Initiation of Recovery Proceedings Before DRT Doesn’t Preclude Financial Creditor From Filing Application u/s 7 of IBC | NCLAT

Case Details: Pawan Kumar v. Central Bank of India - [2025] 171 taxmann.com 203 (NCLAT-New Delhi)

Judiciary and Counsel Details

• Ashok Bhushan, Chairperson Barun Mitra & Arun Baroka, Technical Member
• Ms Eshna Kumar & Ms Jasleen Singh Sandha, Advs. for the Appellant.
• Ms Yaehartha Gupta & Mayuresh, Rajesh Rattan, Anuj Jain, Anant Gautam, Dinesh Sharma, Advs. for the Respondent.

Facts of the Case

In the instant case, on corporate debtor’s failure to repay debts, financial creditors filed an application under section 7 of the IBC. The NCLT by the impugned order admitted the said application.

Thereafter, the corporate debtor filed an instant appeal stating that in the proceedings under Section 7 filed by lead bank, the financial creditor had already initiated proceedings before the DRT for recovery of its outstanding dues. Pursuant to the decree passed by the DRT, two assets of the corporate debtor had been auctioned and money had been recovered. Considering these facts, an interim order was issued directing that the assets of the corporate debtor must not be alienated.

Further, it had submitted the proposal before the financial creditor for One Time Settlement (OTS) and in the event, the proposal was accepted, the financial creditor would have to file an application under Section 12-A of the IBC for withdrawal of the proceedings.

It was noted that the proceeding for auction, which was initiated in pursuance of Decree passed by the DRT, had now stand cancelled by the High Court. Further, refund of auction money from auction purchaser had also been affirmed by the High Court, thus, no money had been recovered by financial creditor. Thus, there were no grounds to interfere with the impugned order admitting the Section 7 Application by the NCLT.

NCLAT Held

The NCLAT observed that the fact that financial creditor has initiated proceedings before DRT does not preclude them to take remedy under section 7 of the IBC, which is a special remedy provided under IBC.

The NCLAT held that in the event OTS proposal as submitted by the corporate debtor was accepted by the financial creditor, it would be open for financial creditors to file application under Section 12-A of the IBC. Thus, an instant appeal was to be dismissed.

List of Cases Reviewed

• Punjab National Bank v. Kaur Sain Spinners Ltd. [2025] 170 taxmann.com 818 (NCLT -Chd.) (Para 14) affirmed.