Insolvency & Bankruptcy Code Updates (July 2025)

TABLE OF CONTENTS

JUDGMENTS

1. Validity of balance sheet as acknowledgment under Section 18 of Limitation Act in IBC proceedings
2. Unregistered sale agreement confers no possessory right during liquidation
3. CIRP terminated by NCLAT in view of substantive compliance and no pending claims
4. Voluntary third-party payment not hit by IBC moratorium or preference rules
5. Section 40 IBC clarified: claims rejected in CIRP can be reconsidered during liquidation.

JUDGMENTS

1. VALIDITY OF BALANCE SHEET AS ACKNOWLEDGMENT UNDER SECTION 18 OF LIMITATION ACT IN IBC PROCEEDINGS

FACTS

The Appellant, IL&FS Financial Services Ltd., extended a secured term loan of ₹30 crores to the Respondent, Adhunik Meghalaya Steels Pvt. Ltd., under a Loan Agreement dated 27.02.2015, backed by a Pledge Agreement of 8,10,804 shares of Adhunik Metaliks Ltd. Upon default, the respondent's account was classified as NPA on 01.03.2018, and a recall notice dated 10.08.2018 remained unanswered. On 15.01.2024, the Appellant filed a Section 7 IBC application before NCLT, Guwahati, claiming ₹55.45 crores in default, relying on the date of default as 01.03.2018 and on acknowledgments in the respondent's audited financial statements, particularly the FY 2019-20 Balance Sheet signed on 12.08.2020.

The NCLT dismissed the application, holding that the Balance Sheet did not name the Appellant or reflect the pledged security, and did not qualify as a valid acknowledgment under Section 18 of the Limitation Act. NCLAT affirmed, holding the limitation expired on 30.05.2022 even considering COVID-19 extensions. The Supreme Court reversed both findings, holding that the Balance Sheet was a valid acknowledgment and that, applying the COVID-19 exclusion (15.03.2020 to 28.02.2022), the application filed on 15.01.2024 was within limitation. The matter was remitted to the NCLT for consideration on merits.

ISSUES

12. Whether the Balance Sheet for FY 2019–20, signed on 12.08.2020 and filed on 14.02.2021, amounts to a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963, to extend limitation for a Section 7 IBC application?
13. Whether the relevant date for acknowledgment under Section 18 is the date of signing or the date of filing/uploading of the Balance Sheet?

JUDGEMENT

The Supreme Court was called upon to decide whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), filed by the Appellant on 15.01.2024, was within limitation. The core issue was whether the Balance Sheet of the Respondent- Corporate Debtor for the FY) 2019-20 constituted a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963, so as to extend the limitation period.

The account of the Respondent was declared a Non-Performing Asset (NPA) on 01.03.2018. The Appellant relied on the Balance Sheet signed on 12.08.2020 and filed with the Registrar of Companies on 14.02.2021, which disclosed the outstanding loan. The NCLT and NCLAT had both dismissed the Section 7 application as time-barred, holding that the balance sheet did not refer to the Appellant or the pledged shares, and therefore did not constitute a valid acknowledgment.

The Supreme Court reversed these findings. It held that the Balance Sheet clearly recorded the liability as a "secured loan," with figures consistent with prior years, and showed no repayment in the corresponding cash-flow statement. Relying on established precedents including Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal & Anr., and Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad Chamaria & Ors., the Court reiterated that an acknowledgment of debt under Section 18 need not name the creditor expressly if it reflects a conscious admission of a subsisting liability.

Accordingly, the Court held that the signing of the Balance Sheet on 12.08.2020 triggered a fresh three-year limitation period under Section 18, which would ordinarily expire on 11.08.2023. However, the Court further held that the benefit of exclusion of the period from 15.03.2020 to 28.02.2022 granted under its suo motu COVID-19 orders in SMWP (C) No. 3 of 2020 was available to the Appellant. Applying para 5(I) of the 10.01.2022 order, the extended limitation period would run till 28.02.2025.

Since the Section 7 application was filed on 15.01.2024, it was well within limitation. The Court allowed the appeal, set aside the orders of the NCLT and NCLAT, and remitted the matter to the Adjudicating Authority to consider the application on merits.

2. UNREGISTERED SALE AGREEMENT CONFERS NO POSSESSORY RIGHT DURING LIQUIDATION

FACTS

The dispute arises from a transaction between Atul Paper Pvt. Ltd. and the Corporate Debtor, RG Infra Build Pvt. Ltd. On 24 April 2018, Atul Paper Pvt. Ltd. entered into an Agreement to Sell for the purchase of a commercial unit for a total consideration of ₹2.70 crores. Pursuant to this agreement, Atul Paper paid ₹2.01 crores and was handed over possession of the unit on 25 April 2018. However, no registered sale deed was executed in its favour. Subsequently, on 25 September 2019, CIRP was initiated against RG Infra Build Pvt. Ltd. upon an application by M/s Ved Contracts Pvt. Ltd., and Mr. Rakesh Kumar Jain was appointed as the Resolution Professional (later Liquidator).

