IBC Not Recovery Tool – Bank Claim Lies Before DRT
Judgment dated 7.5.2026 of the Supreme Court in Civil Appeal No.7184 of 2022 of Dhanlaxmi Bank Limited Vs. Mohammed Javed Sultan and others
In this case, the appellant Bank had given loan to the Corporate Debtor for purchasing the property vide facility agreement dated 29.6.2011.
However, the Bank had disbursed loan directly to the Builder subject to the facility agreement and as per the quadripartite agreement between the appellant Bank, CD, Builder and WB Housing Corporation.
In that context, the NCLAT held that the Bank did not disburse the amount directly to the CD and therefore, it is not “financial creditor” under Section 7 IBC. It was further held that the Bank had indulged in forum shopping and IBC could not be used as recovery mechanism.
The Supreme Court had, therefore, examined relevant clauses of Quadripartite Agreement and noted the facts emerged are delineated at (a) to (i) in para 9 of the judgment.
The present case does not involve a straightforward financial debt default scenario warranting initiation of CIRP. The facts disclose a dispute which is predominantly contractual in nature and is subject matter of the proceedings before the DRT-the appropriate forum for recovery. The deposit made pursuant to order of the DRT further indicates that the matter is actively being adjudicated in appropriate proceeding. Therefore, permitting invocation of the Code in cases such as the present one, would amount to converting insolvency proceedings into a coercive mechanism for recovery which is impermissible.
