Achal Kumar Jindal vs Sanjay Kumar Bhuwalka & Ors

ACHAL KUMAR JINDAL ...Appellant (Member of the Suspended Board of Directors Sulojay Realty Private Limited)

Vs

1. SANJAY KUMAR BHUWALKA ...Respondent No.1

2. MR. MAHESH AGARWAL, ...Respondent No.2 Interim Resolution Professional

(Arising out of Order dated 13.12.2024 passed by the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench) in CP (IB) 69/KB/2024)

For Appellant: Mr. Siddharth Yadav, Mr. Apoorv Agarwal, Mr. Manav Goyal, Ms. Ritika Gusain, Ms. Aastha, Advocates

For Respondent: Mr. Sidhant Kumar, Ms. Ekssha Kashyap, Advocates for R-1 Mr. Joel, Mr. Ujjval Gupta, Mr. Seeshpal Singh, Advocates for IRP Mr. Saurabh H. Seth, Ms. Neelampreet Kaur, Mr. Abhiroop Rathore, Mr. Kabir Dev, Mr. Sukhvir Singh, Advocates for Intervenor

JUDGEMENT

Per Justice N. Seshasayee, Member (Judicial)

This appeal is preferred by the suspended director of the corporate debtor, who

challenges the Order of the Adjudicating Authority (NCLT, Kolkata Bench) in C.P.

(IB) No. 69/KB/2024, dated 13.12.2024, by which the CD was admitted to CIRP

1 under Sec.7 IBC in a proceeding initiated by the first respondent. Right at the

outset it may be stated, as the proceeding progressed before us, the focus of

appeal shifted from a contest on the merit of the Order of the Adjudicating

Authority to the advisability of continuing CIRP on grounds of malice within the

meaning of Sec.65 IBC.

2. The material facts are:

a) Sulojay Realty Pvt. Ltd., is the Corporate Debtor and the appellant is one

of its suspended Directors. The CD was incorporated on 20.03.2021, and

at the relevant point of time, Sanjay Kumar Bhuwalka, the first respondent

herein, was also one of its directors and indeed was its majority

shareholder.

b) Between April, 2021 and May, 2022, the first respondent had advanced

various sums to the Corporate Debtor through banking channels,

aggregating ₹.7,47,32,000/-. And, in June, 2021, the CD had made a

partial repayment of Rs.1,85,01,399/- towards the said liability. As to the

balance payable, CD had acknowledged the same in its annual report for

the FY 2021-22 and also for the FY 2022-23, which shows the balance

liability due payable at ₹.6,43,51,360/- as on 31.03.2023.

c) While so, on 02.06.2022, the entire shareholding of the family holding of

Bhuwalka (from which the first respondent hails) and Agarwala families in

the Corporate Debtor stood transferred to M/s Exclusive Motors Private

Limited pursuant to a Share Purchase Agreement. Consequently, the first

respondent along with another director of the CD resigned from the Board

2 of the Corporate Debtor, while the present appellant along with Mr. Satya

Prakash Bagla assumed control and management of the Corporate Debtor.

d) Subsequent to the change in management, substantial amounts,

aggregating approximately Rs.55.66 crores, was paid through the

Corporate Debtor to members of the Agarwala family towards repayment

of their alleged loans. Respondent No.1 relied on the Annual Report for FY

2022-23 to contend that the Corporate Debtor continued to acknowledge

the outstanding liability payable to him, which stood reflected at

Rs.6,43,51,360/- as on 31.03.2023.

e) Since repayment was not forthcoming, the first respondent issued a

demand notice dated 29.02.2024 claiming an amount of Rs.7,54,79,326/-

which included the subsequent interest payable, and since the amount so

demanded was not paid, the first respondent instituted a proceeding under

Section 7 of the Insolvency and Bankruptcy Code, 2016 before the

Adjudicating Authority in CP (IB) No.69/KB/2024.

f) The CD resisted the proceedings with its dispute over the nature and

existence of the alleged financial debt, and further contended that the

proceedings arose due to the deterioration of personal and commercial

relations between the parties.

g) The Adjudicating Authority, vide its Order dated 13.12.2024, which is now

impugned before us, allowed the application filed under Section 7 of the

Code and initiated CIRP against the Corporate Debtor.

