Partial Loan Disbursement Not a Valid Ground to Reject Insolvency Plea: NCLAT Upholds Axis Bank’s Section 7 Admission [Read Order]

Ammeet Kamal Agarwal, appellant, had challenged the order dated 08.09.2023, through which the Adjudicating Authority admitted Axis Bank’s Section 7 application. Axis Bank had approached the Authority claiming a debt and default of ₹16.95 crore as on 16.03.2023.

The corporate debtor had opposed the application, but after hearing both sides, the Authority admitted it. Aggrieved by this decision, the appellant filed the present appeal.

The appellant counsel submitted that the appellant was directed to deposit ₹10.49 crore, as noted by the Tribunal on 15.09.2023, but the amount was not deposited. The proposal under Section 12A was also not accepted, as recorded in the order dated 09.05.2024. The Tribunal later vacated the interim order on 25.07.2025, and the matter was heard thereafter.

It was further submitted that the financial creditor had sanctioned a loan of ₹24.90 crore but disbursed only ₹12.50 crore as on 31.03.2017. The corporate debtor had provided property documents through a letter dated 29.03.2017, yet the bank later claimed that the originals were not with it.

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The counsel argued that the Section 7 application itself mentioned the mortgage and receipt of the documents, and that the corporate debtor’s financial position was sound. Hence, the Adjudicating Authority erred in admitting the application.

The respondent counsel contended that the disbursement, debt, and default were undisputed and had been duly established by the Adjudicating Authority. It was argued that non-disbursement of the full loan could not be a ground to oppose the Section 7 application.

The respondent further stated that the corporate debtor had taken no steps regarding the missing documents and that a one-time settlement offer made during the proceedings, later rejected by the financial creditor, reaffirmed the existence of debt and default.

The two member bench comprising Justice AshokBhushan ( The Chairperson) and Arun Baroka ( Technical Member) considered the submissions of both parties and examined the record. It noted that although the appellant claimed a loan of ₹24.90 crore was sanctioned while only ₹12.90 crore was disbursed, the non-disbursement of the full amount could not be a reason to reject the Section 7 application. The sanction was later revised to ₹12.50 crore.

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On the issue of property documents, the tribunal observed that while the Section 7 application mentioned the mortgaged property, there was no registered mortgage deed on record.

It stated that a mortgage could be claimed only for assets where title deeds were actually deposited, and since no such deeds were shown, the mortgage claim could not be accepted. It also found it unnecessary to give any finding on the mortgage or title issue at that stage.

The appellate tribunal held that debt and default were clearly established, the disbursement was undisputed, and there was no claim of repayment. It added that the corporate debtor’s financial worth was irrelevant once debt and default exceeding ₹1 crore were proved. The offer of a one-time settlement and submission of a Section 12A proposal further confirmed the existence of debt and default.

The bench also noted that the appellant had expressed readiness to make a higher offer under Section 12A and clarified that a fresh proposal could be made to the Committee of Creditors as per law. Regarding the claim that some assets were sold after the moratorium, it stated that such issues were not relevant to the present appeal and could be raised before the Adjudicating Authority.

With these observations, the tribunal dismissed the appeal.

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