Corporate Insolvency Process initiated against the Damara Gold Over ₹39 Crore Default: NCLT Admits PNB's Insolvency Plea [Read Order]

The Mumbai Bench of National Company Law Tribunal (NCLT) admitted PNB’s Section 7 application against the Respondent for default exceeding ₹39 crore, arising mainly from invocation of bank guarantees worth ₹54.34 crore. The debits led to classification of the account as NPA on 30.06.2023. The Tribunal rejected the Corporate Debtor’s objections and held that debt and default were duly proved.

The Appellant/Financial Creditor, Punjab National Bank filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Respondent/Corporate Debtor, Damara Gold Private Limited, seeking to initiate Corporate Insolvency Resolution Process (CIRP).

Punjab National Bank sanctioned various credit facilities to Damara Gold Private Limited including a term loan of ₹5.70 crore, cash credit of ₹1 crore, and bank guarantees worth ₹21.50 crore (later increased to ₹55 crore) through sanction letters dated March 17, 2011, which were renewed from time to time with the last renewal on March 17, 2022. The Corporate Debtor executed requisite loan agreements, hypothecation deeds, and mortgaged two properties in Khar (West), Mumbai as security.

In 2023, bank guarantees amounting to ₹54.34 crore were invoked by beneficiaries, which PNB debited to the Corporate Debtor's cash credit account. The Corporate Debtor became irregular in repayments, and despite multiple demand notices, failed to regularize the account, leading to its classification as Non-Performing Asset (NPA) on June 30, 2023. PNB issued notice under Section 13(2) of the SARFAESI Act on August 10, 2023, followed by possession and sale notices.

The total outstanding amount claimed by PNB was ₹39.19 crore (comprising ₹38.32 crore in cash credit facility and ₹87.43 lakh in term loan as on July 31, 2024). The Corporate Debtor raised objections regarding the validity of the cash credit agreement, unauthorized debits exceeding sanctioned limits, improper NPA classification, and disputed charges, while also claiming partial repayments through liquidation of fixed deposits and contributions from promoters.

The Counsel for the Corporate Debtor, Pulkit Sharma, Naman Jain, Rohan Vasa and Saurabh Nikalje, stated that no record of default was attached and no validly executed cash credit agreement was disclosed by PNB, with no documentary evidence of disbursements. It argued that debits exceeding the sanctioned limit of ₹1 crore were unauthorized and not binding, and that PNB lacked proper board resolution or power of attorney to initiate insolvency proceedings.

Further, the Counsel stated that as an MSME, it was denied COVID-19 restructuring relief in violation of RBI circulars, and alleged that PNB was misusing the insolvency forum for debt recovery purposes. The Corporate Debtor sought dismissal of the application and suggested PNB be relegated to filing a civil suit instead.

On the other hand, the Counsel for the Appellant, Rohit Gupta and Karunya Rashunath Primacy Legal LLP, stated that the aggregate outstanding of ₹38.32 crore across both term loan and cash credit accounts exceeded the statutory threshold of ₹1 crore under the IBC, 2016. It argued that the NeSL record of default was authenticated by the Corporate Debtor on multiple occasions, conclusively proving the default.

The Tribunal consisted of Judicial Member, Nilesh Sharma and Technical Member, Sameer Kakar, heard and reviewed the matter.

The Tribunal, after considering the submissions made, observed that PNB had placed necessary documents proving sanction and disbursement of various credit facilities, which the Corporate Debtor did not deny obtaining and stated that loan documents, security documents, account statements, and authenticated NeSL record of default were placed on record.

Further, the Tribunal applied the Supreme Court's judgment in Innoventive Industries Ltd. v. ICICI Bank & Anr. (vide Judgment dated August 31, 2017 in Civil Appeal Nos. 8337-8338 of 2017), the Tribunal concluded that PNB had proved sanction and disbursement of financial debt, occurrence of default, default exceeding ₹1 crore, application within limitation, and application was complete.

Accordingly, the Tribunal admitted the application under Section 7(5)(a) of the IBC, appointed Sumit Shukla as Interim Resolution Professional, and declared moratorium under Section 14, prohibiting suits, asset transfers, enforcement of security interests, and property recovery during the insolvency process.

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