3. As outlined earlier, this appeal was filed challenging the aforesaid Order.

When the appeal was moved, on 18.12.2024, this Tribunal passed an interim

order restraining further progress of CIRP save and except collation of claims by

3 the IRP on condition that the appellant deposited the entire amount claimed by

the first respondent together with accrued interest. Thereafter, the appellant

sought termination of CIRP on the ground that the entire debt amount has been

deposited.

Arguments

4. Before embarking to narrate the arguments advanced by the rival parties,

few facts are required to be placed on record:

a) that the CoC is comprised of a sole member, the petitioning creditor, the

first respondent herein. And, the Interim Resolution Professional has

made a statement that when he invited claims, he has received none. This

implies, that the corporate debtor has just one creditor, and he constitutes

the one member CoC;

b) In the course of the argument, the learned counsel for the appellant has

made a submission that the amount deposited by the appellant before this

tribunal pursuant to the Order dated 18.12.2024 may be withdrawn by

the first respondent towards satisfaction of the claim.

c) The first respondent, however, rejected this offer on the ground that the

amount was deposited not with any intent to pay the debt, but with an

intent to show bonafide for obtaining an interim order of stay, and not

voluntarily but only as directed by the tribunal.

5. Turning to the arguments, keeping aside his contention on the merit of the

appeal, the learned counsel for the appellant submitted that irrespective of the

merit of the defence which the corporate debtor has taken before the

Adjudicating Authority, the fact now remains that the entire amount whose

4 payment was alleged to have been defaulted by the sole creditor of the CD has

been deposited with interest, when in law payment of interest is not even

required to be offered, and that the petitioning-creditor can satisfy himself

towards his claim. This is a subsequent turn of events which is ascertainable

from the records, and hence, to let the CIRP initiated against the corporate debtor

to continue would now constitute abuse of process of this tribunal.

6. Per contra, the learned counsel for the respondent argued:

a) when once the existence of financial debt and default stands established,

the Adjudicating Authority is left with no discretion but to admit the

Corporate Debtor into CIRP and considerations relating to settlement or

solvency are wholly irrelevant at that stage. And, indeed, the appellant

has chosen not to contest the merit of the Order passed by the tribunal

below.

b) the deposit of the amount defaulted was made before this Appellate

Tribunal pursuant to the interim orders does not amount to settlement of

the dispute nor can the same compel the withdrawal of CIRP dehors the

statutory mechanism contained under Section 12A of the Code. Any

withdrawal of CIRP after admission can be permitted only in the manner

contemplated under Section 12A read with Regulation 30A and in terms

of the law laid down by the Supreme Court in GLAS Trust Co. LLC v. Byju

Raveendran [(2025) 3 SCC 625], namely upon an application by the

original applicant founded on a concluded settlement between the parties.

c) Pleas founded on Section 12A, Section 65 of the Code and Rule 11 of the

NCLAT Rules were neither raised before the Adjudicating Authority nor

pleaded in the Memorandum of Appeal and, therefore, the appellant

5 cannot be permitted to set up an altogether new case at the appellate

stage. Respondent No.1 has never consented to settlement of the

proceedings and refusal to accept the amount deposited before this

Tribunal cannot be construed as malicious conduct or abuse of process.

At any rate that the conduct of the first respondent in insisting upon

continuation of CIRP strictly in accordance with the statutory framework

of the Code, by any stretch, cannot be construed as mala fide or malicious.

d) Sec.65 of the Code cannot be invoked in the absence of specific pleadings

and material establishing fraudulent or malicious initiation of insolvency

proceedings and, in any event, such plea cannot be permitted to be raised

for the first time in appeal.

e) that the liabilities of the Corporate Debtor are far in excess of its assets

and continuation of CIRP is therefore necessary for carrying the insolvency

process to its logical conclusion in accordance with the provisions of the

Code.

7. In reply, the learned counsel for the appellant argued:

a) even if it is presumed that there existed any ground for initiating a CIRP

against the corporate debtor, today, with the amount so alleged to have

been defaulted having been deposited by the appellant with a plea to the

sole creditor to withdraw it towards satisfaction of his debt, the

justification for initiating CIRP is lost and to let it to continue will now fall

outside Sec.12A of the Code, but will fall within Rule 11 of the NCLAT

Rules as it constitutes an abuse of judicial process of the tribunal.

