NCLT Kochi Rejects Using IBC as Debt Recovery Mechanism for Time-Barred Claims

In a significant blow to creditors seeking to utilize insolvency proceedings as an alternative debt recovery channel, the Kochi Bench of the National Company Law Tribunal (NCLT) has dismissed a massive ₹1,323 crore insolvency petition against BPL Limited. The Coram, consisting of Judicial Member Shri Vinay Goel and Technical Member Shri Ravichandran Ramasamy, held that the Insolvency and Bankruptcy Code (IBC) cannot be treated as a substitute for civil execution proceedings.

A Legacy Dispute The insolvency plea filed by M/s Morgan Securities and Credits Private Limited (MSCPL) originated from bill discounting facilities provided to BPL Display Devices Limited and BPL Limited between 2002 and 2003. Following a default allegedly occurring on June 14, 2007, the petitioner initiated a labyrinthine path of litigation, including arbitration, winding-up proceedings, and eventual appeals that reached the Supreme Court.

Despite securing an arbitral award in 2016, which was affirmed by the Supreme Court in December 2025, MSCPL attempted to trigger the Corporate Insolvency Resolution Process (CIRP) in March 2026. The creditor argued that the arbitral award provided a fresh cause of action and that the period spent in litigation should be excluded under Section 14 of the Limitation Act.

Conflicting Legal Strategies The tribunal heavily criticized the petitioner for maintaining "antithetical" positions. While attempting to benefit from the Supreme Court-affirmed arbitral award as a fresh basis for the claim, the petitioner simultaneously pleaded for the exclusion of time spent in arbitration and appellate courts under the Limitation Act.

"A person cannot be allowed to take inconsistent pleas ," the tribunal observed. The NCLT reasoned that because the arbitration proceedings were conducted before a competent forum that resulted in a binding adjudication , the petitioner could not retroactively claim that the forum lacked jurisdiction to justify the exclusion of the 19-year period since the initial default.

Key Observations The judgment clarifies that the primary objective of the IBC is corporate revival, not the collection of adjudicated debts. The tribunal’s order emphasized:

  • "The insolvency process is not in consonance with the object and scheme of the Code," regarding the use of IBC as a parallel recovery tool.
  • "The conduct of the Petitioner unmistakably demonstrates that the primary objective was the enforcement and recovery of the adjudicated claim," after navigating the civil execution machinery over multiple years.
  • “The payment made pursuant to the Court's directions cannot be considered as an acknowledgment of debt under Section 18 of the Limitation Act, as the said deposits lack voluntariness.”

The Limits of Insolvency Jurisdiction Beyond the procedural bar of limitation, the bench distinguished this case by highlighting that the petitioner had already secured substantial recoveries (approximately ₹168 crore) through existing execution procedures in Bengaluru. The NCLT concluded that allowing the IBC petition would be an improper use of the court’s insolvency jurisdiction, functioning as a "back door" for debt enforcement.

The dismissal provides immediate relief to BPL Limited, removing a massive contingent liability from its balance sheets and reinforcing a broader trend of judicial discipline against the misuse of the IBC. While the legal battle over the final balance of the award may continue in other civil forums, the tribunal has unequivocally closed the door on using the insolvency path to bypass standard execution remedies.