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Shields IBC from Becoming Debt Recovery Shortcut in Builder-Funded Property Deals
In a significant ruling on the scope of the , the dismissed an appeal by against directors of M/s. , upholding the National Company Law Appellate Tribunal's (NCLAT) decision to set aside initiation. Justices Alok Aradhe and Pamidighantam Sri Narasimha emphasized that the IBC is a collective resolution mechanism, not a tool for individual creditors to coerce payments in tangled contractual disputes. The bench, in a judgment dated , ruled that loans disbursed directly to builders under linked agreements don't qualify as straightforward "" under .
From Loan Sanction to NPA Nightmare: The Deal That Sparked Multi-Forum Battles
The saga began in 2011 when (the corporate debtor) signed an agreement with to buy a 5,893.5 sq. ft. unit in Kolkata's "Synthesis Business Park." Dhanlaxmi Bank sanctioned a Rs. 1.50 crore loan to fund this, executing a facility agreement and a quadripartite pact involving the bank, debtor, builder, and . Crucially, the debtor instructed the bank to pay the builder directly—Rs. 1.34 crores were disbursed on .
Payments stuttered: the debtor repaid about Rs. 54 lakhs by 2014 but acknowledged liabilities multiple times amid a nomination to and a conveyance deed. The account turned in . The bank first approached the in 2016, securing a receiver for the property and a Rs. 1.50 crore deposit from the builder as security. Undeterred, it filed a winding-up petition under the , transferred to NCLT as a plea in 2019. NCLT admitted it in , finding debt and default proven—but NCLAT reversed this in , citing no direct disbursement and .
Bank's Plea: 'We're the True Lender, Honour the Agreements'
Dhanlaxmi Bank's senior counsel argued it was undeniably a , pointing to the facility and quadripartite agreements naming the debtor as borrower. The debtor paid interest, executed liability acknowledgments, and proposed settlements (though cheques bounced). The Rs. 1.50 crore DRT deposit remained unadjusted, and parallel remedies didn't equate to . The bank urged the Court to restore NCLT's order, insisting on a clear debt-default under IBC.
Respondents' Counter: 'This is Builder Drama, Not Insolvency'
Respondents, including suspended director Mohammed Javed Sultan, countered that direct payment to the builder meant no enforceable default by the debtor alone. The quadripartite deal tied repayment to the builder's construction and transfer duties—making it a web of obligations, not pure lending. With DRT proceedings ongoing, they branded the IBC move as recovery coercion in a contractual tangle over property transfer.
Dissecting the Quadripartite Web: Why IBC Doesn't Fit
The Court meticulously parsed clauses 7-14, 16-20, and 25 of the
, noting the bank's upfront payment to the builder, tied to construction completion, refunds on defaults, and liens only post-sale deed.
"The structure of transaction reveals that Bank’s disbursement was intrinsically linked to performance of Builder’s obligation,"
the bench observed, rejecting a siloed view of bank-debtor relations.
Drawing on precedents like Innovative Industries Ltd. v. ICICI Bank (2018) 1 SCC 407—affirming IBC triggers on unpaid dues—and Pioneer Urban Land v. Union of India (2019) 8 SCC 416—warning against abuse for payments—the Court stressed IBC's collective role. Recent cases Glas Trust Co. LLC v. BYJU Raveendran (2025) 3 SCC 625 and Anjani Technoplast Ltd. v. Shubh Gautam (2026 INSC 410) reinforced: no coercion via IBC. With DRT actively seized (security deposit intact), this was "predominantly contractual," not insolvency distress.
As reported in legal analyses like LiveLaw (), the ruling aligns with guarding IBC from "luxury litigation" in property rows.
Key Observations
"The Code operates as a and not as a forum for the adjudication of individual contractual claims."
"The indicates that the Builder had significant obligation concerning the construction, delivery and transfer of subject property."
"The present case does not involve a straightforward -default scenario warranting initiation of CIRP."
"Permitting invocation of the Code in cases such as the present one, would amount to converting insolvency proceedings into a which is impermissible."
Appeal Dismissed: DRT Stays the Course, IBC Boundaries Reinforced
The
dismissed the appeal without costs:
"In the result, appeal fails and is hereby dismissed."
Practically, it sends Dhanlaxmi Bank back to DRT for recovery, preserving the Rs. 1.50 crore deposit. For future cases, banks in builder-tied loans must prove unentangled
before NCLT—curtailing IBC misuse in realty disputes, prioritizing specialized forums like DRT, and safeguarding genuine insolvency from contractual crossfire.
