[Raghav Bhatia is an Advocate practising at the Supreme Court of India]
Recently, in Anjani Technoplast Ltd. v. Shubh Gautam (23 April 2026), the Supreme Court examined whether a decree holder can initiate proceedings under section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) on the strength of a money decree in their favour. The author is of the opinion that, given the fact situation in this case, the Supreme Court rightly observed that the initiation of corporate insolvency resolution process (“CIRP”) was an abuse of process.
Factual Background
In February and March 2010, Shubh Gautam (“decree holder”) advanced two loans to Anjani Technoplast Ltd. (“judgment debtor”). For both of these loans, the judgment debtor had “furnished cheques as security”. As the aforesaid cheques were dishonoured upon presentation, the decree holder filed a complaint under section 138 of the Negotiable Instruments Act, 1881 (“NI Act”). In the meanwhile, the parties entered into a settlement agreement under which the decree holder received substantial amounts from the judgment debtor. Nonetheless, on 1 February 2016, the decree holder filed a summary suit before the Delhi High Court (“High Court”) seeking “a decree of Rs. 4,38,00,617/- with pendente lite and future interest at 24% per annum”.
On 11 January 2018, a single judge of the High Court decreed the summary suit. This decree attained finality when a division bench of the High Court dismissed an appeal with costs on 27 July 2018, and a special leave petition against the division bench’s order was thereafter dismissed by the Supreme Court on 22 October 2021.
However, instead of filing a petition for execution of the decree dated 11 January 2018 under the Civil Procedure Code, 1908 (“CPC”), the decree holder filed a petition under section 7 of the IBC before the National Company Law Tribunal (“NCLT”), Delhi for initiation of CIRP against the judgment debtor, contending “that the decretal amount constituted a financial debt and that the appellant was in default thereof”.
On 20 June 2022, the NCLT dismissed the petition filed under section 7 of the IBC, observing, inter alia, “that the IBC is not a recovery mechanism and that the respondent was misusing the insolvency process against a solvent company”. Aggrieved, the decree holder filed an appeal before the National Company Law Appellate Tribunal (“NCLAT”).
The NCLAT allowed the appeal and set aside the NCLT’s judgment by way of the impugned judgment dated 1 November 2022. Importantly, the NCLAT placed reliance on the Supreme Court’s ruling in Dena Bank (Now Bank of Baroda) v. C. Shivakumar Reddy, which had observed that a money decree “in favour of a financial creditor would give rise to a fresh cause of action for the financial creditor to initiate proceedings under Section 7 of the IBC”. Aggrieved by the impugned judgment of the NCLAT, the judgment debtor approached the Supreme Court in these proceedings.
Present Proceedings before the Supreme Court
Before deciding the issue at hand, the Supreme Court passed an order dated 2 February 2026 directing the “NCLAT to examine the issue of the existence of debt”. On 26 February 2026, the NCLAT passed an order in compliance with the direction dated 2 February 2026 and recorded, inter alia, the aforesaid peculiar facts and the conduct of the judgment debtor. The NCLAT also noted that in a separate proceeding before the Income Tax Appellate Tribunal (“ITAT”), it was the decree holder’s own case that the amount due from the judgment debtor, as on 31 March 2012, was only Rs. 96,48,480 – significantly less than the amount being claimed by the decree holder.
On a perusal of the entire record including the NCLAT’s order dated 26 February 2026, the Supreme Court noted that while it was undisputed that the decree holder had a decree dated 11 January 2018 in its favour, it could not have bypassed the machinery for execution of the decree, as provided under the CPC, by filing a petition under section 7 of the IBC.
The Court observed that the material on record demonstrated that judgment debtor is a solvent company with substantial revenue as well as profit and has “95 full-time employees”. The judgment debtor’s undertaking was also recorded that it will pay whatever is due from it under the decree dated 11 January 2018 and, in furtherance of the same, significant amounts had been deposited by it.
The Supreme Court noted that in this case, there was no dispute to decree, but the computation of amounts due under it. This is an issue which can be dealt with by the High Court itself in a separate proceeding that was pending before it for final adjudication. This cannot be adjudicated upon by the NCLT in a proceeding initiated under section 7 of the IBC.
Additionally, it was observed that there were serious discrepancies in respect of the amounts computed by the decree holder before different fora, i.e., before the ITAT, the High Court and the Supreme Court, which “go to the root of the claim and raise serious questions about the reliability of the respondent’s accounting”.
On the applicability of Dena Bank, while the Supreme Court acknowledged that a “decree for money in favour of a financial creditor would give rise to a fresh cause of action for initiating proceedings under Section 7 of the IBC”, the aforesaid proposition cannot be applied in cases where the quantum of debt payable by the judgment debtor “is seriously disputed”.
Reiterating that the IBC is not a recovery mechanism and is not a legislation meant “for the enforcement of money decrees”, the Supreme Court distinguished the ruling in Dena Bank by observing that the said ruling does not entitle every decree holder to invoke the IBC instead of pursuing execution under the provisions of the CPC. In this case, the act of the decree holder in resorting to IBC proceedings and bypassing the execution mechanism provided under the CPC “amounted to an abuse of the insolvency process”.
Analysis
The author is of the opinion that this judgment is in the right direction and strengthens the framework of IBC by holding that the legislation cannot be used as a recovery mechanism. This has been reiterated by the Supreme Court on various occasions (see, Swiss Ribbons Pvt. Ltd. v. Union of India, Pioneer Urban Land and Infrastructure Limited v. Union of India and HPCL Bio-Fuels Ltd. v. Shahaji Bhanudas Bhad).
In paragraph 143 of Dena Bank, it was observed that a decree for money would give rise to a fresh cause of action under section 7 of the IBC, provided the dues to the financial creditor, or any part thereof, remained unpaid. However, the aforesaid principle could not have been applied to a fact situation such as is in this case where the quantum of the liability of the judgment debtor under the decree was disputed and the decree holder itself had been taking contradictory stands with respect to the amount due to it before different fora.
Interestingly, although the Supreme Court in this case briefly discussed section 65 of the IBC, which provides for penalty in cases where the insolvency resolution process is initiated “fraudulently or with malicious intent”, the Supreme Court missed an opportunity to invoke the same. While it can be said that section 65 of IBC is not attracted where the CIRP is initiated solely for recovery purposes (see, Elegna Co-Op. Housing and Commercial Society Ltd. v. Edelweiss Asset Reconstruction Company Limited), the fact situation in this judgment warranted invocation of that statutory provision. Doing so would have sent out a clear message to entities who regularly abuse the IBC machinery against solvent or bona fide borrowers.
– Raghav Bhatia