MSME Protections Do Not Override IBC Once Default Is Established: NCLT Holds ₹24.26 Cr NPA Default Proven [Read Order]

The National Company LawTribunal (NCLT), Mumbai Bench, has held that statutory protections available to Micro, Small, and Medium Enterprises (MSMEs) cannot override the Insolvency and Bankruptcy Code (IBC) once financial default is established and found that the corporate debtor had failed to repay a ₹18 crore loan, resulting in a ₹24.26 crore Non‑Performing Asset (NPA).

According to the application, the credit society sanctioned a term loan of ₹18 crore to corporate debtor Amar Seeds on 29 April 2023, carrying interest at 15 per cent per annum for a tenure of 120 months, including a 12‑month moratorium.

The loan was secured by a mortgage deed dated 18 April 2023, executed by the company’s directors and guarantors. The first instalment became due on 30 April 2024, but the company failed to pay three consecutive instalments due in April, May, and June 2024, triggering default under Clause 14 of the loan agreement.

The creditor issued demand notices on 27 June 2024 and 19 September 2024, yet no payment was made. The account was subsequently classified as Non‑Performing Asset (NPA) on 30 November 2024, and the total default was recorded at ₹24,26,03,387 as of 6 May 2025.

In its reply, Amar Seeds argued that the petition suffered from procedural irregularities in the supporting affidavit and claimed protection under the MSME Act, 2006, asserting that the lender had not followed the RBI’s revival framework before declaring the account NPA.

Rejecting these objections, the Tribunal held that the alleged procedural irregularities were curable defects and that MSME classification did not bar initiation of insolvency proceedings once default was established. It observed that “the Code is a self‑contained mechanism for insolvency resolution, and CIRP can be validly initiated against MSMEs upon proof of default.”

The bench of Nilesh Sharma (Judicial Member) and Sameer Kakar (Technical Member) found that the corporate debtor had failed to demonstrate any repayment or reduction of liability. The bench concluded that the default was continuing and exceeded the ₹1 crore threshold under Section 4 of the IBC.

Accordingly, the NCLT admitted the petition and directed the commencement of the Corporate Insolvency Resolution Process (CIRP) against Amar Seeds Private Limited, appointing an Interim Resolution Professional to take charge of the company’s affairs.

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