M/S.North Life Spaces Llp vs Dalal Family Private Trust

(Arising out of Order dated 19.08.2025 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench) in C.P. (IB) No. 576 (MB) of 2025)

IN THE MATTER OF: M/s. North Life Spaces LLP, Unit No. 412, 4th Floor, Hubtown Solaris N.S. Phadke Road, Saiwadi, Andheri (East), Mumbai - 400 069. ...Appellant Vs Dalal Family Private Trust Plot No. 33, ABCD Govt. Industrial Estate, Charkop, Kandivali (West), Mumbai - 400 067. ...Respondent

Present: For Appellant : Mr. Krishnendu Datta, Sr. Advocate with Ms. Priyanka Vora, Mr. Nishant Choutani and Mr. Yash Tandon, Advocates

For Respondent : Mr. Abhijeet Sinha, Sr. Advocate, Mr. Mahesh Agarwal, Mr. Rishi Agarwala, Mr. Ankur Saigal, Mr. Shivam Shukla, Mr. Shyam Kapadia, Mr. Kaustubh Singh, Ms. Urvi Gupta, Mr. Samant Sathiya and Ms. Heena Kochar, Advocates

1 JUDGMENT

(Hybrid Mode)

Per: Justice N. Seshasayee, Member (Judicial)

The present appeal arises out of the order dated 19.08.2025 passed by the

National Company Law Tribunal, Mumbai Bench in Company Petition (IB)

No. 576 (MB) of 2025, whereby the Adjudicating Authority disposed of the

application under Section 7 of the Insolvency and Bankruptcy Code, 2016

and directed release of the deposited amount to the Respondent without

adjudicating the existence of financial debt, default and maintainability of

the petition.

Facts

2. The material facts are:

a) the Appellant, M/s. North Life Spaces LLP, entered into a Facility

Agreement dated 05.04.2021 with the Respondent. Eventually, the

Respondent claimed that about ₹.4.15 crores was due from the

appellant and demanded its payment. Alleging that the appellant has

defaulted in repaying it, respondent laid C.P. (IB) No. 576/MB/2025

under Section 7 of the IBC, alleging that the appellant has defaulted

in repaying a debt of Rs.4,15,19,943, inclusive of principal plus

interest and tax penalty, while reserving its claim for default interest.

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b) the Appellant contested the petition, questioning, inter alia, its

maintainability, the authority of the person instituting the

proceedings on behalf of the respondent, and the existence of very

debt and default. It also filed an interlocutory application seeking

production of documents regarding the same.

c) the Company Petition and the interlocutory application were heard

and reserved for orders on 12.08.2025. During the hearing, the

Respondent, on instructions, withdrew its claim towards tax penalty

of Rs.26.80 lakh.

d) Be that as it may, after the petition was reserved for Orders, on

18.08.2025, the appellant deposited two demand drafts aggregating

to Rs.3,49,55,172/- with the Registry towards the principal and

interest claimed, after deduction of applicable TDS with a praecipe

where in the appellant has stated that the amount was deposited

without prejudice to the appellant's rights, remedies and

contentions.

e) By the impugned order dated 19.08.2025, the Adjudicating Authority

however, directed release of the demand drafts to the respondent,

recorded payment of the principal and interest and withdrawal of the

tax penalty and default interest claims, and closed the Company

Petition. Liberty was granted to the respondent to pursue such other

3 claims as may be legally maintainable. The interlocutory application

was also disposed of.

f) the appellant now challenges the impugned order principally on the

ground that its objections to the maintainability, debt and default

were not adjudicated before the demand drafts were released and the

Company Petition was closed. The appeal was filed on 02.10.2025.

g) thereafter, the respondent issued a Demand Notice dated

19.09.2025 claiming Rs.2,77,72,206/- towards interest, default

interest and legal expenses. The Appellant disputes its entitlement

to these amounts.

h) the present appeal therefore concerns, inter alia, the effect of the

deposit made on 18.08.2025 after the matter had been reserved for

orders and closure of the Company Petition without adjudication of

the Appellant's objections, and the subsequent claim raised by the

Respondent pursuant to the Demand Notice dated 19.09.2025.

Arguments

3. The learned Counsel for the Appellant argued:

a) the appellant had specifically disputed the maintainability of the

company petition filed under Sec. 7 IBC and the authority of the

person instituting it on behalf of the Trust, and the existence of debt

4 and default. These objections were supported by an interlocutory

application seeking relevant documents and were never adjudicated.

b) the Company Petition was heard and reserved for orders on

12.08.2025. Thereafter, on 18.08.2025, the Appellant deposited

Rs.3,49,55,172/- through two demand drafts, after applicable TDS,

expressly without prejudice to its rights, remedies and contentions.

The deposit was not an admission of debt or default, and nor through

the same closure of Sec.7 petition was authorised without

determining the objections already raised by the appellant.

c) the Adjudicating Authority, by the impugned order dated

19.08.2025, released the demand drafts, treated the principal and

interest as paid, recorded withdrawal of the tax penalty and default

interest claims, and closed the Company Petition without

adjudicating the Appellant's objections.

d) the subsequent Demand Notice dated 19.09.2025 raised a claim of

Rs.2,77,72,206/- towards interest, default interest and legal

expenses, substantially different in its components from the claim

forming the basis of the Section 7 petition. The respondent cannot,

under the liberty granted by the impugned order, revive or enlarge

the insolvency claim through a subsequent computation. The alleged

debt and each component thereof must have a contractual and legal

5 foundation. The impugned order, having closed the Sec. 7

proceedings without determining the existence of debt, default and

maintainability, despite appellant's specific objections, is

unsustainable and liable to be set aside.

