Dhanlaxmi Bank Ltd vs Mohammed Javed Sultan

DHANLAXMI BANK LIMITED ... APPELLANT

VERSUS

MOHAMMED JAVED SULTAN & ORS. … RESPONDENTS

JUDGMENT

ALOK ARADHE, J.

1. This appeal assails the order dated 02.08.2022 passed by the

National Company Law Appellate Tribunal (NCLAT), whereby

order dated 20.02.2020 passed by National Company Law

Tribunal (NCLT), was set aside.

FACTS

2. The relevant facts giving rise to the present appeal, as discernible

from the record are set out in the following chronology of events:

(i) On 06.04.2011, M/s. Emerald Mineral Exim Pvt. Ltd.

[(Corporate Debtor, (CD)] and Bengal Shrachi Housing

Development Ltd. (Builder) entered into an agreement for

sale of unit bearing No. SBP-9C(A) measuring 5893.5 sq. Signature Not Verified Digitally signed by Jayant Kumar Arora Date: 2026.05.07 17:04:16 IST ft. which was to be constructed in the building, namely Reason: 1 “Synthesis Business Park” New Town, Rajarhat, Kolkata

(subject property).

(ii) On 27.06.2011, the appellant (Bank) sanctioned loan of

Rs.1.50 Crores in favour of CD for purchasing the

subject property.

(iii) On 29.06.2011, facility agreement was executed between

the Bank and the CD. On the same day, a quadripartite

agreement was executed between the Bank, CD, the

Builder and the West Bengal Housing Infrastructure

Development Corporation Limited (WBHIDCL). Under the

said agreement, the CD instructed the Bank to disburse

the loan amount directly to the Builder, subject to terms

of the facility agreement. Pursuant thereto,

(iv) On 13.09.2011, an amount of Rs.1.34 crores was

disbursed directly to the Builder.

(v) As on 12.04.2014, CD paid a sum of Rs.54,13,999.87/-

to the Bank.

(vi) On 31.03.2013, the CD executed a nomination

agreement with the Builder to transfer the subject

property to Jupiter Pharmaceuticals Limited (JPL) for

Rs.2,26,77,250/-.

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(vii) On 22.04.2013 a copy of nomination agreement was

furnished to the Bank.

(viii) On 10.06.2013, a deed of conveyance was executed by

the CD in favour of the Builder and WBHIDCL, for

transfer of the subject property for Rs.2,26,77,250/-.

(ix) On 25.04.2014, the CD executed an acknowledgement of

liability.

(x) On 05.07.2014, the account of the CD was classified as

a Non-Performing Asset (NPA).

(xi) On 22.07.2014, the CD again acknowledged its liability.

(xii) On 07.09.2015, the CD proposed one time settlement of

Rs.74 Lakhs. The cheques issued by the CD towards

repayment of the loan were dishonoured due to

insufficient funds.

(xiii) On 28.01.2016 the Bank initiated proceedings under the

Recovery of Debts Due to Banks & Financial Institutions

Act, 1993 (1993 Act), before the Debt Recovery Tribunal

(DRT) against the CD, Builder and Guarantors for the

recovery of an amount of Rs.1,80,32,125.50/- as on

11.12.2015 along with interest at the rate of 14.25 % per

annum.

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(xiv) By an order dated 20.09.2016, the DRT held that Bank’s

charge is existing and continues irrespective of the sale

deed executed by the Builder in favour of the third party

and appointed a receiver to take possession of the

subject property from the third party. The DRT further

directed the Builder to deposit a sum of Rs. 1.50 crores

within two days from the date of the order, which was

directed to be treated as security provided by the Builder.

The Builder, on 27.09.2016, deposited a sum of Rs.1.50

crores.

(xv) On 28.09.2016, the Bank filed a winding up petition

against the CD under Sections 433, 434 and 439 of the

Companies Act, 1956 (1956 Act).

(xvi) Pursuant to the Central Government notification dated

07.12.2016, the matter was transferred to NCLT on

19.04.2019 and treated as a petition under Section 7 of

the Insolvency and Bankruptcy Code, 2016 (Code).

3. The NCLT, by an order dated 20.02.2020, inter alia, held that the

debt and default are proved beyond reasonable doubt. The NCLT,

therefore, admitted the petition and initiated Corporate

Insolvency Resolution Process (CIRP) against the CD.

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4. The suspended Director of the CD challenged the aforesaid order

in an appeal. The NCLAT by an order dated 02.08.2022, inter

alia, held that the Bank did not directly disburse the amount to

the CD and, therefore, the Bank cannot be termed as “Financial

Creditor” under Section 7 of the Code. It was further held that

the Bank had indulged in forum shopping and the provisions of

the Code could not be used as recovery mechanism. Accordingly,

NCLAT set aside the order passed by the NCLT and allowed the

appeal.

