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Informist, Thursday, Apr. 23, 2026

 

NEW DELHI – The Supreme Court Thursday said the corporate insolvency process is a remedy with "far-reaching consequences" and must be used for cases of genuine insolvency or financial distress, not to enforce money decrees. A creditor who approaches the National Company Law Tribunal purely to secure payment of its individual dues, without genuine concern for the resolution of the corporate debtor, is acting contrary to the purpose and spirit of the Insolvency and Bankruptcy Code, 2016, it said.

 

The court said it had earlier held that a decree for money in favour of a financial creditor would give rise to a fresh cause of action for initiating proceedings against a debtor under the 2016 Code. However, this does not mean every decree holder who also happens to be a financial creditor is entitled, as a matter of right, to invoke the insolvency process in preference to execution of the decree. The question, in each case, is whether the invocation of the insolvency law amounts to misuse of the process as a recovery mechanism must be examined, it said.

 

The 2016 Code provides that if any person initiates the insolvency resolution process fraudulently or with malicious intent for any purpose other than resolution of insolvency, the tribunal may impose a penalty, said the top court. This itself underscores the legislative intent that the 2016 Code is not to be misused as a tool for recovery or as a lever to coerce payment, said the court.

 

The bench of Justice P.S. Narasimha and Justice Alok Aradhe set aside the National Company Law Appellate Tribunal's 2022 order that directed initiation of insolvency proceedings against Anjani Technoplast Ltd. on non-payment of money to Shubh Gautam, a moneylender. The court said the dues were from a money decree obtained by Gautam from the Delhi High Court and the efficacious remedy was to file an execution petition before the same court, not an insolvency petition before the tribunal.

 

The court noted that Anjani Technoplast had consistently maintained its willingness to pay whatever was lawfully due. In these circumstances, the initiation of insolvency proceedings is nothing more than use of the 2016 Code as a recovery mechanism and an abuse of the process, it said.

 

Anjani Technoplast had taken loans from Gautam in 2010. When the company did not repay the loan amount, he filed a summary suit before the Delhi High Court in 2016. In 2018, the high court passed a decree for Anjani Technoplast to pay INR 43.80 million, with interest, to Gautam. 

 

Rather than filing a plea to execute the decree, Gautam filed an insolvency petition before the tribunal against Anjani Technoplast. Though the tribunal rejected the insolvency proceedings, the appellate tribunal directed admission of insolvency against Anjani Technoplast. Challenging the appellate tribunal's order, Anjani Technoplast moved the apex court.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

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