Atul Paper filed a claim of ₹2.51 crores before the RP, which was rejected. Upon learning that Atul Paper was in possession of a unit owned by the CD, the RP filed IA No. 355/2021 seeking its vacation. Meanwhile, liquidation proceedings commenced by order dated 16 March 2023. Atul Paper again filed a claim before the Liquidator, which was rejected for delay, leading to the filing of CA No. 26/2023 under Section 42 of the IBC. By its order dated 6 May 2024, the Adjudicating Authority (NCLT, New Delhi) directed Atul Paper to vacate the premises and further directed the Liquidator to refund ₹2.01 crores to Atul Paper in the event of sale of the said unit. Consequently, Atul Paper filed Company Appeals Nos. 1100 & 1101 of 2024 challenging both directions. The Liquidator and Punjab National Bank (a financial creditor of the CD and mortgagee of the property) also filed separate appeals (Nos. 1311 and 2137 of 2024 respectively), challenging the refund order.

ISSUES

1. Whether Atul Paper Pvt. Ltd. was entitled to retain possession of the commercial unit based on the unregistered Agreement to Sell under the doctrine of part performance under Section 53A of the Transfer of Property Act, 1882
2. Whether the NCLT was correct in directing the Liquidator to refund ₹2.01 crores to Atul Paper Pvt. Ltd., outside the statutory waterfall mechanism under Section 53 of the IBC

JUDGEMENT

The Appellate Tribunal rejected Atul Paper's reliance on Section 53A of the Transfer of Property Act. It held that in view of Section 17(1-A) of the Registration Act, 1908, which mandates registration of contracts for the purposes of Section 53A, the unregistered Agreement to Sell dated 24 April 2018 could not confer any right to possession or protection under the doctrine of part performance. Furthermore, Clause 14.1 of the agreement clearly stated that no right would accrue to the purchaser until a sale deed was executed and registered. Hence, the NCLAT upheld the NCLT's direction to Atul Paper to vacate the premises.

On the issue of refund of ₹2.01 crores, the NCLAT held that the NCLT had erred in directing any such payment outside the mechanism prescribed under the IBC. Once CIRP or liquidation is initiated, the claims of stakeholders must be settled in accordance with Section 53 of the Code. The NCLT could not have bypassed the statutory framework to allow direct refund of money. Consequently, the direction for refund of ₹2.01 crores was set aside.

As regards the rejection of Atul Paper's claim on grounds of delay, the Appellate Tribunal found that the rejection was unwarranted. It noted that Atul Paper had initially filed a claim during CIRP, and that its second claim in liquidation should not have been rejected solely due to delay. The NCLAT held that the Adjudicating Authority erred in dismissing CA No. 26/2023 as infructuous. Accordingly, that order was set aside and the Liquidator was directed to admit the claim of ₹2.51 crores in the appropriate category and deal with it as per the distribution mechanism under the Code.

During the pendency of the appeal, Atul Paper Pvt. Ltd. had deposited the balance sale consideration of ₹69 lakhs before the Liquidator pursuant to an interim order. The NCLAT directed that this amount be refunded to Atul Paper along with any interest earned thereon.

In conclusion, the NCLAT dismissed Appeal No. 1100/2024, thereby upholding the direction to vacate the premises, but allowed Appeal No. 1101/2024, restoring Atul Paper's claim for admission. Appeals filed by the Liquidator and Punjab National Bank (Nos. 1311 and 2137/2024) were also allowed to the extent of quashing the direction for refund of ₹2.01 crores. All parties were directed to bear their own costs. The judgment reiterates the supremacy of the IBC's structured claims and distribution mechanism and the limited rights flowing from unregistered sale agreements.

3. CIRP TERMINATED BY NCLAT IN VIEW OF SUBSTANTIVE COMPLIANCE AND NO PENDING CLAIMS

FACTS

This appeal was filed against the impugned order dated 14.02.2023 passed by the Hon'ble NCLT, New Delhi Bench IV, in CP(IB) No. 223 of 2022 initiated under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) by homebuyers against Grand Reality Pvt. Ltd..

