IBC Is Not a Recovery Forum: CIRP Application Rejected Where Amount Claimed Was Paid in Full, Additional Interest Dismissed

The National Company Law Tribunal (NCLT) held that the Insolvency and Bankruptcy Code (IBC) is not a recovery forum, and rejected the CIRP application where the entire amount claimed in the petition had been paid in full, observing that a demand for additional interest beyond the petitioned amount could not justify admission.

The National Company Law Tribunal (NCLT), Mumbai Bench comprising Justice V. G. Bisht (Retd.) (Judicial Member) and Mr. Prabhat Kumar (Technical Member), while adjudicating a company petition under Section 7 of the Insolvency and Bankruptcy Code, recently held that where the entire debt claimed in the petition is settled by the corporate debtor prior to the final order, and no additional amount beyond the stated default is claimed in the application, initiation of CIRP is unwarranted. The Tribunal reiterated that proceedings under the IBC are intended for the resolution of financial distress, not for the recovery of dues.

On 10 July 2025, the National Company Law Tribunal (NCLT), Mumbai Bench, dismissed a petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, by Ritwik Finance Enterprises Private Limited seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Grenesiis Constro Pvt. Ltd. The Financial Creditor claimed that the Corporate Debtor had defaulted on a business loan amounting to ₹1,16,56,467 as of 30 September 2023, which was disbursed under a sanction letter dated 3 October 2020. The loan had been secured by way of a mortgage and supported by subsequent interest payments by the Corporate Debtor until March 2022. The Financial Creditor alleged default from 1 April 2022 and submitted evidence, including loan documents, title deeds, and account ledgers.

The Corporate Debtor resisted the application, claiming the transaction was a circular arrangement orchestrated by the Financial Creditor, who had allegedly used the debtor and its sister concern, Grenesiis Land and Leisure Pvt. Ltd., to rotate its own funds. It was argued that the entire principal amount of ₹60 lakhs along with interest had already been repaid through the sister concern, and that the terms of the sanction letter were informally waived. The Corporate Debtor also alleged coercion, misuse of cheques, and malicious filing of criminal complaints by the Financial Creditor.

The Tribunal, after considering the submissions and materials, found that the payment made by the Corporate Debtor had been routed to reduce outstanding dues of its sister concern to the Financial Creditor and thus could not be considered as repayment of the Corporate Debtor’s liability. The NCLT further held that the transactions between the Financial Creditor and the two entities were separate and not interconnected as claimed by the Respondent. Interest payments made by the Respondent until 2022 were treated as an acknowledgement of debt, and there was no material placed to prove that the sanction letter terms were waived.

However, while the application was pending final orders, the Corporate Debtor tendered a demand draft dated 17 June 2025 for ₹1,16,56,467—the exact amount claimed in the petition as due—towards full and final settlement. The Financial Creditor declined to accept the payment, insisting on further interest beyond 30 September 2023. The Tribunal held that since the petition only claimed amounts due as of 30 September 2023, and no further claim was raised in Form A, the payment by the Corporate Debtor discharged the entire claimed debt. The NCLT concluded that the objective of the IBC is resolution and not recovery, and viewed the application as one essentially for recovery rather than insolvency resolution.

Accordingly, the NCLT dismissed the petition under Section 7 of the IBC, noting that the debt claimed had been fully settled by the Corporate Debtor. A direction was issued to the Registrar of Companies, Maharashtra, Mumbai, to update the Master Data of the Corporate Debtor and report compliance.

Mr. Shyam Kapadia, a/w Ms. Akansha Ware i/b Mr. Animesh Khandelwal, Advocates, represented the Appellant.

Mr. Nausher Kohli a/w Ms. Vaishanavi Mane a/w Mr. Sushant Chavan, Advocates, appeared for the Respondent.

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REEDLAW 2025 NCLT Mum 07554