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b) the refusal of the first Respondent, being the sole creditor of the Corporate

Debtor, to accept repayment despite availability of the entire amount

demonstrates that the proceedings are being pursued for purposes other

than genuine insolvency resolution.

c) Sec.65 of the Code is intended to prevent fraudulent or malicious initiation

of insolvency proceedings and once malicious intent becomes evident from

the conduct of the CIRP applicant, such intent necessarily relates back to

the initiation of proceedings under Section 7 of the Code.

Decision & Discussion

8. One creditor. The repayment of the amount which this creditor claims as

having been defaulted by the corporate debtor, is now deposited by the appellant.

If it were a suit for recovery of money, the game should have ended here.

However, this is IBC scenario, where on admission of the corporate debtor to

CIRP, the proceedings assume the character of what the Hon'ble Supreme Court

describes as 'proceedings in rem' in which the interest of all the creditors of the

corporate debtor will automatically be brought within the fold of insolvency

resolution process, with a specific statutory mechanism to settle and withdraw

a CIRP in Sec.12A to be read with Regulation 30. Therefore, what now stands

between the appellant and the first respondent is not the refusal of the latter to

accept the offer made by the former, to emphasis, to the only creditor who

constitutes the sole-member CoC, but the Order of the Adjudicating Authority

admitting the corporate debtor to CIRP. Indeed, the first respondent is well

within his right to reject the offer to settle, but the issue is, can his resistance to

settle should deny the tribunal of its power to terminate the CIRP? The appellant

contends, that the refusal of the first respondent to settle, given the fact that

7 there is no other creditor in the fray could be termed as demonstrating his

malicious intent and does it constitute abuse of process remediable under Rule

11 of the NCLAT Rules?

9. Before delving into the merit of the contention of the appellant to terminate

the CIRP, it is necessary to remind at least relevant facets of law which the

Supreme Court has declared on an interpretation of the Code:

a) In Swiss Ribbons Pvt. Ltd., & another Vs Union of India & others

[(2019)4 SCC 17] and Kridhan Infrastructure Pvt. Ltd. Vs Venkatesan

Sankaranarayanan and others [(2021) 6 SCC 94], Hon'ble Supreme

Court spotlighted the legislative philosophy behind the insolvency

resolution process, where it was declared that the principal aim of the

Code is to revive and resurrect a financially crippled corporate debtor, and

that the liquidation of the corporate debtor should be the last resort, and

should not be attempted till the insolvency resolution process is

exhausted.

b) In M. Suresh Kumar Reddy Vs Canara Bank & Others [(2023)8 SCC

387] it is held that before initiating CIRP, the Adjudicating Authority is

only required to examine the criteria prescribed in Sec.7 or 9 IBC, and not

to examine the solvency of the corporate debtor, since the Code has not

required it as a pre-requisite.

c) In GLAS Trust Co. LLC v. Byju Raveendran [(2025) 3 SCC 625] it is held

that for settlement and withdrawal of CIRP the inherent powers of the

tribunal shall not be summoned since the Code has made a specific

8 provision in Sec.12A to be read with Regulation 30 of the CIRP Regulation

for the said purpose.

10. To repeat, here in this case, there is just one creditor, who constitutes the

sole member of the CoC. And, the debt said to be in default is now offered to be

repaid by the suspended director of the CD, which the only creditor has rejected.

The issue therefore, is no more about the justification for commencing CIRP but

about refusing a settlement. The issue at hand is required to be tested on the

plane of law as stated above:

a) Firstly, only for commencement of CIRP, it is stipulated that the tribunal

has to only ascertain existence of a debt and the default in repaying the

same and not required to examine the solvency of the corporate debtor.

