NCLAT Dismisses Appeal by Former Promoter: Upholds Insolvency Admission by NCLT [Read Order]

The Principal Bench of the National Company Law Appellate Tribunal (NCLAT), has rejected an appeal filed by Aditya Bhatnagar, former promoter and shareholder of Xyron Technologies Ltd., challenging the admission of a Section 7 insolvency petition against the company by the National Company Law Tribunal (NCLT).

In a detailed order dated May 30, 2025, the Appellate Tribunal also dismissed a similar plea by Abhinav Bhatnagar in connection with Extol Industries Ltd., another company promoted by the same group. Both entities had been admitted into Corporate Insolvency ResolutionProcess (CIRP) by a common order dated March 24, 2025, passed by the NCLT following default claims raised by the Bank of Baroda.

The appellants had challenged the insolvency admission on the grounds of limitation and disputed classification of their loan accounts as non-performing assets (NPAs). They also raised procedural objections, alleging that the NCLT had passed the order without affording them a fair hearing.

The matter arose when a term loan sanctioned by Bank of Baroda to Extol Industries in 2011, followed by a cash credit facility. These facilities were restructured in 2013. The appellants argued that the company remained compliant with repayment obligations and pointed to a "No Dues Certificate" (NDC) issued by the bank on January 16, 2016, as evidence of regularity.

Stay Updated with the Latest Audit Report Formats & Audit Trials Requirements!, Click Here

The bank classified the company’s accounts as NPAs by March 31, 2016. The Bhatnagars contended that this classification was both arbitrary and in violation of RBI guidelines, as the accounts had not remained overdue for the 90 days required to trigger NPA status. They also cited orders from the Debt Recovery Tribunal (DRT) and the Madhya Pradesh HighCourt that had questioned the classification. Despite these arguments, the NCLT admitted the Section 7 application in 2024, almost eight years after the date of default cited by the bank, leading the appellants to approach the NCLAT.

The NCLAT found no merit in the appeals. The bench noted that while the date of default mentioned by the bank was March 31, 2016, the existence of continuing debt and acknowledgment of liability by the corporate debtors in their audited financial statements between FY 2016 and FY 2023 had extended the limitation period under Section 18 of the Limitation Act. It rejected the argument that the balance sheets did not specifically name the creditor. The Tribunal pointed to the 2022–23 financials, which clearly listed Bank of Baroda and the corresponding outstanding loan amounts, including the term loans and cash credit facility. This, according to the NCLAT, was sufficient to establish a continuing acknowledgment of debt.

On the NDC presented by the appellants, the bench observed that the certificate was vague and lacked detail, that is, it did not list loan accounts or repayment records. In contrast, a detailed communication dated April 28, 2016, issued by Bank of Baroda outlined the exact overdue amounts and explicitly stated that the company’s accounts had been downgraded to NPA status.

Stay Updated with the Latest Audit Report Formats & Audit Trials Requirements!, Click Here

The NCLAT asserted that the issuance of a recall notice in January 2018, repeated correspondence about overdue payments, and failure of the corporate debtors to clear dues pointed toward a clear and ongoing default. Litigation challenging the NPA tag, the Tribunal held, did not erase the bank’s underlying right to recover its dues.

On the issue of natural justice, the appellants argued that the NCLT had passed the insolvency order ex-parte, without considering their reply or granting sufficient opportunity to be heard. They cited medical emergencies and errors in the service of documents. The NCLAT, sided with the NCLT’s view that multiple chances had been given for appearance and reply, but the appellants had not acted within the stipulated time. It held that the Insolvency Code required strict adherence to timelines and that appellants could not now claim prejudice due to their own delay.

Tribunal Bench consisting of Justice AshokBhushan (Chairperson), Barun Mitra (Technical Member) and Arun Baroka (Technical Member) held that once debt and default are established, and limitation is preserved through acknowledgment, admission under Section 7 of the IBC is a logical step. The appeals by the Bhatnagar family were held to be of no merit, and both companies will now continue under the CIRP process.

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