NCLAT Upholds HDFC Bank's Insolvency Proceedings Against Shree Sant Kripa Appliances Pvt. Ltd.
Tribunal affirms that Section 7 of IBC is aimed at resolution, not mere debt recovery.
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) at its Principal Bench in New Delhi has upheld the decision of the National Company Law Tribunal (NCLT), Mumbai Bench, which admitted an insolvency application filed by HDFC Bank against Shree Sant Kripa Appliances Pvt. Ltd. The appeal was dismissed on November 28, 2025, by a bench comprising Justice Ashok Bhushan and Member (Technical) Barun Mitra.
The case involved an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), initiated by HDFC Bank for an outstanding default amounting to ?69,49,71,322 as of April 30, 2025. The appellant, Rajesh Jeevan Uttamchandani, erstwhile director of the corporate debtor, contested the NCLT's order, arguing that the proceedings under Section 7 were being used as a debt recovery mechanism. He cited previous Supreme Court judgments emphasizing that the IBC's primary objective is the resolution and rehabilitation of corporate debtors, not merely recovery.
The appellant's counsel argued that a settlement was underway involving 70% of the outstanding dues, and the State Bank of India had also shown willingness to settle by communicating account details for a 10% deposit. However, the NCLAT clarified that once the Committee of Creditors (CoC) is constituted, as it had been in this case, any settlement requires CoC approval under Section 12A of the IBC.
The tribunal also dismissed the argument that the corporate debtor's inactivity over the past two years should prevent resolution proceedings. It underscored that the IBC's intent is to prevent the corporate death of a debtor by ensuring its assets are protected and creditors' rights are safeguarded, even if the debtor has not been operational.
The NCLAT reaffirmed that proceedings under Section 7 are not adversarial but protective of the corporate debtor's interests, emphasizing that the risk of insolvency proceedings is undertaken by financial creditors to facilitate the potential revival of the debtor through new management.
The tribunal's decision reinforces the jurisprudence that the IBC's framework is designed to balance the interests of creditors while aiming for the corporate debtor's rehabilitation. The appeal was dismissed, allowing the insolvency proceedings to continue under the purview of the IBC.
Bottom Line:
Proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) are not a mere recovery mechanism but are aimed at the resolution and rehabilitation of the corporate debtor.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Sections 7, 12A.
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