NCLAT Allows Appeal Against Admission of CIRP Due to Discharge of Debt Through One-Time Settlement. Financial Debt Found to Be Fully Satisfied Prior to Filing of Section 7 Application Under Insolvency and Bankruptcy Code, 2016.

Tribunals: National Company Law Appellate Tribunal Bench: CHENNAI In Favour of Accused

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2026-05-19 02:50:26

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Case Note & Summary

The present appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) by Mr. Puneet Resutra, the erstwhile Director and Shareholder of M/s Ace Engineering (India) Private Limited (Corporate Debtor), challenging the order dated 06.03.2023 passed by the National Company Law Tribunal (NCLT), Chandigarh Bench. The NCLT had admitted an application under Section 7 of the IBC filed by Jammu & Kashmir Bank Ltd. (Financial Creditor/Respondent) and initiated Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Appellant contended that the financial debt forming the basis of the Section 7 application stood fully discharged through a one-time settlement with the guarantors in the years 2017-2018. Despite the Appellant's assertion that the loan account was settled and the mortgaged property had been released by the Bank, the Adjudicating Authority failed to consider these facts and proceeded to admit the petition. The legal issue was whether the debt was indeed discharged, making the Section 7 application not maintainable. The Appellant argued that the debt was no longer due, while the Respondent Bank maintained that the settlement was only with the guarantors and not with the Corporate Debtor. The NCLAT analyzed the facts and found that the one-time settlement had been accepted by the Bank and the property mortgaged had been released, indicating that the debt was satisfied. The court held that the Adjudicating Authority erred in admitting the application without properly verifying the existence of a debt and default. Consequently, the NCLAT allowed the appeal, set aside the impugned order, and dismissed the Section 7 application.

Headnote

A) Insolvency and Bankruptcy Code - Section 7 Application - Discharge of Debt - One-Time Settlement - The issue was whether the financial debt was fully discharged through a one-time settlement with the guarantors prior to the filing of the Section 7 application. The court held that the debt stood satisfied and the Adjudicating Authority erred in admitting the application without considering the settlement. (Paras 2-5)

B) Insolvency and Bankruptcy Code - Corporate Insolvency Resolution Process - Admission of Application - The court held that the Adjudicating Authority must verify the existence of a debt and default before admitting a Section 7 application. Since the debt was discharged, the admission was unsustainable. (Paras 3-6)

Issue of Consideration

Whether the financial debt stood discharged through a one-time settlement with the guarantors, thereby rendering the Section 7 application under the Insolvency and Bankruptcy Code, 2016, not maintainable.

Final Decision

The appeal is allowed. The impugned order dated 06.03.2023 passed by the National Company Law Tribunal, Chandigarh Bench in CP (IB) No. 54/Chd/J&K/2019 is set aside. The Section 7 application filed by the Respondent Bank is dismissed.

Law Points

One-time settlement discharges financial debt
Section 7 application cannot be admitted if debt is not due
Adjudicating Authority must verify existence of debt before admission

Case Details

2024 LawText (NCLAT) (01) 102

Company Appeal (AT) (Ins.) No. 752 of 2023

2025-07-03

Indevar Pandey

For Appellant: Mr. Amar Vivek & Mr. Aditya Jain, Advocates. For Respondent: Mr. Syed Arsalan, Mr. Prateek Khaitan, Mr. Chatanya Sharma and Mr. Shitij Chakravarty, Advocates.

Puneet Resutra

Jammu & Kashmir Bank Ltd.

Nature of Litigation

Appeal against admission of Section 7 application under IBC for initiation of CIRP.

Remedy Sought

Setting aside of the impugned order dated 06.03.2023 passed by NCLT, Chandigarh Bench admitting the Section 7 application.

Filing Reason

The Appellant contended that the financial debt stood fully discharged through a one-time settlement with the guarantors in 2017-2018, and the Adjudicating Authority failed to consider this fact.

Previous Decisions

The NCLT, Chandigarh Bench admitted the Section 7 application filed by Jammu & Kashmir Bank Ltd. and initiated CIRP against M/s Ace Engineering (India) Private Limited.

Issues

Whether the financial debt was fully discharged through a one-time settlement with the guarantors prior to the filing of the Section 7 application. Whether the Adjudicating Authority erred in admitting the Section 7 application without considering the settlement.

Submissions/Arguments

The Appellant argued that the loan account stood settled and the mortgaged property had been released by the Bank, thus no debt existed. The Respondent Bank contended that the one-time settlement was only with the guarantors and not with the Corporate Debtor, and the debt remained due.

Ratio Decidendi

A Section 7 application under the Insolvency and Bankruptcy Code cannot be admitted if the financial debt has been fully discharged through a one-time settlement accepted by the financial creditor, as the existence of a debt and default is a prerequisite for initiation of CIRP.

Judgment Excerpts

The Appellant, Mr. Puneet Resutra, who is the erstwhile Director and Shareholder of the said Corporate Debtor, has contended that the said order is legally unsustainable, as the financial debt, which formed the basis of the Section 7 application, stood fully discharged through a one-time settlement with the guarantors in the year 2017–2018. Despite the Appellant’s assertion that the loan account stood settled and the property mortgaged for securing the loan had already been released by the Bank, the Adjudicating Authority failed to consider these facts and proceeded to admit the Section 7 petition.

Procedural History

The Respondent Bank filed a Section 7 application before the NCLT, Chandigarh Bench, which was admitted on 06.03.2023, initiating CIRP against the Corporate Debtor. The Appellant, an erstwhile Director, filed the present appeal under Section 61 of the IBC before the NCLAT.