During the pendency of the appeal, a significant development occurred when PAX Homes LLP, claiming to be the developer under a Development Agreement dated 18.11.2011, filed an Intervention Application (IA No. 1832 of 2023). Considering the larger interest of homebuyers, the Appellate Tribunal entertained the application and allowed a "reverse CIRP" or a court-monitored construction process to facilitate the completion and handover of flats to homebuyers. Consequently, Respondent No. 44 (PAX Homes LLP) was permitted to resume construction.

Pursuant to the Tribunal's directions, construction was completed and Occupation Certificates were obtained on 10.05.2024 and 22.05.2024. A Local Commissioner was appointed to verify compliance and submitted her report confirming the completion of the project. It was also recorded that the electronic fittings would be installed as and when flat buyers come forward and complete the payment formalities.

Simultaneously, the appellant approached the Hon'ble Supreme Court alleging delay by the RP in concluding the matter. The Hon'ble Supreme Court directed the NCLAT to expedite disposal of the appeal.

ISSUES

1. Whether CIRP against the corporate debtor could be closed despite no formal application under Section 12A of IBC being filed?
2. Whether all pending claims, particularly those of financial creditors and statutory authorities, had been adequately addressed?
3. Whether the conduct of the RP contributed to unnecessary delay, warranting judicial intervention?
4. Whether any contempt proceedings against the respondents were maintainable or required to be pursued?

JUDGEMENT

The Tribunal, after examining the affidavits filed by the RP and the appellant, found that construction was completed and possession was either handed over or settled for all homebuyers. The four pending individual claims, Ayush Jain, Mukesh Kumar Agarwal, Rohita 9 Insolvency & Bankruptcy Code Updates – July 2025

Dharanendra Hesi, and Usha Malik, were shown to have been resolved through possession, settlement deeds, or MoUs filed with MAHARERA. All necessary documentation, including emails and possession letters, were placed on record.

With respect to the only remaining claim by the Income Tax Department pertaining to Assessment Year 2015-16, the Tribunal noted that demand had been stayed, and the department had no objection to closure of CIRP so long as its claim was preserved for adjudication under tax laws. This assurance was also recorded in the appellant's affidavit.

The Appellate Tribunal relied on its own precedents in Sachin Malde v. Hemant Nanji Chheda & Anr. and Gaurav Bhati (Suspended Director of Bird Consultancy Services Pvt. Ltd.) v. Smriti Bhatia & Ors., where it was held that in cases where there are no unresolved claims and all stakeholders have been settled, a formal Section 12A application could be dispensed with, and the inherent powers of the Tribunal could be invoked to close the CIRP.

In light of these facts and precedents, the Tribunal held that there was no impediment in closing the CIRP. The CIRP was accordingly declared closed, and the RP was discharged. The impugned order of the NCLT was set aside, and the appeal was disposed of.

The NCLAT, invoking its inherent powers and guided by pragmatic considerations and past precedents, allowed closure of CIRP without requiring a Section 12A application, since all claims were resolved and the homebuyers had received possession of their units. The Tribunal emphasized that the judicial process should not be held hostage to procedural technicalities when substantive justice has been achieved.

The CIRP against Grand Reality Pvt. Ltd. was thus officially concluded, the Resolution Professional was discharged, the appeal was allowed, and all related applications, including contempt petitions, were disposed of.

4. VOLUNTARY THIRD-PARTY PAYMENT NOT HIT BY IBC MORATORIUM OR PREFERENCE RULES

FACTS

This appeal was filed by ICICI Bank Ltd. challenging the order dated 22.12.2023 passed by the NCLT, New Delhi in IA No. 2162/2020, filed during the CIRP of M/s Trend Flooring Pvt. Ltd., the corporate debtor. The CIRP commenced against the corporate debtor on 09.10.2019, and the IRP was later confirmed as the RP. During the CIRP period, a payment of ₹8,92,980/- was made to ICICI Bank towards settlement of a vehicle loan account, which was availed jointly by the corporate debtor and its director, Mr. Arvind Narayan Singh, for the purchase of an Innova car.

The payment was made on 27.01.2020 from an HDFC Bank account titled "BORN TO RIGHT", allegedly operated by Mr. Amit Narayan Singh, brother of the co-applicant and an additional director of the corporate debtor. After receiving the payment, ICICI Bank closed the loan account and issued a No Objection Certificate, thereby releasing the hypothecated vehicle.

The RP filed IA No. 2162/2020 under Sections 19(2), 14, 43, and 74(2) of the IBC, 2016 seeking various reliefs, including reversal of the payment to the corporate debtor's account on the grounds of it being a preferential transaction. The NCLT allowed the application and directed ICICI Bank to reverse the payment of ₹8,92,980/- to the corporate debtor's account. Aggrieved, ICICI Bank filed the present appeal.

