Recent Supreme Court and NCLAT Judgments 2025: February Legal Newsletter

1.Godrej Projects Development Limited vs. Anil Karlekar and Ors.

Citation: Godrej Projects Development Limited vs. Anil Karlekar and Ors. (03.02.2025 – Supreme Court of India); Civil Appeal No. 3334 of 2023; Decided by Hon’ble Justices B.R. Gavai and S.V. Bhatti.

Ratio: The Supreme Court held that one-sided contractual clauses that heavily favour developers cannot bind consumers, particularly when there is unequal bargaining power. The Court observed that under the Consumer Protection Act, 2019, an unfair contract includes terms that impose wholly disproportionate penalties or unreasonable charges which put the consumer at a disadvantage. In this case, the apartment purchase agreement provided for forfeiture of 20% of the Basic Sale Price (BSP) as earnest money but offered minimal compensation (only ₹5 per month per sq. ft) if the developer delayed possession. The developer was also entitled to grace periods and numerous extensions for delays, whereas the buyer faced immediate penalty clauses. The Court held that 10% of the BSP is a reasonable and standard forfeiture amount for earnest money, as consistently held by the National Consumer Disputes Redressal Commission (NCDRC). The Court noted that where a contract is manifestly one-sided, unconscionable, and tilted entirely in favour of the stronger party (the developer), courts will not enforce such unfair terms, applying the principle established in Central Inland Water Transport Corporation v. Brojo Nath Ganguly that courts strike down unfair and unreasonable clauses between parties with unequal bargaining power. The Court also clarified that under Section 74 of the Indian Contract Act, if forfeiture is of a reasonable nature (10% of BSP), it does not constitute a penalty, but if it is wholly disproportionate, it attracts the prohibition against penalties.

2. Arena Superstructures Pvt Ltd and Ors. vs. State of U.P. and Ors.

Citation: Arena Superstructures Pvt Ltd and Ors. vs. State of U.P. and Ors. (24.02.2025 – High Court of Allahabad); Writ C Nos. 6041 of 2024 and 8447 of 2024 (Clubbed); Decided by Hon’ble Justices M.C. Tripathi and Prashant Kumar.

Ratio: The Allahabad High Court held that the insolvency proceedings initiated by Arena Superstructures Pvt. Ltd. (ASPL) and related consortium entities were orchestrated to evade liabilities and defraud homebuyers and statutory authorities after massive misappropriation of funds. The Court found that the promoters incorporated multiple shell companies, fraudulently sold 785 flats collecting ₹387 crores, siphoned off ₹113.45 crores through fictitious transactions, failed to develop the mandated Sports City infrastructure, and then pushed the company into insolvency as a strategy to escape civil and criminal liability. The High Court emphasized that where insolvency proceedings are initiated fraudulently with malicious intent, they constitute an abuse of the IBC process and held that courts must pierce the corporate veil to identify the true wrongdoers. The Court applied the doctrine Fraus Omnia Vitiat (fraud vitiates everything) and held that proceedings rooted in fraud, even if approved by NCLT, cannot bind parties in violation of fundamental public policy and homebuyer interests. The judgment stressed that creditors, homebuyers, and public exchequer become victims when developers weaponize insolvency proceedings to escape rightful dues. Recognizing the fraud and connivance of NOIDA officials who failed to enforce payment obligations, the Court referred the matter to the Enforcement Directorate for investigation under the Prevention of Money Laundering Act. The Court concluded that judicial interference is not only warranted but constitutionally imperative when statutory processes are distorted for personal gain at the expense of public interest and consumer protection.

3. Acute Daily Media Pvt. Ltd. and Ors. vs. Rockman Advertising and Marketing (India) Ltd. and Ors.

Citation: Acute Daily Media Pvt. Ltd. and Ors. vs. Rockman Advertising and Marketing (India) Ltd. and Ors., Company Appeal (AT) (Insolvency) No. 1480 of 2024, Decided on 16.01.2025 by the National Company Law Appellate Tribunal, New Delhi; Coram: Ashok Bhushan, J. (Chairperson), Barun Mitra and Arun Baroka, Members (T).

Ratio: The NCLAT upheld the Adjudicating Authority’s order under Section 65 of the Insolvency and Bankruptcy Code (IBC) terminating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor on the grounds that the Section 7 application initiating CIRP was filed fraudulently and with malicious intent, and not for resolution of insolvency. The tribunal found sufficient evidence that the financial debt was fabricated by antedating loan agreements, manipulating board resolutions, and suppressing crucial facts such as ongoing Oppression and Mismanagement Petitions. The financial creditors and promoters colluded to create a facade of defaulted loans to pre-empt the transfer of control to other shareholders. The Adjudicating Authority rightly considered the totality of facts, including discrepancies in audit reports, annual returns, and the absence of accrued interest, to conclude that the application was a fraudulent misuse of the IBC. Consequently, the CIRP initiation order was validly recalled under Section 65, emphasising that the Authority must guard against abuse of insolvency provisions and ensure only genuine insolvency cases proceed under the Code.

4. Central Bank of India and Ors. vs. Prabha Jain and Ors.

Citation: Central Bank of India and Ors. vs. Prabha Jain and Ors. (09.01.2025 – Supreme Court of India); Civil Appeal Nos. 1876 of 2016, 1877 of 2016, 1896 of 2016, 1893 of 2016, 1897 of 2016, 1915 of 2016, 1907 of 2016, 1913 of 2016, 1900 of 2016, 1898 of 2016, 1916 of 2016, 1914 of 2016, 1892 of 2016, 1910 of 2016, 1899 of 2016, and 1917 of 2016; Decided by Hon’ble Justices J.B. Pardiwala and R. Mahadevan.

Ratio: The Supreme Court held that banks must conduct proper title searches and clearance reports before disbursing loans against mortgaged properties to prevent legal disputes and protect public money. The Court emphasized that the jurisdiction of civil courts to determine questions of title, partition, and validity of sale/mortgage deeds cannot be ousted under Section 34 of the SARFAESI Act when those questions arise from transactions prior to the bank’s involvement. The DRT (Debts Recovery Tribunal) only has jurisdiction to determine whether the measures taken by the secured creditor under Section 13(4) of SARFAESI are in accordance with the Act, but lacks jurisdiction to adjudicate on the validity of antecedent transactions or title issues that predate the mortgage. The Court clarified that while Section 34 bars civil courts from interfering with measures taken by the secured creditor (like taking possession or auctioning), it does not bar suits seeking declarations that underlying sale deeds or mortgage deeds are illegal or null. Moreover, the Court held that partial rejection of plaint under Order VII Rule 11 CPC is impermissible – a plaint must be rejected entirely or not at all. The judgment specifically cautioned that if title clearance reports are obtained cheaply or for extraneous reasons, banks must be liable, and stressed the need for Reserve Bank of India to establish standardized guidelines for title search reports to ensure quality and accountability. The Court issued directives that officials approving loans with inadequate title searches should face potential criminal action. This judgment reaffirms the primacy of proper due diligence by financial institutions to prevent fraudulent transactions and protect consumer interests.

5. Vidyawati Construction Company vs. Union of India

Citation: Vidyawati Construction Company vs. Union of India (07.01.2025 – Supreme Court of India); Civil Appeal No. 215 of 2025 (arising out of SLP Civil No. 6053/2021); Decided by Hon’ble Justices Abhay Shreeniwas Oka and Ujjal Bhuyan.

Ratio: The Supreme Court held that under Section 16(2) of the Arbitration and Conciliation Act, a plea challenging the jurisdiction of the arbitral tribunal must be raised no later than the submission of the statement of defence. In this case, after the parties agreed to the appointment of a sole arbitrator and filed their respective statements of defence and claim before the sole arbitrator, the respondent belatedly objected to the tribunal’s jurisdiction on the grounds of improper tribunal composition. The Court found that, pursuant to the parties’ express agreement and conduct, the respondent could not subsequently challenge jurisdiction. The Supreme Court set aside lower courts’ decisions upholding the jurisdictional challenge, ruling that once a party submits to arbitral jurisdiction and files its defence, objections to composition or jurisdiction are barred under Section 16(2). The matter was remanded for adjudication of the remaining grounds under Section 34, except for jurisdictional issues which stand concluded.

6. Chief Manager, Central Bank of India and Ors. Vs AD Bureau Advertising Pvt. Ltd. And Anr.

 Citation: Chief Manager, Central Bank of India and Ors. Vs AD Bureau Advertising Pvt. Ltd. And Anr. (28.02.2025 – Supreme Court of India) Civil Appeal No. 7438 of 2023 and Civil Appeal No. of 2025 (@ Diary No. 20192 of 2024): Decided by Justice Sudhanshu Dhulia

Ratio:  The Supreme Court held that a borrower of a project loan availed for commercial or business purposes, such as funding the post-production of a film to generate profits or build business revenue through brand exposure, does not qualify as a “consumer” under Section 2(1)(d)(ii) of the Consumer Protection Act, 1986, as the transaction constitutes a business-to-business dealing with a close and direct nexus to profit generation, falling squarely within the exclusion for services availed “for any commercial purpose”. Despite the respondent’s claim that the Rs. 10 crore loan from Central Bank of India was for “self-use” in self-branding by featuring its name in the film “Kochadaiiyaan”’s credits, posters, and ads (allegedly only to earn livelihood via self-employment under the Explanation), the Court rejected this, ruling that the dominant intention behind such branding is inherently profit-oriented customer attraction and revenue growth, not mere livelihood. Applying principles from Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers (2020) 2 SCC 265—no straitjacket formula, but commercial purpose ordinarily covers B2B transactions with profit nexus, focusing on dominant purpose—along with Shrikant G. Mantri v. PNB (2022) 5 SCC 42 (overdraft for stockbroking not consumer despite self-employment plea) and National Insurance v. Harsolia Motors (2023) 8 SCC 362 (services directly intended for profit excluded), the Court concluded the respondent was not a consumer. Consequently, the NCDRC lacked jurisdiction over the complaint alleging deficiency in service due to wrongful wilful defaulter reporting post-OTS settlement; the Court set aside the NCDRC’s order awarding Rs. 75 lakhs compensation, dismissed the respondent’s appeal on quantum, but clarified it expressed no opinion on merits (e.g., wrongful reporting damages), leaving the respondent free to pursue other remedies.