Pranav B Prem

The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Ms. Reeta Kohli, Member (Judicial), and Ms. Madhu Sinha, Member (Technical), has held that the conduct of a Financial Creditor in accepting substantial One-Time Settlement (OTS) payments while simultaneously pursuing Corporate Insolvency Resolution Process (CIRP) proceedings constitutes an attempt to misuse the Insolvency and Bankruptcy Code, 2016 (IBC) as a recovery mechanism. The Tribunal reiterated that the objective of the IBC is not debt recovery but the resolution of the Corporate Debtor.

Background Facts

IFCI Limited ("Petitioner/Financial Creditor") filed a petition under Section 7 of the IBC read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, seeking initiation of CIRP against Patil Construction & Infrastructure Ltd. ("Respondent/Corporate Debtor") for an alleged financial debt of approximately Rs. 26.28 crores.

Also Read: NCLT Mumbai: Payment Received In Advance By Corporate Debtor For Future Supply Of Goods Is Considered Operational Debt Under IBC

Facts and Submissions of the Financial Creditor

The Corporate Debtor availed a loan of Rs. 50 Crores from the Financial Creditor, sanctioned on 02.03.2015 and disbursed on 17.04.2015. Due to defaults, a Recall Notice was issued on 09.08.2019, and the account was classified as a Non-Performing Asset (NPA) on 23.09.2019. The Financial Creditor invoked guarantee obligations on 01.10.2019 and took symbolic possession of the secured assets on 14.01.2020. The Corporate Debtor admitted the loan liability and an outstanding amount of Rs. 14.29 crores, offering a settlement proposal, which the Financial Creditor rejected on 29.08.2022, proceeding instead with the CIRP petition.

Facts and Submissions of the Corporate Debtor

The Corporate Debtor submitted an OTS proposal on 24.04.2023, which was rejected by the Financial Creditor on 21.07.2023. By that time, the Corporate Debtor had already deposited Rs. 3 Crores. The Corporate Debtor submitted a revised OTS proposal on 22.07.2023 and agreed to submit post-dated cheques worth Rs. 13.03 crores. The Financial Creditor accepted these cheques and did not dispute the OTS terms. The Corporate Debtor had already paid Rs. 13.11 crores under the final OTS, leaving a balance of Rs. 2.91 crores due on 31.07.2024.

The Financial Creditor rejected the OTS on 20.02.2024, seven months after the final offer, despite retaining two post-dated cheques. One cheque, dated 30.04.2024, was returned only after the Corporate Debtor deposited Rs. 2.91 crores, while the final cheque remained in the Financial Creditor’s possession. The Corporate Debtor contended that the retention of post-dated cheques implied acceptance of the OTS.

Tribunal’s Observations

The Financial Creditor cited 09.01.2018 as the date of default, making the three-year limitation period expire on 09.01.2021. However, based on a Supreme Court ruling, the limitation period was extended until 01.06.2022. The Financial Creditor relied on an acknowledgment dated 15.03.2022 by the Corporate Debtor to argue that the petition was within the limitation period. The Tribunal held that since the acknowledgment was made within the extended limitation period, the petition was not barred by limitation.

Findings on the Conduct of the Financial Creditor

The Tribunal found that the Financial Creditor’s conduct—accepting payments under the OTS proposal, managing post-dated cheques as per the OTS arrangement, and returning post-dated cheques only upon receipt of corresponding payments—amounted to a "deemed acceptance" of the OTS. The OTS proposal was formally rejected only after the Corporate Debtor had made substantial payments. The Tribunal observed: "The Financial Creditor cannot now be permitted to abandon this repayment arrangement (OTS) when substantial compliance had already been achieved."

Relying on the precedent set in GLAS Trust Company LLC v. BYJU Raveendran & Ors.[Civil Appeal No. 9986 of 2024], the Tribunal reiterated that the IBC is meant for resolution, not debt recovery. The Financial Creditor, despite having accepted a substantial portion of the OTS payments, sought to proceed with CIRP solely due to the last tranche remaining unpaid. The Tribunal noted that the Financial Creditor’s retention of the final post-dated cheque while pursuing CIRP indicated a misuse of the IBC framework.

Also Read: “Reasoned Decision Is an Indispensable Part of Justice”: Orissa High Court Quashes Cancellation of Regularisation, Holds ‘Mechanical Orders Without Reasons Cannot Be Countenanced in Law’

Verdict    

The Tribunal held that the Financial Creditor was using the IBC as a recovery tool rather than a resolution mechanism. The petition was dismissed.

Appearance

For the Petitioner: Adv. Ayush Kothari (PH)

For the Respondent: Adv. Nausher Kohli (PH)

Cause Title: IFCI Limited vs. M/s. Patil Construction & Infrastructure Ltd.

Case No: C.P. (I.B) No. 142/MB/2023

Coram: Ms. Reeta Kohli, Hon’ble Member (Judicial), Ms. Madhu Sinha, Hon’ble Member (Technical) 

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