Financial Creditor Cannot Avoid Liquidation Costs After Settling Dues Through OTS: NCLT Bengaluru

The National Company Law Tribunal (NCLT) at Bengaluru has held that a financial creditor that participated in the liquidation process and secured its dues through a one-time settlement cannot later avoid paying its share of liquidation costs for the ime it had taken part in it.

A coram of Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada directed Jammu & Kashmir Bank Ltd to bear its proportionate share of liquidation expenses in the liquidation of Alpine Wineries Pvt Ltd.

"Whatever were the circumstances prevalent in CIRP & liquidation, the respondent having secured its interest through OTS because of the ongoing liquidation wherein it had thoroughly participated, cannot cut corners when its turn comes for paying off its share the costs of the process till such time it had participated in it."

Alpine Wineries Private Limited was directed to be liquidated in December 2021 and Ravindranath Narayana Rao was appointed as the Liquidator.

Following the public announcement, Jammu & Kashmir Bank Ltd, filed a claim of Rs.236.27 crores, which was admitted by the liquidator. The Bank was included in the Stakeholders' Consultation Committee with a voting share of 15.09%.

As the liquidation costs exceeded the available liquid assets, the liquidator requested the financial creditors, including the Bank to contribute proportionately under Regulation 2A. The bank was required to contribute Rs.29.95 lakhs but paid only Rs.1.59 lakhs.

During the liquidation process, the bank entered into a one-time settlement with an ex-promoter/suspended director of the corporate debtor and received Rs.10 crore outside the liquidation proceedings. The bank issued an NOC stating that no dues remained and thereafter stopped participating in SCC meetings.

In this backdrop, the liquidator approached the NCLT seeking directions to the bank to pay its proportionate share of liquidation costs.

The bank contended that the ex-promoters had undertaken, in the presence of the liquidator, to bear the liquidator's fees and expenses for both the CIRP and liquidation, and any deficiency in feess should be recovered from them and not from the Bank.

Rejecting the plea of the Bank, the tribunal said that since the Bank participated in the liquidation and secured its dues through an OTS during this period, it cannot avoid paying its share of the liquidation costs.

The tribunal further states that CIRP places the obligation to pay liquidation costs on financial creditors. It said that even if the ex-promoter/suspended director had agreed to bear the costs, this would not absolve the bank of its statutory liability, especially in the absence of any binding agreement enforceable by the liquidator.

Accordingly, the application was partly allowed, directing the liquidator to recalculate the bank's share of liquidation costs only for the period during which it participated in the process and to share the revised amount with the bank.

Case Title: Ravindranath Narayana Rao v. Jammu & Kashmir Bank Ltd

Case Number: I.A. No. 397 of 2025 in C.P. (IB) No. 286/BB/2019

Citation: 2026 LLBiz NCLT (BEN) 49

For Applicant: Advocate Narayana Kamma

For Respondent: Advocate Ehtesham Ibrahim