Kochi, The Kochi bench of the National Company Law Tribunal (NCLT) has dismissed an insolvency petition against a Kerala-based auto dealer, ruling that the Insolvency and Bankruptcy Code (IBC) cannot be used as a mechanism to recover private debts.
The petition was filed by eight financial creditors against NCS Autocars Pvt Ltd in Pathanamthitta district, who claimed that the company had defaulted on loans worth Rs 4 crore advanced in two tranches in September and December 2023.
After part repayments, they claimed outstanding dues of Rs 3.82 crore, including Rs 2.55 crore in principal and Rs 1.27 crore in interest.
However, the tribunal said the case appeared to be “a debt recovery action rather than a bona fide invocation of the insolvency resolution mechanism contemplated under the Code.” The bench of Judicial Member Vinay Goel and Technical Member Ravichandran Ramasamy noted that the creditors relied mainly on demand promissory notes, with no formal loan agreement on record.
It also found that several post-dated cheques issued by the company had not been presented for payment and that the creditors had not pursued remedies available under the Negotiable Instruments Act.
The tribunal observed that substantial interest had been deducted in advance before the loans were disbursed and that the borrowers repaid the principal through weekly instalments.
Using an illustrative example based on the loan structure, it said the effective annual interest rate could work out to about 84.41 per cent, though it clarified that the calculation was only illustrative and not an exact determination for the case.
Describing the lending model as “a unique money-lending practice”, the tribunal said the system involved deducting interest upfront while simultaneously recovering the principal in instalments.
It added that such a “shylockian system” of lending could not be allowed to misuse the insolvency process.
The bench also noted that the petitioners had filed similar insolvency cases before different NCLT benches against other companies based on comparable promissory note transactions and had repeatedly proposed the same insolvency professional as the interim resolution professional.
The tribunal further said no material had been produced to show that NCS Autocars was commercially insolvent or facing financial distress.
“The entire emphasis of the Petitioners is on recovery of the amounts claimed by them under the promissory notes together with interest thereon,” it said.
Dismissing the petition, the tribunal held that admitting the case would not advance the objectives of the IBC, which is intended to resolve genuine insolvency and not enforce private monetary claims.
It said the petitioners were free to pursue any other legal remedies available to recover their dues.
