the The Great Escape: How Strategic Settlements Are Undermining India’s Insolvency Process

Abstract

Corporate insolvency was meant to be swift, transparent, and fair under India’s Insolvency and Bankruptcy Code, 2016 (IBC). But as this paper reveals through the case of Indian Bank (Erstwhile Allahabad Bank) v. Nimitaya Hotel & Resorts Pvt. Ltd.,[1] that promise is increasingly being tested by clever legal manoeuvres.

In the Nimitaya case, despite the corporate debtor’s default and admission into insolvency proceedings in 2021, its suspended promoter repeatedly disrupted the resolution process by filing one settlement proposal after another—each slightly revised but timed to derail the momentum of the Corporate Insolvency Resolution Process (CIRP).[2] When the Committee of Creditors (CoC) had already approved a viable resolution plan, the promoter returned with yet another offer, prompting the National Company Law Tribunal (NCLT) to intervene and impose costs for abusing the legal process.[3]

This paper delves into how such tactical misuse of Section 12A (withdrawal of CIRP on settlement) reflects a growing trend of promoters gaming the system to prolong control over company assets. It raises pressing questions: Why are repetitive settlement proposals even entertained? Why is Section 65, which penalizes fraudulent and malicious filings, rarely enforced? How can we safeguard creditor interests while respecting genuine attempts at revival?

By drawing on jurisprudence from India and abroad, the paper proposes practical solutions—such as tightening timelines for settlement applications, restricting multiple filings, and enabling insolvency professionals to flag and reject abuse early. Through this focused lens, the paper aims to show how procedural delays can be tackled without compromising the foundational goals of the IBC: speed, fairness, and value maximization.

[1] Indian Bank (Erstwhile Allahabad Bank) v. Nimitaya Hotel & Resorts Pvt. Ltd., C.P. (IB) No. 1913 (ND)/2019

[2] Ajay Lulla, NCLAT Reiterates Barring on Submission of New Settlement Proposals after CoC Approves Resolution Plan, K&S & K Newsletter (Sept. 16, 2024), https://ksandk.com/newsletter/nclat-settlement-proposals-coc-resolution/ (last accessed July 27, 2025).

[3] Pallavi Mishra, NCLT Delhi Imposes Cost of Rs. 1 Lakh on Suspended Director, LiveLaw (Dec. 22, 2022), https://www.livelaw.in/news-updates/nclt-delhi-imposes-cost-of-rs-1-lakh-on-suspended-director-corporate-debtor217339#:~:text=Pallavi%20Mishra&text=Gupta%20(Technical%20Member)%2C%20while,Director%20of%20Corporate%20Debtor...  (last accessed July 27, 2025).