Financial Distress No Shield: NCLT Admits Sec. 9 Plea, Initiates CIRP and Moratorium Against Corporate Debtor [Read Order]

In a recent ruling, the National Company Law Tribunal (NCLT), Bengaluru Bench, has admitted an insolvency petition filed by the petitioner under Section 9 of the Insolvency and Bankruptcy Code, 2016, after finding that the corporate debtor’s plea of financial distress could not absolve it from repayment obligations.

The operational creditor sought initiation of the Corporate Insolvency ResolutionProcess (CIRP) for default in payment of ₹2.49 crore arising from a revenue‑sharing and rent arrangement for restaurant operations at Highway Star’s premises. Despite repeated reminders and a statutory demand notice issued in July 2025, Maiyas Restaurants failed to clear the dues, admitting its liability but citing severe financial constraints.

Appearing for the petitioner, Highway Star Rest and Recreation Pvt. Ltd., Pranav Kumar argued that the debtor’s acknowledgement of debt and absence of any pre‑existing dispute satisfied the statutory conditions under Sections 8 and 9 of the Code. The respondent, represented by Shri Akshay J. Simha, conceded the debt but sought leniency on account of financial hardship.

After hearing both sides, the Bench comprising Sunil Kumar Aggarwal  (Judicial Member) and  Radhakrishna Sreepada  (Technical Member) observed that financial distress cannot be treated as a valid defence once debt and default are established. Referring to the Supreme Court’s rulings in Innoventive Industries Ltd. v. ICICI Bank and Mobilox Innovations v. Kirusa Software, the Tribunal held that its role at the admission stage is limited to verifying the existence of debt and default.

Finding the petition within limitation supported by acknowledgement letters issued between 2022 and 2024, the Tribunal admitted the application and declared a moratorium under Section 14 IBC, restraining all proceedings and asset transfers by the corporate debtor.

It appointed Mr. Naresh Kumar Tailor as the Interim Resolution Professional (IRP) to take charge of Maiyas Restaurants’ management, invite claims from creditors, and constitute the Committee of Creditors within 30 days. The operational creditor was directed to deposit ₹2 lakh towards initial CIRP expenses.

The matter is listed for further hearing on 28 July 2026 for submission of the Resolution Professional’s progress report.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates