NCLT Bengaluru Orders Release of Security Documents Upon Full Payment Under Resolution Plan — Kotak Mahindra Bank vs Arun Shelters

Case Background and Overview

The National Company Law Tribunal (NCLT), Bengaluru Bench, recently adjudicated a significant matter concerning the obligation of a secured financial creditor to release original title deeds and security documents upon receipt of complete payment under an approved resolution plan. The Tribunal ruled in favour of the successful resolution applicant, holding that Kotak Mahindra Bank had no legal justification to continue withholding vital property documents after acknowledging receipt of the entire amount payable under the plan.

The case arose in the context of the Corporate Insolvency Resolution Process (CIRP) of the corporate debtor, Arun Shelters, which was admitted into insolvency proceedings on 31.01.2020 pursuant to an application filed by Kotak Mahindra Bank, acting as a financial creditor, under Section 7 of the Insolvency and Bankruptcy Code (IBC).

The Approved Resolution Plan and Its Key Terms

The successful resolution applicant had submitted a resolution plan dated 27.01.2021, which was placed before the Committee of Creditors (CoC) for consideration. Following extensive deliberations, the CoC approved the plan, and this Tribunal subsequently granted its formal approval on 04.11.2022.

A material condition embedded within the approved resolution plan — specifically recorded in paragraph 31 of the Tribunal's approval order — stipulated that:

Kotak Mahindra Bank would retain its charge over the security covering the land and building of the Arun Aurovilla project, and such charge would be released only upon full payment being made by the resolution applicant.

This clause created a clear and unambiguous condition precedent: the release of the security and title documents was expressly linked to the completion of payment obligations under the plan.

Payment Made in Full — Including Interest Under Protest

The resolution applicant fulfilled its primary financial obligations under the resolution plan by remitting the entire principal sum of ₹53.42 crore to all creditors, including Kotak Mahindra Bank. However, a dispute emerged regarding the applicability of interest under Clause 14.1(e) of the resolution plan.

Despite contesting the legitimacy of this interest component, the resolution applicant — so as to avoid any risk of default and to safeguard the ongoing implementation of the plan — additionally paid a sum of ₹4,55,21,096/- towards the accrued interest. Crucially, this payment was made under protest and without prejudice to the applicant's statutory rights, as the applicant had simultaneously preferred Company Appeal (80)(INS) No. 559/2025 before the National Company Law Appellate Tribunal (NCLAT) challenging the dismissal of IA No. 248/2024 (which had sought waiver of the interest amount) by order dated 08.08.2025.