IBC Misuse for Recovery of Civil Court Decree

In this case, the respondent decree-holder filed section 7 IBC petition against the solvent, functioning company, instead of filing petition for execution of the civil court decree.  The appellant had deposited Rs.3,60,98,447/- in the High Court and maintained its willingness to pay lawful dues. The proceedings are still pending in the High Court.   Thus, the initiation of CIRP is nothing but use of IBC as a recovery mechanism.   We will term it as “an abuse of the process”.

We have considered the NCLAT’s reliance on this Court’s decision in Dena Bank (supra). It is true that in paragraph 141 of that judgment, this Court held 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. We do not doubt that proposition as a general statement of law. However, that principle does not operate in a vacuum. It does not mean that every decree holder who also happens to be a financial creditor is entitled, as a matter of right, to invoke the insolvency process in preference to execution.

The question of whether, in each case, the invocation of the IBC amounts to misuse of the process or to the use of the Code as a recovery mechanism remains a question to be examined on the facts.

The respondent is the money lender, he had advanced Rs.2.50 crores to the appellant for two months at the interest of 12.75% per annum payable on half yearly basis.  Further loan of Rs.2 crores was given on 31.3.2010 for a period of 15 days at 3% per month payable half-yearly.

The cheques were dishonoured, leading to section 138 cases.

In the meanwhile, the parties had compromised on new payments.  However, the appellant did not honour the same.   The appellant filed summary suit  in the High Court.  The suit was decreed.   This was confirmed by the Division Bench.

The respondent filed section 7 IBC petition that the decretal amount constituted a financial debt and the appellant committed default.

Judgment dated 23.4.2026 of the Supreme Court in Civil Appeal No.8247 of 2022 of Anjani Technoplast Ltd   vs.  Shubh Gautam.