The Supreme Court has dismissed an appeal filed by Dhanlaxmi Bank Limited challenging a National Company Law Appellate Tribunal (NCLAT) decision that had refused to initiate insolvency proceedings against a company over a disputed property transaction.
The bench observed that the Insolvency and Bankruptcy Code (IBC) cannot be turned into a “coercive mechanism for recovery” when the dispute is primarily contractual in nature.
Background of the Case
The dispute arose from a 2011 transaction involving Emerald Mineral Exim Pvt. Ltd., a builder, and Dhanlaxmi Bank. The company had entered into an agreement to purchase a commercial unit in Kolkata’s “Synthesis Business Park.”
According to court records, the bank sanctioned a loan of ₹1.50 crore to the company for the purchase of the property. A quadripartite agreement was later executed between the bank, the company, the builder, and the West Bengal Housing Infrastructure Development Corporation Limited. Under this arrangement, the bank directly disbursed the loan amount to the builder.
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The company later defaulted on repayment obligations, following which the bank initiated proceedings before the Debt Recovery Tribunal (DRT). The DRT passed interim directions and the builder deposited ₹1.50 crore as security.
Subsequently, the bank also pursued insolvency proceedings under Section 7 of the IBC after the matter was transferred to the National Company Law Tribunal (NCLT). The NCLT admitted the plea in 2020, but the NCLAT later set aside that order.
The bench of Justice P.S. Narasimha and Justice Alok Aradhe closely examined the structure of the transaction and the terms of the quadripartite agreement.
The bench noted that the loan amount was directly paid to the builder and that the builder had substantial obligations regarding construction, transfer of the property, and refund arrangements in specific situations.
“The structure of transaction reveals that Bank’s disbursement was intrinsically linked to performance of Builder’s obligation,” the court observed.
The judges further stated that the dispute was not a straightforward case of financial debt and default under the IBC framework.
Referring to earlier judgments, the court reiterated that insolvency proceedings are meant for resolution of genuine financial distress and not for enforcing individual recovery claims.
“The Code must not be used as a tool for coercion and debt recovery by individual creditors,” the bench said.
The court noted the bank’s submission that pursuing different statutory remedies would not by itself amount to forum shopping, while ultimately holding that the dispute remained predominantly contractual in nature.
Holding that the matter was already being adjudicated before the DRT and largely involved contractual obligations connected with transfer of property, the Supreme Court declined to interfere with the NCLAT judgment.
“The present case does not involve a straightforward financial debt-default scenario warranting initiation of CIRP,” the court held.
The appeal filed by Dhanlaxmi Bank was accordingly dismissed without costs.
Case Details
Case Title: Dhanlaxmi Bank Limited v. Mohammed Javed Sultan & Ors.
Case Number: Civil Appeal No. 7184 of 2022
Judges: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe
Decision Date: May 7, 2026