SUBMISSIONS

5. Learned senior counsel for the Bank submitted that there is a

valid debt against the CD, as it is referred to as the borrower of

the quadripartite agreement dated 29.06.2011. Our intention

has been invited to Clauses 2 & 19 of the aforesaid agreement. It

is also urged that facility agreement discloses that true borrower

is the CD who had paid interest on the loan and had executed

acknowledgment of liability. It is argued that NCLAT has

incorrectly recorded a finding that the Bank has recovered a sum

of Rs.1.50 crores and ought to have appreciated that the amount

is still lying in deposit with the DRT. It is contended that the

5 Bank has taken recourse to different statutory remedies which

does not amount to forum shopping.

6. On the other hand, learned counsel for the respondent nos. 1 &

2 submitted that the Bank had disbursed the loan amount to the

Builder and there was no enforceable default by the CD in the

manner alleged by the Bank. It is contended that under the

quadripartite agreement, the Builder had obligations concerning

payment and transfer of subject property. It is argued that the

dispute is essentially contractual involving questions of transfer

of property and obligations of the Builder rather than a pure

insolvency default under the Code. It is contended that the order

passed by the NCLAT does not call for any interference in this

appeal.

7. We have considered the rival submissions and perused the

record.

8. It is well settled that condition precedent invocation of Section 7

of the Code is the existence of a ‘financial debt’ and a ‘default’ in

its repayment. The scheme of the Code is to ensure that when a

debt becomes due and is not paid, the Insolvency Resolution

Process begins1. The Code operates as a collective insolvency

1 Innovative Industries Ltd. v. ICICI Bank & Anr.; (2018) 1 SCC 407 6 resolution mechanism and not as a forum for the adjudication of

individual contractual claims. This Court has underscored that

where object behind the invocation of Code is to compel payment

rather than to address genuine financial distress, such

invocation would amount to an abuse of process2. The Code must

not be used as a tool for coercion and debt recovery by individual

creditors3.

9. In the instant case from the perusal of clauses 7 to 14, 16, 17 to

20 and 25 of the quadripartite agreement following facts emerge:-

(a) An amount of Rs.1.50 crore was to be paid by the Bank

upfront/in multiple tranches to the Builder.

(b) The CD had instructed the Bank to disburse the loan

amount directly to the Builder subject to terms and

conditions of the facility agreement.

(c) On completion of construction of subject property, the

Builder was required to give seven days prior notice before

execution of sale deed in favour of the CD.

(d) In case, CD desires to withdraw its application for allotment

of subject property or its application is cancelled by the

2 Pioneer Urban Land and Infrastructure Ltd. & Anr. v. Union of India & Ors.; (2019) 8 SCC 416 3 Glas Trust Company LLC v. BYJU Raveendran & Ors.; (2025) 3 SCC 625 and Anjani Technoplast Ltd v.

Shubh Gautam; 2026 INSC 410 7 Builder or if the CD fails to deposit the balance amount

representing the difference between the loan amount

sanctioned by the CD and the actual purchase price of the

subject property or in the case of death of CD or in case the

agreement for sale of subject property is cancelled, the

Builder shall refund the amount after deducting all its dues

and charges to the Bank.

(e) The amount which may be received by the Builder on

account of provisional sale price of subject property was

required to be paid to the Bank.

(f) The Builder had assured and confirmed the Bank that the

subject property is free from any encumbrances and it has

taken necessary permissions/approvals/sanctions for

construction of the building from all competent authorities.

(g) The Builder had given his consent that Bank shall have lien

on the subject property and CD shall furnish the same as

security of loan to the Bank and create a mortgage in favour

of Bank as and when sale deed/lease deed is executed in

its favour.

(h) The Builder had undertaken not to mortgage the subject

property to any financial institution for raising any loan.

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(i) The Builder had agreed and undertaken not to transfer the

subject property to any other member or other person

without previous consent of the Bank.

10. It is an admitted position that the loan amount was directly

disbursed to the Builder. The quadripartite agreement indicates

that the Builder had significant obligation concerning the

construction, delivery and transfer of subject property. The

structure of transaction reveals that Bank’s disbursement was

intrinsically linked to performance of Builder’s obligation. In such

circumstances, the transaction cannot be viewed in isolation as a

simple financial lending arrangement between the Bank and the

CD.

11. The material on record indicates that obligations arising out of the

transaction are intertwined with Builder’s performance. The

dispute between the parties is predominantly contractual in

character involving competing claims relating to transfer of

property and associated obligations.

9 CONCLUSION

12. 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.

13. For the aforementioned reasons, we are not inclined to interfere

with the judgment passed by the NCLAT.

14. In the result, appeal fails and is hereby dismissed. There shall be

no order as to costs.

.…..…….……………….………….……….J. [PAMIDIGHANTAM SRI NARASIMHA]

…..…….……………….………….……….J. [ALOK ARADHE]

NEW DELHI;

MAY 7, 2026.

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