4. The learned Counsel for the Respondent contended:

a) after the Company Petition had been heard and reserved for orders

on 12.08.2025, the appellant voluntarily offered to deposit the

principal and interest claimed. It thereafter deposited

Rs.3,49,55,172/- through two demand drafts.

b) the Adjudicating Authority merely acted upon the appellant's own

statement and deposit, directed release of the demand drafts and

closed the Company Petition. The impugned order was therefore not

an order directing recovery from the appellant. The appellant

therefore, cannot now contend that the deposit was without

consequence or was merely intended to demonstrate solvency.

Having voluntarily made the deposit, it cannot approbate and

reprobate.

c) Petition under Sec. 7 was validly instituted by Mr. Abhay A. Shah,

who was duly appointed as a trustee of the Respondent, and the

objection to his authority is therefore untenable.

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d) Turning to the merit of the appeal, appellant's denial of default in

repaying the debt is contrary to its own acknowledgment of the

outstanding principal and interest. Its subsequent plea of excess

payment or absence of default is an afterthought. Turning to the

claim of default interest by a subsequent demand notice, while the

respondent withdrew its claim towards tax penalty it did not waive

its claim for default interest, and indeed has expressly reserved its

right to pursue the same in accordance with law.

e) Indeed, the Demand Notice dated 19.09.2025 does not alter the

validity of the impugned order. The liberty granted therein merely

preserves the respondent's right to pursue such other claims as may

be legally maintainable.

f) the impugned order was passed within the jurisdiction of the

Adjudicating Authority on the basis of the Appellant's own deposit

and does not warrant interference.

Discussion & Decision

5. The core issue is whether the deposit made by the Appellant after the

Company Petition had been reserved for orders could, by itself, justify

closure of the Sec. 7 proceedings without adjudicating the objections

raised by the Appellant regarding maintainability, debt and default.

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6. The Company Petition was reserved for orders on 12.08.2025.

Thereafter, on 18.08.2025, the appellant deposited two demand drafts

aggregating to Rs.3,49,55,172/-, expressly without prejudice to its rights,

remedies and contentions. The relevant portion of the praecipe reads:

"3. During the course of the said hearing, the Respondent

without prejudice to its argument that the Petition is not

maintainable offered to deposit the principal and interest

amount in the Petition in order to show that the

Respondent is solvent.

7. The aforesaid Demand Drafts are being deposited by

the Respondent purely as a gesture of bona fide conduct

and without prejudice to all rights, remedies and

contentions available to the Respondent in law and on

facts."

7. The respondent contends that the deposit amounted to an admission of

the debt and default. We are unable to accept this proposition. A deposit

expressly made without prejudice cannot, by itself, be treated as an

unconditional admission of a liability, particularly when the appellant had

already raised specific objections to the maintainability of the proceedings.

8 At the best it only indicates that the appellant is solvent and not insolvent

to initiate CIRP.

8. Indeed, the Adjudicating Authority has directed the release of the

demand drafts and closure of the Company Petition etc., but the difficulty

with this approach is that the objections raised by the Appellant are never

adjudicated. The fact that an amount was deposited could be taken into

account, but it does not substitute the determination required in a Sec. 7

proceeding, particularly where the existence of debt, default and

maintainability had been specifically questioned. Here, the fact that the

deposit was made after the matter had been reserved assumes

significance.

9. The Adjudicating Authority necessarily has to consider the controversy

already argued before it. The subsequent deposit did not, without more,

extinguish the objections already on record. So far as the contention of the

respondent on the plea of approbation and reprobation goes, it does not

take the respondent any further. The appellant did make the deposit, but

the deposit was expressly made without prejudice to its rights, remedies

and contentions. The real question, therefore, is not the factum of deposit,

but the legal consequence that can be attached to a deposit so made.

9 10.1 The subsequent Demand Notice dated 19.09.2025 further requires

consideration. The respondent claimed Rs.2,77,72,206/- towards interest,

default interest and legal expenses, whereas the Section 7 claim comprised

principal of Rs.2,98,34,717/-, interest of Rs.90,04,363/- and tax penalty

of Rs.26,80,863/-. The components of the subsequent claim are therefore

materially different. Such subsequent computation cannot, by itself,

establish a financial debt. Each component must have a contractual or

statutory foundation and must otherwise be legally recoverable. The liberty

granted under the impugned order to pursue other legally maintainable

claims cannot amount to an adjudication of those claims.

10.2 On this aspect we have our own doubts. If Sec.7 IBC is not a recovery

proceeding, it is difficult to hold how can the same debtor, be treated as

an insolvent justifying the commencement of a CIRP one for part of the

claim and the other for rest of the claim, where both the claims arise out

of the same transaction.

11. We therefore find that closure of the company petition under Sec.7 of

the Code without determining the very issues raised by the appellant

cannot stand scrutiny in law. The appeal necessarily has to be allowed.

12. We clarify that nothing stated herein prevents the Respondent from

pursuing any amount otherwise legally due to it. We express no opinion

10 on the merits of the subsequent claim. Our conclusion is confined to the

legality of closing the Section 7 proceedings without adjudicating the

Appellant's objections.

13. In the result, subject to what we have observed in paragraph 12 above,

the appeal is allowed and the impugned order dated 19.08.2025 passed in

C.P. (IB) No. 576/MB/2025 is set aside. The matter is remanded back to

the Adjudicating Authority for fresh consideration of the petition under

Sec.7 of the Code. The respondent is required to re-deposit the amount to

the credit of the case before the Adjudicating Authority. No costs.

[Justice N. Seshasayee] Member (Judicial)

[Indevar Pandey] Member (Technical)

VG

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