Continuation Of CIRP By Sole Creditor Despite Full Repayment Is Malicious Use Of IBC: NCLAT Delhi

The New Delhi National Company Law Appellate Tribunal (NCLAT) on 30 June held that continuation of insolvency proceedings by a sole creditor despite full repayment of the debt amounted to malicious use of the Insolvency and Bankruptcy Code (IBC), which is intended for revival of corporate debtors and not for pursuing coercive or vindictive action.

Judicial Member Justice N Seshsayee and Technical Members Arun Baroka and Indevar Pandey terminated the Corporate Insolvency Resolution Process (CIRP) against Sulojay Realty Pvt. Ltd. and dismissed the appeal filed by suspended director Achal Kumar Jindal. The Bench observed:

“It may be true, that when this money was due for repayment, it was not paid, but when it is offered on a platter the creditor rejects, especially when he has no one to consult, or decide for him. Is it then fair for this one creditor-one member- CoC to reject the offer, merely because there existed grounds for commencing CIRP? What exactly this creditor wants – the blood of the suspended board of the corporate debtor, or its revival?”

The appeal arose from a 13 December 2024 order of the Kolkata Bench of the National Company Law Tribunal, which had admitted Sulojay Realty into CIRP under Section 7 of the IBC on a petition filed by majority shareholder and financial creditor Sanjay Kumar Bhuwalka.

Sulojay Realty incorporated in March 2021, had received Rs 7.47 crore from Bhuwalka between April 2021 and May 2022. A part payment of Rs 1.85 crore was made in June 2021, while the remaining liability of Rs 6.43 crore was reflected in the company's financial statements for FY 2021–22 and FY 2022–23.

In June 2022, Bhuwalka and his family exited the company after transferring their shareholding to Exclusive Motors Pvt. Ltd., following which control of the corporate debtor shifted to Jindal and Satya Prakash Bagla.

Subsequently, while payments were made to other stakeholders, Bhuwalka's dues remained outstanding. On 29 February 2024, he issued a demand notice for Rs 7.54 crore including interest and thereafter filed a Section 7 petition, leading to admission of CIRP by the NCLT.

During the proceedings, the NCLAT had earlier, on 18 December 2024, stayed further progress of CIRP subject to deposit of the entire claimed amount with interest. The appellant complied and deposited the amount, subsequently seeking termination of CIRP on the ground that the debt stood fully satisfied.

Jindal argued that once the entire debt was deposited with interest, continuation of CIRP served no purpose, as the creditor could recover his dues from the deposited amount. He further contended that refusal by a sole creditor to accept repayment demonstrated mala fide intent and amounted to abuse of process under Section 65 of the IBC.

Bhuwalka, however, maintained that once default is established, admission under Section 7 is mandatory, and settlement or solvency considerations are irrelevant at the admission stage. He also argued that the deposit was made only pursuant to interim directions and that pleas under Section 65 or Rule 11 were not raised before the NCLT.

The Tribunal noted that the Committee of Creditors comprised only one member and that no other claims had been filed before the Interim Resolution Professional. It observed that despite full repayment having been made, the sole creditor refused to accept settlement and insisted on continuation of CIRP. Further, the Bench cautioned that the IBC is a mechanism for revival of stressed companies and not for settling personal scores between parties. It observed:

“If CIRP is all about revival of the corporate debtor and about settling any personal scores, and if the first respondent believes in the legislative philosophy of the Code, then what legal or moral grounds has he when the suspended director himself indicates his intent to revive and keep alive the corporate debtor with his offer of settlement? Does not the conduct of the creditor reflect an intention to misuse IBC and its process? If the first respondent's keenness to continue the CIRP does not reflect malice, what else will?”

Referring to Section 65 of the IBC, the Tribunal noted that although it operates post-initiation, evident misuse can be addressed during proceedings itself to prevent abuse of process. It observed that allowing continuation of CIRP despite complete repayment would defeat the legislative intent. It held that in a one-creditor scenario, refusal to accept full repayment reflected malicious intent and misuse of the insolvency framework

Accordingly, the NCLAT terminated the CIRP against Sulojay Realty and dismissed the appeal.