Termination of Insolvency Process Cannot Be Challenged When Order Also Granted Relief: Supreme Court

The Supreme Court has dismissed a creditor's appeal against the termination of a company's insolvency process, observing that it failed to understand how the order could be challenged when the proceedings had been terminated and relief had also been granted through that termination.

“Termination of legal proceedings cannot be a ground for assailing the same particularly when the relief has also granted by such termination of legal proceedings viz., Corporate Insolvency Resolution Process (CIRP) in the instant case,” the top court observed.

The bench of Justice B.V. Nagarathna and Justice R. Mahadevan dismissed the appeal against an order of the National Company Law Appellate Tribunal.

The appellate tribunal had terminated the Corporate Insolvency Resolution Process against Sulojay Realty Private Limited.

The creditor had advanced about ₹7.47 crore to the company between April 2021 and May 2022. The company made a partial repayment of about ₹1.85 crore in June 2021. Its annual reports for the financial years 2021-22 and 2022-23 acknowledged the outstanding liability. About ₹6.43 crore was shown as due as of March 31, 2023.

When repayment was not forthcoming, the creditor initiated insolvency proceedings against the company. The National Company Law Tribunal, Kolkata Bench, admitted the company into the Corporate Insolvency Resolution Process in December 2024.

The company's suspended director challenged that order before the appellate tribunal. When the appeal was first moved, the tribunal restrained further progress of the insolvency process, except for the collation of claims. The direction was subject to the suspended director depositing the entire amount claimed by the creditor along with accrued interest.

The amount was deposited. The suspended director subsequently sought termination of the insolvency process. He also offered the deposited amount towards satisfaction of the creditor's claim.

The creditor refused the offer. He maintained that the deposit had been made pursuant to the appellate tribunal's interim direction. According to him, it could not be treated as a settlement between the parties.

The appellate tribunal recorded that the creditor was the sole member of the Committee of Creditors. It also noted that no other claims had been received after the Interim Resolution Professional invited creditors to submit their claims.

Taking note of the developments during the appeal, the tribunal considered the fact that the entire amount claimed by the creditor had been deposited. The suspended director had offered that amount towards repayment of the debt.

The tribunal found the rejection of the offer to be without justification. It noted that the Committee of Creditors had only one member and that no other claims had been received. In these circumstances, it viewed the continued pursuit of the insolvency process as an attempt to abuse the insolvency framework.

Taking cognisance of these developments, the appellate tribunal terminated the Corporate Insolvency Resolution Process.

The creditor challenged that decision before the Supreme Court. The Supreme Court dismissed the appeal.

It observed that it failed to understand how the NCLAT's order could be questioned, as the termination order had also granted creditor relief in the matter.

The top court also permitted the creditor to apply before the National Company Law Appellate Tribunal for withdrawal of the amount deposited by the suspended director.

If such an application is filed, the tribunal will consider it in accordance with law. The creditor was permitted to withdraw the amount according to his entitlement.

For Appellant: Advocates Sidhant Kumar, Ekssha Kashyap, Moomal Joshi, Shreya Kasera, Sahil Tagotra, AOR

For Respondent: Gopal Sankaranarayan, Sr. Advocate, Apoorv Agarwal, AOR, Manav Goyal, Aastha, Manvi Jain, Ritika Gusain, Kanishk Garg, Siddharth Venugopal