ISSUES

1. Whether the payment of ₹8,92,980/- to ICICI Bank during the CIRP period was made by or on behalf of the corporate debtor, thus violating the moratorium under Section 14 of the IBC.
2. Whether the said transaction amounted to a preferential transaction under Section 43 of the IBC.
3. Whether the NCLT was justified in directing ICICI Bank to reverse the said amount into the corporate debtor's account.

JUDGEMENT

The NCLAT examined the transaction in light of Sections 14 and 43 of the Insolvency and Bankruptcy Code, 2016 (IBC). It found that the payment of ₹8,92,980/- to ICICI Bank was not made by the corporate debtor or from any account belonging to it. Instead, the payment was made from a third-party HDFC Bank account held in the name of "BORN TO RIGHT," allegedly operated by Mr. Amit Narayan Singh, the brother of Mr. Arvind Narayan Singh (co-applicant of the loan and a director of the corporate debtor).

The Appellate Tribunal observed that for Section 14 to be attracted, the payment must either be made from the assets of the corporate debtor or be an enforcement against its assets. Since no amount was withdrawn or appropriated from the corporate debtor's account, the moratorium provisions under Section 14 were held to be inapplicable. The Tribunal further clarified that the personal or third-party payments made voluntarily cannot be brought within the ambit of the moratorium.

In respect of the findings of the NCLT that the transaction was a preferential transaction under Section 43 of the IBC, the NCLAT noted that Section 43 requires a precondition that a transaction must be initiated by the corporate debtor, giving preference to one creditor over another. Since the corporate debtor neither made nor authorised the transaction, and the payment was made by a third party on behalf of the co-applicant, the transaction did not satisfy the statutory conditions to be treated as preferential.

The NCLAT also distinguished the case law relied upon by the respondent, including judgments of the Supreme Court and this Tribunal, noting that those cases involved either direct transactions by the corporate debtor or appropriations made from its account. In contrast, the present case involved a third-party payment made independently of the corporate debtor, which cannot be construed as a preference or as violating the moratorium.

Accordingly, the NCLAT held that the direction of the NCLT to ICICI Bank to reverse the payment of ₹8,92,980/- was legally unsustainable. It found no violation of Sections 14 or 43 of the IBC by the appellant bank. The appeal was allowed, and the impugned order of the Adjudicating Authority was set aside.

5. SECTION 40 IBC CLARIFIED: CLAIMS REJECTED IN CIRP CAN BE RECONSIDERED DURING LIQUIDATION

FACTS

The appeal was filed by Vistra ITCL (India) Ltd., Debenture Trustee, and other financial creditors under Section 61 of the IBC, challenging the order dated 06.05.2024 passed by the Adjudicating Authority (NCLT, Mumbai Bench-I) in the liquidation proceedings of Satra Properties (India) Ltd. The Appellants had submitted their claim as financial creditors based on the issuance of Non-Convertible Debentures (NCDs) and corresponding Debenture Trust Deeds. However, the Liquidator rejected their claim, relying on the NCLT's earlier rejection of the same claim during the CIRP stage. The Adjudicating Authority also held that the order passed during CIRP attained finality and the claim could not be resubmitted during liquidation.

ISSUES

1. Whether a financial creditor, whose claim has been rejected during CIRP, can resubmit the claim during the liquidation process.
2. Whether the Liquidator can reject a claim in liquidation solely on the basis that it was earlier rejected during CIRP, without conducting a fresh assessment under Section 40 of IBC?

JUDGEMENT

The NCLAT allowed the appeal and held that the Adjudicating Authority erred in rejecting the Appellants' claims merely because they had earlier been rejected during CIRP. The Appellate Tribunal clarified that the role of the Liquidator is distinct from that of the Resolution Professional and that claims rejected during CIRP can be independently examined and admitted during liquidation, as per Section 40 of the Code.

The NCLAT observed that "in the process of liquidation, the Liquidator has to examine the claim independently, and if he rejects the claim, then an appeal lies under Section 42 before the Adjudicating Authority." It further held that "the Liquidator was not bound by the earlier decision taken by the Resolution Professional or by the order of the Adjudicating Authority rejecting the claim during CIRP."

The Tribunal found that the Liquidator failed to exercise his independent jurisdiction under Section 40 and wrongly relied upon the earlier decision. Accordingly, the impugned order of the NCLT was set aside, and the matter was remanded back to the Liquidator for fresh adjudication on merits.

This case settles an important point of law under IBC: that rejection of a claim during the CIRP does not preclude its reconsideration during the liquidation stage. The Liquidator must reassess claims independently under Section 40, and parties aggrieved by the Liquidator's decision have the statutory right to appeal under Section 42.

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