NCLT rules out that IBC Code cannot be used as a tool for recovery, ET LegalWorld | Court Practice News

The appellate tribunal National Company Law Tribunal (NCLT), during hearing the plea for initiating insolvency against Orris Infrastructure over an alleged default of Rs 3.60 lakh Insolvency & Bankruptcy Code (IBC) ruled out that IBC code cannot be used as a “tool for recovery”, while dismissing a plea by two unit buyers of a commercial complex.

“The position of law under IBC is already settled that IBC is not a law for recovery of money. One look at the preamble of the IBC reflects that it is a law for reorganization and resolution of insolvency of corporate persons in a time-bound manner, for maximization of value assets, while promoting entrepreneurship and availability of credit and balancing the interests of all the stakeholders. Any IBC action for default of small amounts when the corporate person is otherwise a solvent and operational company is usually frowned upon and is treated as an action for recovery of money. This aspect becomes even more important if the IBC action is at the instance of an ‘operational creditor’, “ says Shashank Agarwal, Advocate, Delhi HC

NCLT was hearing the plea for initiating insolvency against Orris Infrastructure over an alleged default of Rs 3.60 lakh.The principal bench of the tribunal observed that the purchaser of the Office space/Retail Unit has already received full and final payment from Orris Infrastructure in lieu of the assured returns towards the allotted unit, as per the agreement.

“In the past the courts and tribunals have upheld the aim and object of the Code which is to revive an ailing company, rather than using the same as a recovery tool. Very often it has been observed that, creditors asks for abeyance of IBC application till the final payment of the settlement amount, as arrived between the parties, which vitiates the sole purpose of the Code, since IBC is a legislation empowering continuity of business operations and not to benefit a self-centric creditor. Hence, the courts and tribunals have ensured that IBC stand by its Preamble and not be used as a financial recovery mechanism,” says Amir Bavani, advocate & founder, AB Legal, Hyderabad.

  • Published On Sep 29, 2023 at 05:42 PM IST

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