpathy, the learned counsel for the operational creditor, endorsed every statement of the counsel for the appellant. He submitted that the entire amount had been received even before the order under Sec. 9 was pronounced and, hence, on 26.03.2026, the first respondent had even taken out an application.”
4.8 The facts of this above case are also not pari materia with the facts of the present case. In the cited case, the entire claim was paid and settlement deed was drawn even before the Corporate Debtor was admitted to CIRP. In fact, even an application was filed before the Ld. NCLT prior to pronouncement of order. In the present case, the settlement was made on 06.08.2026 whereas the order for admission under CIRP was pronounced on 23.07.2026.
4.9 We also note that the settlement agreement dated 06.08.2026 in para 6 and 7 duly acknowledges that the closure of CIRP shall be subject to due compliance with the applicable provisions of the IBC and such approvals or orders as may be required from the Adjudicating Authority and that the operational creditor shall extend cooperation in submission and execution of Form F-A.
5. Considering the conspectus of facts and legal position as applicable to this case, IRP is at liberty to make an appropriate application before the Ld. NCLT, in terms of the provisions of Section 12A of the IBC, 2016. The Ld. NCLT is requested to dispose of application under Section 12A so received, within 15 days of the receipt of the said application as per law. Company Appeal (AT) (Insolvency) No. 1366 of 2026 and I.A. No. 5601 of 2026 are disposed accordingly. All pending IAs, if any are closed. No order as to costs.
