Accepting OTS Payments While Simultaneously Pursuing CIRP Proceedings Is An Attempt To Use IBC For Debt Recovery: NCLT Mumbai

Background Facts

IFCI Limited (“Petitioner/Financial Creditor”) filed the petition seeking to initiate CIRP against Patil Construction & Infrastructure Ltd. (“Respondent/Corporate Debtor”) under Section 7 of the Code read with Rule 4 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016, for a Financial Debt of about Rs. 26.28 crores.

Facts and Submissions of the Financial Creditor

The Corporate Debtor availed a Loan of Rs. 50 Crores from the Petitioner, which was sanctioned on 02.03.2015 and disbursed on 17.04.2015. Due to default, a Recall Notice was issued on 09.08.2019 and the account was classified as NPA on 23.09.2019. The Financial Creditor invoked guarantee obligations on 01.10.2019 and took symbolic possession of secured assets on 14.01.2020. The Corporate Debtor admitted the loan and an outstanding amount of Rs. 14.29 crores, offering a settlement proposal. The Financial Creditor rejected the settlement proposal on 29.08.2022 and filed the Petition before the Tribunal.

Facts and submissions of the Corporate Debtor

The Corporate Debtor submitted an OTS proposal on 24.04.2023. The Financial Creditor rejected the OTS proposal on 21.07.2023. By then, the Corporate Debtor had already deposited Rs. 3 Crores. The Corporate Debtor submitted a revised OTS offer on 22.07.2023. It agreed to submit post-dated cheques worth Rs. 13.03 crores. The Financial Creditor accepted these cheques and did not dispute the OTS terms. The Corporate Debtor already paid Rs. 13.11 crores under the final OTS. The remaining Rs. 2.91 crores was due on 31.07.2024.

The Financial Creditor rejected the OTS on 20.02.2024, seven months after the final offer. Despite this, it retained two post-dated cheques. It returned the cheque dated 30.04.2024 only after the Corporate Debtor deposited Rs. 2.91 crores. The final cheque remained with the Financial Creditor. The Corporate Debtor claims this retention implied acceptance of the OTS.

Observations

The Tribunal observed that the Financial Creditor mentioned 09.01.2018 as the date of default, making the 3 year limitation period expire on 09.01.2021. However, in view of the Supreme Court's judgment, the limitation period was extended until 01.06.2022. The Financial Creditor relied on the Corporate Debtor's acknowledgment dated 15.03.2022 to justify that the petition was within limitation. Since this acknowledgment was made within the extended limitation period, the Tribunal held that the petition was within the limitation period.

The Tribunal held that the conduct on part of the Financial Creditor, i.e., accepting payments made by the Respondent as per the OTS proposal, retaining / managing post-dated cheques according to the OTS arrangement, and returning post-dated cheques upon receipt of the corresponding payment, creates a deemed acceptance of the OTS proposal on part of the Financial Creditor. Further, the OTS Proposal was rejected by the Applicant only after a substantial amount had already been paid by the Corporate Debtor.

The Tribunal remarked that the Financial Creditor cannot now be permitted to abandon this re-payment arrangement (OTS) when substantial compliance had already been achieved.

The Tribunal reiterated that the IBC is not intended to be used as a mechanism for debt recovery but rather as a process for resolution of the Corporate Debtor, relying upon GLAS Trust Company LLC v. BYJU Raveendran & Ors.

The Tribunal held that the Financial Creditor was using the IBC as a recovery forum, as it sought to proceed with CIRP despite only the last tranche under the OTS remaining unpaid, while still retaining the last post-dated cheque.

The Tribunal dismissed the petition.

Case Title: IFCI Limited vs. M/s. Patil Construction & Infrastructure Ltd.

Case Number: C.P. (I.B) No. 142/MB/2023

Order Dated: 04.03.2025

For the Petitioner: Adv. Ayush Kothari (PH)

For the Respondent: Adv. Nausher Kohli (PH)