Tribunal holds that a financial creditor cannot simultaneously challenge a transaction as fraudulent and enforce it as a valid financial debt; ongoing CBI and ED probes further restrict the petition's maintainability.
In a significant decision dated September 7, 2026, the National Company Law Tribunal (NCLT), Mumbai Bench, led by Judicial Member Mr. Vinay Goel and Technical Member Mr. Charanjeet Singh Gulati, dismissed the Corporate Insolvency Resolution Process (CIRP) initiation petition filed by Omkara Assets Reconstruction Private Limited against Sumer Radius Realty Private Limited (SRRPL). The petition was filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) alleging a default amount exceeding Rs. 2,235 crore.
The Financial Creditor, originally Piramal Capital & Housing Finance Limited (erstwhile Dewan Housing Finance Corporation Limited), sought to initiate CIRP on account of defaults under two financial facilities: a loan agreement sanctioning Rs. 900 crore to the Corporate Debtor and a corporate guarantee of Rs. 1,100 crore provided for a loan availed by Radius Estate Projects Private Limited (REPPL). The petition alleged non-payment of interest and principal amounts with the default date fixed as March 11, 2019.
However, the Corporate Debtor contested the petition on multiple grounds, notably highlighting that the Financial Creditor was pursuing contradictory positions by assailing the very same transactions as fraudulent in separate avoidance proceedings under Section 66 of the IBC. These proceedings, initiated by the erstwhile Administrator of DHFL and now continued by the Financial Creditor itself, alleged irregularities, related-party transactions, siphoning of funds, and fraud based on a Transaction Audit Report by Grant Thornton Bharat LLP.
Further complicating the matter, the loan transactions underlying the petition were under investigation by the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED) for fraud and money laundering. The CBI and ED had registered FIRs concerning these transactions, which cast serious doubts on the validity and legality of the financial debt claimed.
The NCLT meticulously examined the submissions and authorities cited by both parties. It was noted that the Financial Creditor had previously assailed the same transactions as fraudulent and sought restitution in the pending Section 66 proceedings, thereby taking a position inconsistent with enforcing those transactions as valid financial debts in the present Section 7 petition. The Tribunal invoked the legal principle of approbate and reprobate, emphasizing that a party cannot approbate (approve) and reprobate (disapprove) the same transaction simultaneously.
The Tribunal also relied on precedents such as the decision in Progfin Private Limited v. Ganesh Benzoplast Limited, where it was held that pending investigations and civil/criminal proceedings concerning the debt documents limit the NCLT's summary jurisdiction to conclusively determine the existence of debt and default under Section 7.
Given these factors-the pendency of avoidance proceedings challenging the transactions as fraudulent, ongoing CBI and ED investigations, and the inconsistency in the Financial Creditor's stance-the NCLT held that the petition was not maintainable. It further observed that the existence of a financial debt under Section 5(8) of the IBC could not be established conclusively under such circumstances.
Consequently, the petition for initiating CIRP against Sumer Radius Realty Private Limited was dismissed. Additionally, an interlocutory application filed by J.C. Flowers Asset Reconstruction Private Limited seeking intervention in the proceedings was disposed of as infructuous following the dismissal of the main petition.
This ruling underscores the Tribunal's cautious approach in cases where allegations of fraud and ongoing investigations exist, reinforcing that summary adjudication under the IBC cannot override or preempt detailed investigations by investigative agencies. It also reaffirms that financial creditors must maintain consistent legal positions and cannot simultaneously pursue contradictory remedies under the Code.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - A petition under Section 7 of the Code cannot be admitted where the same financial transaction is being simultaneously challenged as fraudulent under Section 66 of the Code or is under investigation by authorities like the CBI and ED for fraud and money laundering.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 - Section 7, Section 5(8), Section 66; Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - Rule 4; NCLT Rules - Rule 11
