NCLT Dismisses Kotak Mahindra's Insolvency Plea Against Mag.T Exim Ltd.
Tribunal rules absence of default and improper use of IBC as recovery mechanism.
In a significant ruling, the National Company Law Tribunal (NCLT), New Delhi Bench, has dismissed the insolvency application filed by Kotak Mahindra Bank Limited against Mag.T Exim Limited under Section 7 of the Insolvency and Bankruptcy Code, 2016. The bank sought to initiate Corporate Insolvency Resolution Process (CIRP) against the corporate debtor, alleging default in repayment of a financial debt amounting to Rs. 9.44 crore.
The adjudicating authority, comprising Member (Judicial) Shri Manni Sankariah Shanmuga Sundaram and Member (Technical) Shri Atul Chaturvedi, found that the application lacked merit due to the absence of a subsisting default. The NCLT emphasized that the Insolvency and Bankruptcy Code (IBC) is not intended to serve as a recovery mechanism, especially when parallel proceedings are already pending before the Debt Recovery Tribunal (DRT) for the same cause of action.
Kotak Mahindra Bank alleged that Mag.T Exim Limited, along with co-borrowers, had availed financial facilities from the bank, which led to a default in repayment. The bank argued that the sale of mortgaged property and subsequent non-payment of Equated Monthly Installments (EMI) constituted a willful default.
However, Mag.T Exim countered by highlighting the alleged collusion between Kotak Mahindra Bank and Yes Bank, which resulted in the unauthorized sale of the mortgaged property. The corporate debtor argued that this action undermined the loan's security structure, leaving them without the protection of the underlying asset.
The NCLT noted that the allegations of fraud and disputed questions of fact could not be adjudicated within the summary proceedings of Section 7 of the IBC. The tribunal further observed that M/s Ashiana Ispat Ltd., a co-borrower, had made significant part-payments towards the outstanding debt, which substantiated the absence of default.
In its ruling, the tribunal reiterated that the IBC's objective is the resolution of insolvency and maximization of the corporate debtor's assets, not debt recovery. The NCLT criticized the bank's conduct as forum shopping, which goes against the scheme and object of the IBC.
The tribunal concluded that the application was not maintainable and dismissed it, granting the applicant liberty to seek recovery through the appropriate legal forum. This ruling reinforces the principle that insolvency proceedings cannot be misused as a debt recovery tool.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Application under Section 7 dismissed due to absence of subsisting default and improper use of IBC as a recovery mechanism.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016, Section 7
