NCLAT: Creditors Cannot Adjust Corporate Debtor’s Assets During CIRP; IBC Overrides Multi-State Co-operative Laws

March 12, 2026 : The National Company Law Appellate Tribunal, Principal Bench, New Delhi, has held that a creditor cannot unilaterally adjust dues from the assets of a corporate debtor during the Corporate Insolvency Resolution Process (CIRP), as such actions violate the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC).

The ruling came in Mehsana Urban Co-operative Bank Ltd. v. Swastik Ceracon Ltd., where the appellate tribunal partly allowed an appeal while affirming the core findings of the National Company Law Tribunal, Ahmedabad Bench.

The Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) was dealing with a challenge to the NCLT order directing Mehsana Urban Co-operative Bank to refund ₹56 lakh along with interest, after it was found that the bank had adjusted dividends and share value belonging to the corporate debtor during and after CIRP.

The CIRP against Swastik Ceracon Limited commenced on 15 January 2019. The appellant bank had filed a claim of over ₹10.43 crore as a financial creditor, which was admitted, and it received more than ₹5 crore under the approved resolution plan. The corporate debtor also held equity shares in the bank, which were reflected as assets in the Information Memorandum.

Subsequently, the Successful Resolution Applicant approached the NCLT alleging that the bank had unilaterally appropriated dividends and share value aggregating to ₹56 lakh during CIRP and even after approval of the resolution plan. The NCLT allowed the application and ordered refund with interest, prompting the present appeal.

Rejecting the bank’s contention that, as a Multi-State Co-operative Society, it fell outside the jurisdiction of the NCLT, the Appellate Tribunal clarified that Section 238 of the IBC gives the Code overriding effect over inconsistent provisions of any other law. It held that such co-operative societies fall within the definition of “person” under the IBC and are therefore subject to its framework.

The Tribunal further held that Section 60(5)(c) of the Code empowers the NCLT to adjudicate any question of law or fact arising out of or in relation to insolvency proceedings. Since the dispute pertained to adjustment of dividends during CIRP, it squarely fell within the jurisdiction of the adjudicating authority.

On merits, the Appellate Tribunal found that the bank had adjusted dividends payable to the corporate debtor both during the CIRP period and after approval of the resolution plan. Such unilateral adjustments were held to be in violation of the moratorium under Section 14 of the IBC.

The Tribunal also rejected the argument that shares held in the co-operative society were not assets of the corporate debtor. It observed that these shares were duly reflected in the Information Memorandum and constituted assets protected during CIRP, over which the creditor had no right of appropriation.

However, the Appellate Tribunal modified the NCLT’s direction on interest. While upholding the refund of ₹56 lakh, it held that interest at 10% per annum should run from 4 March 2025, the date of filing of the application, rather than from the dates of adjustment. The bank was directed to make payment within 45 days, and the rest of the NCLT order was upheld.

Case Title: Mehsana Urban Co-Operative Bank Ltd. v. Swastik Ceracon Ltd.
Case No.: Company Appeal (AT) (Insolvency) No. 1956 of 2025