The National Company Law Appellate Tribunal (“NCLAT“) has held that where a corporate debtor has only one financial creditor constituting the sole member of the Committee of Creditors (“CoC“), and the entire admitted debt is offered for repayment during the pendency of the Corporate Insolvency Resolution Process (“CIRP“), an arbitrary refusal by such creditor to accept the repayment and insistence upon continuation of CIRP may amount to a malicious abuse of the insolvency process within the meaning of Section 65 of the Insolvency and Bankruptcy Code, 2016 (“IBC“).
The Tribunal observed that while admission of a Section 7 application is based upon the existence of a financial debt and default, continuation of CIRP despite a genuine offer of settlement by the promoters, particularly where no third-party interests have intervened and no other creditors exist, would be contrary to the revival-centric philosophy of the IBC. Accordingly, exercising its appellate jurisdiction, the NCLAT terminated the CIRP initiated against the Corporate Debtor.
Background
The Corporate Debtor, Sulojay Realty Pvt. Ltd., was incorporated in March 2021. The First Respondent, Sanjay Kumar Bhuwalka, was one of its directors and majority shareholder. Between April 2021 and May 2022, he advanced approximately Rs. 7.47 crores to the Corporate Debtor through banking channels. After partial repayment, the Corporate Debtor acknowledged an outstanding liability of approximately Rs. 6.43 crores in its financial statements for FY 2021-22 and FY 2022-23.
Subsequently, pursuant to a Share Purchase Agreement dated 2 June 2022, the shareholding of the Bhuwalka and Agarwala families was transferred to Exclusive Motors Pvt. Ltd., resulting in a complete change in management. Following the change in control, the Corporate Debtor allegedly repaid approximately Rs. 55.66 crores to members of the Agarwala family towards their loans, whereas the dues payable to the First Respondent remained unpaid.
Consequently, the First Respondent initiated proceedings under Section 7 of the IBC. By order dated 13 December 2024, the NCLT, Kolkata Bench admitted the application and commenced CIRP against the Corporate Debtor. The suspended director challenged the admission order before the NCLAT.
Subsequent Developments During Appeal
While entertaining the appeal, the NCLAT directed that further progress in the CIRP would remain stayed, subject to the Appellant depositing the entire amount claimed by the financial creditor together with accrued interest.
Pursuant to the interim order, the Appellant deposited the entire outstanding amount before the Appellate Tribunal and thereafter offered that the amount be released to the First Respondent towards complete satisfaction of his claim.
The First Respondent, however, refused to accept the amount, contending that the deposit had merely been made to secure interim protection and did not amount to a voluntary settlement under Section 12A of the IBC. He further argued that withdrawal of CIRP could only be permitted through the statutory mechanism prescribed under Section 12A read with Regulation 30A and could not be directed by the Appellate Tribunal in the absence of his consent.
Appellant’s Contentions
The Appellant submitted that irrespective of the merits of the original admission order, the subsequent events had fundamentally altered the nature of the dispute.
It was argued that the entire debt, together with interest, had already been deposited before the Tribunal and had been unequivocally offered to the sole financial creditor. Since the Corporate Debtor had only one creditor, continuation of CIRP after complete repayment would serve no insolvency resolution purpose and would merely amount to an abuse of the insolvency process.
The Appellant further contended that the refusal of the sole financial creditor to accept repayment demonstrated that the proceedings were no longer intended for insolvency resolution. Such conduct, it was argued, attracted Section 65 of the IBC and justified exercise of the Tribunal’s inherent powers to terminate the CIRP.
Respondent’s Contentions
The Respondent argued that once the existence of financial debt and default stood established, the Adjudicating Authority was duty-bound to admit the application under Section 7.
It was further submitted that the deposit of money pursuant to an interim order did not amount to a concluded settlement. Since Section 12A specifically governs withdrawal of CIRP after admission, no proceedings could be terminated without the consent of the original applicant. Reliance was placed upon the Supreme Court’s decision in GLAS Trust Co. LLC v. Byju Raveendran to contend that inherent powers cannot override the statutory mechanism governing withdrawal of CIRP.
The Respondent also argued that Section 65 could not be invoked for the first time in appeal and that mere refusal to accept repayment could not constitute malicious initiation of insolvency proceedings.
Commencement and Continuation of CIRP Stand on Different Footing
The NCLAT observed that although initiation of CIRP depends solely upon existence of financial debt and default, continuation of the insolvency process after admission stands on a different footing.
The Tribunal noted that the criteria necessary for commencement of CIRP cannot automatically govern its continuation after material subsequent events have taken place. Once a genuine settlement offer emerges during the pendency of CIRP, particularly where the entire debt has been secured and repayment offered, the Tribunal must examine whether continuation of insolvency proceedings still advances the objectives of the Code.
According to the Tribunal, Section 12A itself recognises that CIRP need not invariably continue merely because it was validly admitted at the threshold.
Revival is the Primary Objective of the IBC
Referring to Swiss Ribbons Pvt. Ltd. v. Union of India, Kridhan Infrastructure Pvt. Ltd. v. Venkatesan Sankaranarayanan, and M. Suresh Kumar Reddy v. Canara Bank, the Tribunal reiterated that the IBC is fundamentally intended to revive financially distressed companies and that liquidation is only a measure of last resort.
The Tribunal observed that where the promoters themselves express willingness to discharge the entire admitted debt and revive the Corporate Debtor, continuation of CIRP merely because it was initially validly admitted would defeat the legislative philosophy underlying the Code.
The Tribunal further emphasised that the IBC is not an expropriatory legislation intended to compulsorily divest promoters of their enterprise merely because a default once occurred.
Arbitrary Refusal by Sole Creditor May Constitute Malice
The Tribunal attached considerable significance to the peculiar facts that the Corporate Debtor had only one financial creditor, who also constituted the sole member of the CoC.
Since the entire amount claimed had already been deposited before the Tribunal and was offered towards complete discharge of the debt, the Tribunal found no rational justification for the creditor’s insistence upon continuation of CIRP.
The Tribunal observed that where no competing interests of other creditors exist, refusal by the sole creditor to accept complete repayment may reveal an intention to misuse the insolvency process for purposes other than resolution of insolvency. Such conduct, according to the Tribunal, reflected malice attracting Section 65 of the Code.
Decision
Allowing the appeal, the NCLAT held that continuation of CIRP in the peculiar facts of the case would amount to abuse of the insolvency process.
The Tribunal observed that although the First Respondent was legally entitled to reject the settlement offer, such refusal, when viewed in the context of there being only one financial creditor, complete deposit of the outstanding debt with interest, and absence of any competing creditors, demonstrated an intention inconsistent with the revival-oriented objectives of the IBC.
Holding that the insolvency process was being employed for purposes alien to the scheme of the Code, the NCLAT exercised its appellate jurisdiction and terminated the CIRP initiated against the Corporate Debtor.
Case Details
Case Name: Achal Kumar Jindal v. Sanjay Kumar Bhuwalka & Anr.
Court: National Company Law Appellate Tribunal (Principal Bench)
Case No.: Company Appeal (AT) (Ins.) No. 2341 of 2024
Date of Judgment: 30 June 2026
Coram: Justice N. Seshasayee (Judicial Member), Arun Baroka (Technical Member) and Indevar Pandey (Technical Member).