(A) Insolvency and Bankruptcy Code, 2016 – Object and scope
Paras 18, 19, 20, 21
The Court reiterated that the Insolvency and Bankruptcy Code, 2016 is a legislation intended for revival and resolution of corporate debtors and not a mechanism for recovery of debts. Relying upon the principles laid down in Swiss Ribbons Pvt. Ltd. v. Union of India and Pioneer Urban Land and Infrastructure Ltd. v. Union of India, it was emphasised that the primary focus of the Code is to ensure continuation of the corporate debtor as a going concern. The insolvency process is collective in nature and cannot be invoked by individual creditors merely to realise their dues. The Court further affirmed that the IBC must not be used as a coercive tool for recovery, as clarified in GLAS Trust Co. LLC v. BYJU Raveendran.
(B) IBC proceedings – Misuse as recovery mechanism
Paras 21, 23, 32
The Court held that invocation of insolvency proceedings as a substitute for execution of a money decree constitutes an abuse of process. Where a creditor bypasses available civil remedies and invokes the IBC purely for recovery, such action is impermissible. The insolvency mechanism cannot be used as a pressure tactic to coerce payment or secure preferential recovery.
(C) Decree holder – Recourse under IBC
Paras 25, 26, 31
The Court clarified that although a decree may give rise to a fresh cause of action for initiating proceedings under Section 7 of the IBC, as held in Dena Bank v. C. Shivakumar Reddy, such right is not absolute. The permissibility of invoking the IBC must be examined in the factual context of each case. A decree holder cannot automatically prefer insolvency proceedings over execution, particularly where such invocation amounts to misuse of the process.
(D) Existence of debt – Disputed quantum
Paras 28, 29
The Court held that where the quantum of debt itself is seriously disputed and subject to adjudication before a competent court, insolvency proceedings are not appropriate. In the present case, inconsistent claims made by the creditor across different forums cast serious doubt on the computation of dues, rendering the existence of debt in its claimed form uncertain.
(E) Solvent company – Initiation of CIRP
Paras 27, 32
The Court observed that initiation of Corporate Insolvency Resolution Process against a solvent and functioning company, particularly one demonstrating willingness to discharge its liability, is contrary to the spirit of the IBC. Insolvency proceedings are intended for cases of genuine financial distress and not for enforcement of disputed claims.
(F) Parallel proceedings – Appropriate forum
Paras 28, 30
The Court held that issues relating to computation of decretal dues and adjustment of payments fall within the domain of execution proceedings or the court which passed the decree. The insolvency forum is not the appropriate mechanism to resolve such disputes, especially where proceedings are already pending before a competent court.
(G) Section 65 IBC – Fraudulent or malicious initiation
Para 24
The Court noted that Section 65 of the IBC provides for penal consequences where insolvency proceedings are initiated fraudulently or with malicious intent. This provision reflects legislative intent to prevent misuse of the insolvency process as a recovery tool.
FINAL DISPOSITION
Paras 33, 34
The appeal was allowed. The order of the NCLAT directing admission of the Section 7 application was set aside and the order of the NCLT dismissing the application was restored. The respondent was relegated to pursue execution of the civil court decree in accordance with law. Costs were awarded to the appellant.
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