Detailed Inquiry Into Legality Of Transfer Of Property Cannot Be Adjudicated In Summary Proceeding U/S 7 IBC: NCLT New Delhi
The NCLT, 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 IBC. The Section 7 application was filed by the financial creditor...
The NCLT, 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 IBC.
The Section 7 application was filed by the financial creditor seeking initiation of the CIRP against the corporate debtor for default of Rs. 9.44 Cr.
A loan against property of Rs. 11.02 Cr. was sanctioned by the Kotak Mahindra Bank to the corporate debtor and other co-borrowers.
The loan was intended to take over the existing liability from the Yes Bank, with a property as mortgage security. When the dues of the Yes Bank were closed, it was agreed that the mortgage would continue in the applicant bank's favor.
The applicant bank submitted that the corporate debtor, along with the other co-borrowers, availed the financial assistance from the bank pursuant to a letter and loan agreement. It highlighted that the loan recall notice entitles the bank to recall the loan. However, when the applicant recalled the amount of Rs. 9.36 Cr., the corporate debtor didn't respond.
The respondent disputed the maintainability of the application by contending that the substratum of the loan transaction was vitiated due to the alleged collusion of the financial creditor with Yes Bank in permitting the transfer of the mortgaged property to third parties.
The corporate debtor also highlighted that the collateral security is gone, and it is responsible for the loan without any protection from the asset that was supposed to back it.
The NCLT observed that the allegations and counter-allegations concerning the sale of mortgage property, collusion with Yes Bank, and the validity of the loan involve questions of fact and allegations of fraud. Therefore, it cannot be adjudicated in the summary proceedings u/s 7 of the IBC.
Further, the bench ruled that the deeper inquiry with regard to allegations of fraud and legality of transfer should be adjudicated by the competent forum. It also observed that the default has not been established.
Furthermore, the bench observed that the applicant has already approached the DRT Chandigarh for the same debt, and the code doesn't permit the multiple proceedings for the same debt. Furthermore, the IBC cannot be a substitute for the recovery forum.
While observing that the present application was an attempt for recovery, the adjudicating authority dismissed it due to lack of maintainability.
Case Name: Kotak Mahindra Bank Limited vs. Mag.T Exim Limited
Case No: CP (IB) 199 (ND) 2025
Corum: Shri Manni Sankariah Shanmuga Sundaram (Judicial Member), Shri Atul Chaturvedi (Technical Member)
Order Date: 09.09.2025