Settlements have long been a staple of commercial negotiations, offering a practical route to resolve disputes. Typically confined to the parties at odds, settlements, if pursued in a timely manner, can steer both sides towards mutually beneficial outcomes. Yet, most often the ship of settlement sails past, leaving parties adrift in turbulent litigation waters where, sometimes, new stakeholders emerge, altering the course entirely.
This analogy is most suited for insolvency law in India. This is because the moment a company is admitted to the corporate insolvency resolution process (CIRP), settlements cease to be a matter of bilateral arrangement. They become a collective affair, governed by the Insolvency and Bankruptcy Code, 2016 (IBC), and steered by the committee of creditors (CoC), which takes the helm in navigating the CIRP. Such was the case recently before the Telangana High Court in Mandava Holdings Pvt Ltd v PTC India Financial Services Ltd.
What happened?
The dispute arose when a one-time settlement proposal for INR900 million (USD10.4 million) was submitted by Mandava Holdings, the promoter of NSL Nagapatnam Power and Infratech, to its sole financial creditor, PTC India Financial Services, during the pendency of the CIRP. The matter went before the high court when this offer was rejected during the CIRP.
It was contended that such rejection was a violation of the . The petitioner contended that the respondent, being a regulated financial entity, was bound to consider the proposal in accordance with a board-approved policy and the RBI framework. However, the court dismissed the writ petition, making clear that once the CIRP has commenced, the IBC framework overrides any external guidelines or settlement offers.
What did the court say?
The court held that insolvency proceedings under the IBC are not ordinary debt recovery mechanisms; they are comprehensive and collective processes designed to balance the interests of all stakeholders. Once the CIRP has been initiated, the debtor’s fate is no longer in the hands of individual creditors.
Instead, the CoC assumes control of the resolution process. The IBC mandates that any withdrawal of CIRP proceedings be done through section 12A, which requires the consent of at least 90% of the CoC. The court rightly observed that allowing a single creditor to consider a one-time settlement proposal independently would undermine the collective nature of the resolution process.
The court found the petitioner’s reliance on the RBI Framework for Compromise Settlements as equally misplaced, and it noted that while the RBI guidelines may impose procedural obligations on financial institutions, they cannot override the statutory provisions of the IBC. The framework itself acknowledges that compromise settlements must be “without prejudice to the provisions of any other statute”.
On the maintainability of the writ petition, the court reiterated that the (NCLT) is the appropriate forum for resolving disputes arising from insolvency proceedings, that the IBC provides a comprehensive framework for adjudicating such disputes, and that by passing the statutory mechanism to invoke a writ jurisdiction is impermissible. In the present case, the petitioner, instead of approaching the NCLT, had sought relief directly from the high court.
This judgment firmly establishes that once a corporate debtor is admitted into the CIRP, the resolution process must follow the statutory framework of the IBC, leaving no room for independent settlements with individual creditors. This is to maintain transparency and fairness in insolvency proceedings, ensuring that the interests of all stakeholders are balanced within the framework.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.
