IBC Not A Recovery Mechanism, Additional Claims Of Interest Beyond Amount In Petition Cannot Justify Admission Of Insolvency Plea: NCLT Mumbai

The bench dismissed the petition and observed that IBC is not a recovery mechanism and the additional claims of interest beyond the amount mentioned in the petition cannot justify admission.

Background

Ritwik Finance Pvt. Ltd., an NBFC, extended a secured loan facility of Rs. 60 lakhs to Genesiis Constro Pvt. Ltd. The financial creditor claimed an amount of Rs 1.16 Cr, which includes interest, TDS, and penal charges. The financial creditor served the demand notice and later on filed the petition u/s 7 of the IBC.

Contention of the Parties

The financial creditor argued that the corporate debtor failed to adhere to the repayment schedule and violated the terms of the letter executed between the parties. The applicant produced the records of the ledger of its company to counter the argument of the corporate debtor that the transaction was of a circular nature.

The applicant relied on the decision of the NCLAT in Union of India vs. Infrastructure Leasing and Financial Services Ltd. & Ors., Company Appeal (AT) (Ins) No. 346 of 2018, wherein it was held that the collapse of agreements between the original lender, third-party borrowers, and final borrower can only be undertaken if there are mutual agreements between the parties. However, the present case does not contain such an agreement.

Per contra, the corporate debtor contended that the loan has been paid through its sister concern, Genesiis Land and Leisure Pvt. Ltd. It also argued that the entire transaction is a circular financial arrangement at the behest of the financial creditor.

The corporate debtor also highlighted that the creditor waived the sanction letter's terms, misused checks for filing a false criminal case, and manipulated accounting entries. They cited the Supreme Court's decision in Phoenix ARC Private Limited vs. Spade Financial Services Limited, wherein it was held that the existence of disbursement against consideration for time value of money is an essential requirement even for transactions covered under clause (a) to (i) of section 5(8) of IBC defining financial debt. It highlighted that the due amount shown in the petition is not calculated on the basis of interest rates mentioned in the letter.

Observations of the NCLT

The bench observed that the existence of debt is not the matter of dispute, but only the nature of debt is disputed between the parties.

The tribunal rejected the argument of circular transactions, as the repayment from the sister concern was applied against the entity's separate loan liability of Rs. 4.5 Cr to the financial creditor.

The bench noted that the payment of interest by the corporate debtor until 2022 serves as acknowledgment of debt.

The tribunal dismissed the application, considering that the corporate debtor has fully settled the debt claimed via demand draft. Since no post obligations were claimed, the tribunal viewed it as a recovery attempt rather than a resolution effort, which is not the purpose of the IBC.

Case Title: Ritwik Finance Enterprises Private Limited v. Grenesiis Constro Pvt. Ltd.

Case Number: CP (IB)/ 627 (MB)/ 2024

For Applicant: Mr. Shyam Kapadia a/w Ms. Akansha Ware i/b Mr. Animesh Khandelwal, Ld. Counsel

For Respondent: Mr. Nausher Kohli a/w Ms. Vaishanavi Mane a/w Mr. Sushant Chavan, Ld. Counsel

Bench: Justice V.G. Bisht (Retd.) and Prabhat Kumar (Member - Technical)

Judgment Date: 08/07/2025

Click Here To Read/Download The Order