Dhanlaxmi Bank Limited IBC Recovery Boundaries

The Supreme Court examined whether a bank could invoke Section 7 of the Insolvency and Bankruptcy Code against a corporate debtor where the underlying transaction involved a complex quadripartite arrangement for financing acquisition of commercial property and where substantial obligations rested upon a builder to construct and transfer the property. 

Although the National Company Law Tribunal had admitted the CIRP application after finding debt and default, the NCLAT reversed the admission order holding that the dispute was not a pure insolvency default and that the bank had effectively attempted to utilise the Code as a recovery mechanism.

Affirming the NCLAT, the Supreme Court held that the transaction could not be isolated into a simple lending arrangement because the disbursement, performance obligations, transfer of property, and repayment structure were all intrinsically connected to the builder’s contractual obligations. The Court reiterated that the IBC is a collective insolvency resolution framework and not a coercive recovery tool for individual creditors.