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2026 Supreme(SC) 500
SUPREME COURT OF INDIA
PAMIDIGHANTAM SRI NARASIMHA, ALOK ARADHE, JJ.
Dhanlaxmi Bank Limited – Appellant
Versus
Mohammed Javed Sultan & Ors. – Respondents
Civil Appeal No. 7184 of 2022
Decided On : 07-05-2026
For the Appellant(s) : Mr. Amarjit Singh Bedi, AOR Mr. Shreedhar Gaggar, Adv. Mr. Uttiyo Mullick, Adv.
For the Respondent(s): Mr. M M Singh, Adv. Mr. Jitendra Kumar, AOR Mr. Mohit, Adv. Mr. Manoj, Adv. Ms. Aparna Sinha, AOR Mr. Muddam Thirupathi Reddy, Adv. Mr. Chandan Kumar Mandal, Adv. Ms. Anu Priya, Adv.
IMPORTANT POINT
Corporate Insolvency Resolution Process (CIRP) – IBC operates as a collective insolvency resolution mechanism and not as a forum for adjudication of individual contractual claims.
Headnote:
(A) Insolvency and Bankruptcy Code, 2016 – Section 7 – Corporate Insolvency Resolution Process (CIRP) – Initiation of – Condition precedent invocation of Section 7 of IBC is existence of ‘financial debt’ and ‘default’ in its repayment – Scheme of IBC is to ensure that when a debt becomes due and is not paid, Insolvency Resolution Process begins – IBC operates as a collective insolvency resolution mechanism and not as a forum for adjudication of individual contractual claims – Where object behind invocation of IBC is to compel payment rather than to address genuine financial distress, such invocation would amount to abuse of process – IBC must not be used as a tool for coercion and debt recovery by individual creditors. (Para 8)
(B) Insolvency and Bankruptcy Code, 2016 – Section 7 – Corporate Insolvency Resolution Process (CIRP) – Initiation of – Loan amount was directly disbursed to Builder – Structure of transaction reveals that Bank’s disbursement was intrinsically linked to performance of Builder’s obligation – Such transaction cannot be viewed in isolation as a simple financial lending arrangement between Bank and Corporate Debtor – Obligations arising out of transaction are intertwined with Builder’s performance – Dispute between parties is predominantly contractual in character involving competing claims relating to transfer of property and associated obligations – Present case does not involve a straightforward financial debt default scenario warranting initiation of CIRP – Facts disclose a dispute which is predominantly contractual in nature and is subject matter of proceedings before DRT – Permitting invocation of IBC in cases such as present one, would amount to converting insolvency proceedings into a coercive mechanism for recovery which is impermissible – Judgment passed by NCLAT affirmed. (Paras 10, 11, 12, 13 and 14)
Facts of the case:
Instant appeal assails order dated 02.08.2022 passed by National Company Law Appellate Tribunal (NCLAT), whereby order dated 20.02.2020 passed by National Company Law Tribunal (NCLT), was set aside.
Findings of Court:
Deposit made pursuant to order of DRT further indicates that matter is actively being adjudicated in appropriate proceeding. Court not inclined to interfere with judgment passed by NCLAT.
Result : Appeal dismissed.
JUDGMENT :
ALOK ARADHE, J.
1. This appeal assails the order dated 02.08.2022 passed by the National Company Law Appellate Tribunal (NCLAT), whereby order dated 20.02.2020 passed by National Company Law Tribunal (NCLT), was set aside.
FACTS
2. The relevant facts giving rise to the present appeal, as discernible from the record are set out in the following chronology of events:
(i) On 06.04.2011, M/s. Emerald Mineral Exim Pvt. Ltd. [(Corporate Debtor, (CD)] and Bengal Shrachi Housing Development Ltd. (Builder) entered into an agreement for sale of unit bearing No. SBP-9C(A) measuring 5893.5 sq. ft. which was to be constructed in the building, namely “Synthesis Business Park” New Town, Rajarhat, Kolkata (subject property).
(ii) On 27.06.2011, the appellant (Bank) sanctioned loan of Rs.1.50 Crores in favour of CD for purchasing the subject property.
(iii) On 29.06.2011, facility agreement was executed between the Bank and the CD. On the same day, a quadripartite agreement was executed between the Bank, CD, the Builder and the West Bengal Housing Infrastructure Development Corporation Limited (WBHIDCL). Under the said agreement, the CD instructed the Bank to disburse the loan amount directly to the Builder, subject to terms of the facility agreement. Pursuant thereto,
(iv) On 13.09.2011, an amount of Rs.1.34 crores was disbursed directly to the Builder.
(v) As on 12.04.2014, CD paid a sum of Rs.54,13,999.87/-to the Bank.
(vi) On 31.03.2013, the CD executed a nomination agreement with the Builder to transfer the subject property to Jupiter Pharmaceuticals Limited (JPL) for Rs.2,26,77,250/-.
(vii) On 22.04.2013 a copy of nomination agreement was furnished to the Bank.
(viii) On 10.06.2013, a deed of conveyance was executed by the CD in favour of the Builder and WBHIDCL, for transfer of the subject property for Rs.2,26,77,250/-.
(ix) On 25.04.2014, the CD executed an acknowledgement of liability.
(x) On 05.07.2014, the account of the CD was classified as a Non-Performing Asset (NPA).
(xi) On 22.07.2014, the CD again acknowledged its liability.
(xii) On 07.09.2015, the CD proposed one time settlement of Rs.74 Lakhs. The cheques issued by the CD towards repayment of the loan were dishonoured due to insufficient funds.
(xiii) On 28.01.2016 the Bank initiated proceedings under the Recovery of Debts Due to Banks & Financial Institutions Act, 1993 (1993 Act), before the Debt Recovery Tribunal (DRT) against the CD, Builder and Guarantors for the recovery of an amount of Rs.1,80,32,125.50/- as on 11.12.2015 along with interest at the rate of 14.25 % per annum.
(xiv) By an order dated 20.09.2016, the DRT held that Bank’s charge is existing and continues irrespective of the sale deed executed by the Builder in favour of the third party and appointed a receiver to take possession of the subject property from the third party. The DRT further directed the Builder to deposit a sum of Rs. 1.50 crores within two days from the date of the order, which was directed to be treated as security provided by the Builder. The Builder, on 27.09.2016, deposited a sum of Rs.1.50 crores.
(xv) On 28.09.2016, the Bank filed a winding up petition against the CD under Sections 433, 434 and 439 of the Companies Act, 1956 (1956 Act).
(xvi) Pursuant to the Central Government notification dated 07.12.2016, the matter was transferred to NCLT on 19.04.2019 and treated as a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code).
3. The NCLT, by an order dated 20.02.2020, inter alia, held that the debt and default are proved beyond reasonable doubt. The NCLT, therefore, admitted the petition and initiated Corporate Insolvency Resolution Process (CIRP) against the CD.
4. The suspended Director of the CD challenged the aforesaid order in an appeal. The NCLAT by an order dated 02.08.2022, inter alia, held that the Bank did not directly disburse the amount to the CD and, therefore, the Bank cannot be termed as “Financial Creditor” under Section 7 of the Code. It was further h