There is a reason for it. A CIRP has to be completed within the timeline

prescribed, and investigation into the solvency of the corporate debtor can

divert the issue in another track which may defeat the statutory objective

of meeting the timeline. However, if during the CIRP, an offer of settlement

has forthcome, can it be sabotaged without justification because there is

justification for commencing CIRP? It needs to be underscored that the

factors necessary for commencing a CIRP need not remain the same for

terminating it on settlement. After all, the scheme of Sec.12A which

provides for settlement and withdrawal of CIRP has not required the CoC

which is authorised to consider and take a decision on any offer of

settlement to be bound by the criteria necessary for commencing the CIRP.

b) Secondly, if the legislative philosophy behind an insolvency resolution

process is about reviving the corporate debtor, then does not an offer of

9 settlement by the promotors or the suspended board of the corporate

debtor indicate an idea that the suspended directors themselves are keen

to revive the company that they have promoted?

c) Thirdly, IBC is not designed as an exproprietary enactment as mandating

compulsory divestiture of the property, which a corporate debtor is in the

hands of its promotors or shareholders, once it has defaulted in repaying

the debt of the petitioning-creditor. As we have observed in Suyog

Suryakant Talekar Vs Trivenimudrai Project Ltd., & another

[Com.Appeal (IB)(Ins) 247 of 2026], the entire fulcrum of insolvency

process rests on a presumption that once the corporate debtor has

committed default in paying a solitary debt - the debt due to the

petitioning-creditor, such default is necessarily owing to its insolvency.

However, if the basic character or objective of the Code is understood not

as an exproprietary statute like the land acquisition legislation, then there

is a compelling need to limit the operation of this underlying presumption

behind initiating a CIRP right at the point where a genuine offer of

settlement is made, more so where there is a one member CoC, constituted

of only the petitioning-creditor. Otherwise, the Code will end up producing

Shylocks out of creditors of the corporate debtor. A default in paying the

debt may generally be understood as a situation where the debtor did not

possess the money to repay the debt (which the Code treats as an act of

insolvency), but is it an irredeemable sin if the debt-amount is offered later,

but before third party interests are created in the assets of the corporate

debtor?

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d) Now, under Sec.12A, a decision on settlement and withdrawal has to be

approved by a 90% vote of the CoC, but if the offer of settlement is

understood as conveying an intention of the suspended board to revive the

corporate debtor, can the CoC decide against it and reject the offer of

settlement arbitrarily and without assigning justifiable reasons?

11. And, here in this case, the CoC has a solitary member, who incidentally is

the only creditor of the corporate debtor. The money due to him has already been

deposited by the appellant, no matter the circumstances in which it was

deposited. And it is now offered towards repayment of debt which this creditor

claims as due to him. It may be true, that when this money was due for

repayment, it was not paid, but when it is offered on a platter the creditor rejects,

especially when he has no one to consult, or decide for him. Is it then fair for

this one creditor-one member- CoC to reject the offer, merely because there

existed grounds for commencing CIRP? What exactly this creditor wants - the

blood of the suspended board of the corporate debtor, or its revival? If CIRP is

all about revival of the corporate debtor and about settling any personal scores,

and if the first respondent believes in the legislative philosophy of the Code, then

what legal or moral grounds has he when the suspended director himself

indicates his intent to revive and keep alive the corporate debtor with his offer of

settlement? Does not the conduct of the creditor reflect an intention to misuse

IBC and its process? If the first respondent's keenness to continue the CIRP does

not reflect malice, what else will?

12. We are not able to appreciate the attitude of the first respondent. The

scenario may be different if there had been more creditors than one, but not in

11 this case. The rejection of the offer of settlement is plainly without justification

and we sense an anxiety in the first respondent to abuse the Code, its philosophy

and intent. Turning to Sec.65 of the Code, while the text of this provision

provides for imposition of penalty for fraudulent and malicious initiation of CIRP

and appears as an ex-post facto proceeding, where a malicious intent becomes

evident even during the course of the proceedings, should the tribunal watch

with glee the misuse of the Code, and wait to remedy a wrong when it has the

powers to prevent? It would be a travesty of justice if we choose to abdicate our

authority when there is a need to act and accept the contentions of the first

respondent and to oversee what we consider as a shameless attempt to abuse

the Code, its objectives, and the judicial process of this tribunal.

13. Taking cognizance of the developments during the pendency of this appeal,

we find every reason to terminate the CIRP initiated against the corporate debtor,

and it is terminated. The appeal is disposed of accordingly.

[Justice N. Seshasayee] Member (Judicial)

[Arun Baroka] Member (Technical)

[Indevar Pandey] Member (Technical) rs/beena

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