NCLAT rules that breach of restructuring terms does not nullify original financial debt under IBC.
Original Financial Debt Survives Breach of Consent Terms: NCLAT Delhi
The National Company Law Appellate Tribunal (NCLAT), Delhi, held that a financial debt does not cease to exist merely because the corporate debtor breached terms of a consent agreement under SARFAESI or IBC. The original debt remains enforceable, restoring the creditor's right to initiate insolvency proceedings.
The corporate debtor had entered into a consent-based restructuring with creditors, which subsequently failed. The adjudicating authority had dismissed a Section 7 IBC petition, citing the existence of the consent terms. NCLAT reversed this, stating that a breach revives the enforceability of the original claim, including for triggering CIRP.
"Breach of a compromise or restructuring does not extinguish the underlying financial obligation."
This decision strengthens creditor rights under IBC. Legal teams must assess default timelines carefully—breach of restructuring terms can restart limitation periods and legitimise fresh IBC petitions under Section 7.
Citations
- Insolvency and Bankruptcy Code, 2016, Section 7