The Supreme Court of India has clarified that insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) cannot be used as a shortcut for recovering money through court decrees. The Court allowed the appeal filed by Anjani Technoplast Ltd., holding that the initiation of insolvency proceedings in this case amounted to misuse of the law.
Background of the Case
The dispute arose from loan transactions between Anjani Technoplast Ltd. and Shubh Gautam. The respondent had extended loans to the company in 2010 with agreed interest rates. When repayment issues surfaced, proceedings were initiated under Section 138 of the Negotiable Instruments Act due to dishonoured cheques.
Over time, multiple settlements and litigations followed. Eventually, the Delhi High Court passed a decree in 2018 directing payment of over ₹4.38 crore with interest. The decree attained finality after dismissal of appeals, including a Special Leave Petition before the Supreme Court.
Instead of executing the decree through civil proceedings, the respondent filed an application under Section 7 of the IBC before the National Company Law Tribunal (NCLT), claiming default on a “financial debt.”
The NCLT dismissed the insolvency plea, observing that the IBC is not meant to function as a recovery mechanism and that the company was financially sound.
However, the National Company Law Appellate Tribunal (NCLAT) reversed this decision, holding that the loan agreements satisfied the requirement of “financial debt” and allowed the initiation of insolvency proceedings.
This led to the present appeal before the Supreme Court.
The Bench of Justice P. S. Narasimha and Justice Alok Aradhe examined whether insolvency proceedings could be used as an alternative to executing a civil court decree.
The Court emphasized the fundamental purpose of the IBC. It observed:
“The Code is not a debt recovery legislation… its primary focus is revival and continuation of the corporate debtor.”
Highlighting past precedents, the Court reiterated that insolvency proceedings should not be used to pressure companies into payment.
“IBC must not be used as a tool for coercion and debt recovery by individual creditors,” the Bench noted.
The Court also pointed out serious inconsistencies in the respondent’s claims regarding the amount due. Different figures were presented before various forums, raising doubts about the exact liability.
Additionally, the Court took note of the appellant company’s financial position and conduct. It had deposited substantial amounts and expressed willingness to pay the lawful dues, indicating that it was not an insolvent entity.
The Court found that the respondent had bypassed the proper remedy of executing the decree under civil law and instead invoked insolvency proceedings.
“The initiation of CIRP is nothing more than the use of the IBC as a recovery mechanism… we will term it as an abuse of the process,” the Bench held.
It clarified that while a decree may give rise to a fresh cause of action, it does not automatically justify invoking insolvency jurisdiction in every case. The facts must show genuine financial distress, not merely a dispute over payment.
Allowing the appeal, the Supreme Court set aside the NCLAT’s order dated 01 November 2022 and restored the NCLT’s decision dismissing the insolvency application.
The Court held that insolvency proceedings were not maintainable in this case and that the respondent is free to pursue execution of the decree through appropriate legal channels.
Costs of ₹5 lakh were also awarded in favour of the appellant.
Case Details
Case Title: Anjani Technoplast Ltd. vs Shubh Gautam
Case Number: Civil Appeal No. 8247 of 2022
Judge: Justice Pamidighantam Sri Narasimha, Justice Alok Aradhe
Decision Date: April 23, 2026
