Pranav B Prem

The National Company Law Tribunal, New Delhi Bench, comprising Shri Manni Sankariah Shanmuga Sundaram (Member-Judicial) and Shri Atul Chaturvedi (Member-Technical), has held that a deeper inquiry into the legality of the transfer of property or allegations of fraud cannot be adjudicated in a summary proceeding under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Section 7 application was filed by Kotak Mahindra Bank Limited as a financial creditor seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Magt Exim Limited (corporate debtor) for an alleged default of ₹9.44 crore.

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A loan against property of ₹11.02 crore had been sanctioned by Kotak Mahindra Bank to the corporate debtor and co-borrowers. The loan was intended to take over the existing liability from Yes Bank, with a property as mortgage security. When the dues of Yes Bank were cleared, the mortgage was agreed to continue in favor of Kotak Mahindra Bank.

The applicant submitted that the corporate debtor, along with other co-borrowers, availed of the financial assistance pursuant to the loan agreement and sanction letter. However, despite recalling the outstanding loan amount of ₹9.36 crore through a recall notice, the corporate debtor failed to make any repayment.

The corporate debtor, in its response, challenged the maintainability of the application, alleging that the substratum of the loan transaction was vitiated due to collusion between Kotak Mahindra Bank and Yes Bank in allowing the transfer of mortgaged property to third parties. It was contended that since the collateral security was no longer available, the loan liability was left unsecured and the transaction required a detailed inquiry, which was beyond the scope of summary proceedings under Section 7 of the Code. The respondent further submitted that the same debt is already the subject matter of recovery proceedings before the Debt Recovery Tribunal (DRT), Chandigarh, and therefore, the IBC proceedings amounted to parallel litigation for the same claim.

Findings of the Tribunal

The Bench observed that the allegations of fraud, collusion, and the legality of the property transfer were matters that required detailed examination and evidence, which could not be adjudicated in a summary proceeding under Section 7 of the IBC. It held that:“The issues raised by the corporate debtor concerning the sale of the mortgaged property, alleged collusion with Yes Bank, and the validity of the loan transaction involve serious questions of fact and law which cannot be determined within the limited summary jurisdiction of this Tribunal.”

The Tribunal further noted that the default was not clearly established and that the applicant’s approach appeared to be an attempt at recovery rather than the initiation of insolvency resolution. It reiterated that the IBC is not a substitute for recovery mechanisms, and the pendency of DRT proceedings also indicated that the financial creditor had already chosen another legal remedy for the same debt. The Bench emphasized that a deeper inquiry into issues such as the legality of transfer of property or alleged fraud can only be undertaken by a competent civil forum, not by the NCLT in summary IBC proceedings.

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Holding that the allegations of fraud and property transfer required detailed adjudication and that the default had not been sufficiently established, the NCLT dismissed the Section 7 application as not maintainable. It concluded that the proceedings under the IBC cannot be used as a recovery tool and that multiple proceedings for the same debt are not permissible under the Code.

Appearance

For the Applicant: Mr. Aman Vasisth, Advocate.

For the Respondent: Mr. Rishi Kapoor, Mr. Sumeet Kapoor, Mr. Ashish Gupta, Mr. Pranjal Srivastava, Advocates.

Cause Title: Kotak Mahindra Bank Limited vs. Mag.T Exim Limited

Case No: CP (IB) 199 (ND) 2025

Coram: Shri Manni Sankariah Shanmuga Sundaram (Judicial Member), Shri Atul Chaturvedi (Technical Member)