PNB Seeks Insolvency Resolution Against Rice Mills Over ₹74.35 Crore Outstanding Debt: NCLT Considers Section 7 Plea [Read Order]

The Allahabad Bench of National Company Law Tribunal (NCLT) moved Punjab National Bank (PNB) to initiate CIRP Proceedings under section 7 against Rice Mills (Corporate Debtor) for a ₹74.35 crore default dated 08.06.2023 and held that debt and default established, there was limited scope to consider the insolvency application.

The Applicant/Financial Creditor, Punjab National Bank (PNB), filed a Section 7 application on 15.01.2025, under the Insolvency and Bankruptcy Code, 2016, against the Corporate Debtor/Respondent, Bhagwati Rice Mills Private Limited. The application in Form 1 claims a total financial debt of Rs. 74,35,42,374/- with the date of default declared as 08.06.2023.

The Applicant filed a Section 7 application on January 15, 2025, seeking initiation of CIRP against the Corporate Debtor for a total debt of Rs. 74,35,42,374/- as of November 30, 2024. The Corporate Debtor had availed credit facilities totaling Rs. 66,00,00,000/-, including Cash Credit (Rs. 45,00,00,000/- with an ad-hoc limit of Rs. 7,50,00,000/-) and Working Capital Term Loans of Rs. 9,00,00,000/- and Rs. 4,50,00,000/-.

These facilities were secured by hypothecation, corporate guarantee from Jay Ambey Rice Mills Ltd., and personal guarantees. The account was declared NPA on 08.06.2023, with outstanding debt comprising Cash Credit (Rs. 62,07,34,366/-) and two WCTLs (Rs. 1,70,16,293/- and Rs. 5,93,54,235/-).

The Applicant issued recall notices on 16.01.2024 and initiated recovery proceedings before DRT Allahabad (OA No. 296/2024), which remains pending. The Corporate Debtor contested the application, alleging inconsistent default dates, lack of proper authorization for the bank's representative, violations of RBI guidelines for MSME accounts causing Rs. 10 Crore business losses, and claimed set-offs of Rs. 44.93-47.93 Crore for excessive interest charges.

The Applicant also filed recovery proceedings before the Debt Recovery Tribunal (DRT), Allahabad on 25.02.2024, which remained pending and due to continued default and non-payment, the applicant seeks initiation of CIRP proceedings against the Corporate Debtor under Section 7 of the IBC, 2016.

The Counsel for the Corporate Debtor, Amit Dhall, challenged the application on procedural and substantive grounds. It stated inconsistent default dates (08.06.2023, 09.06.2023, and 30.11.2023) and asserted that authorization documents pertained only to erstwhile Oriental Bank of Commerce, not Punjab National Bank, rendering the petition unauthorized and defective.

The Debtor observed that loan documents were obtained blank, later filled and materially altered without intimation, making them void ab initio and unenforceable contracts of adhesion and disputed NeSL records as false and fabricated, claiming the account was regularly operated with deposits totaling Rs. 5,93,47,95,486/-.

The Counsel also claimed violations of RBI guidelines for MSME accounts and wrongful NPA classification, claiming business losses of Rs. 10 Crore due to inability to execute orders. It asserted that Rs. 3,92,98,092/- was charged as excessive interest beyond contractual rates.

Further, the Corporate Debtor claimed set-offs of Rs. 44,92,98,092/- (alternatively Rs. 47,92,98,092/-) and sought additional damages exceeding Rs. 50 Crore, including Rs. 30 Crore for lost business opportunities, Rs. 3 Crore for reputational loss, Rs. 20 Crore as aggravated damages, and exemplary damages at twice the direct monetary loss. Asserting that no amount was due and these issues were pending before the DRT, the Debtor sought dismissal of the application with costs.

On the other hand, the Counsel for the Applicant, Prakhar Shukla, filed written submissions on 19.11.2025, reiterating that the Corporate Debtor committed a continuing default in repayment of financial debt amounting to Rs. 74,35,42,374/-. The Applicant emphasized that NeSL records of default and the statement of account conclusively prove the default occurring since 08.06.2023.

Further, the Counsel relied on the Supreme Court judgment in M. Suresh Kumar Reddy v. Canara Bank (2023) 8 SCC 387, the Applicant submitted that once the NCLT was satisfied that a default had occurred, there was hardly any ground left to refuse admission of the Section 7 application.

The Tribunal consisted of Judicial Member, Praveen Gupta and Technical Member, Ashish Verma, heard and reviewed the matter.

The Tribunal, after considering the submissions made, rejected the Corporate Debtor's submissions and admitted the application. On authority, it held that Anil Kumar, Chief Manager, possessed a valid Power of Attorney dated 12.05.2022, from Punjab National Bank authorizing him to initiate IBC proceedings, and that upon bank merger, officers of the transferor bank continue to exercise the same powers in the transferee bank.

The Tribunal, on claims of RBI guideline violations, set-offs, and damages, held that under Section 7, the Adjudicating Authority need only determine "debt" and "default." Issues of guideline breaches, damages, or set-offs were matters for Civil Courts or DRT and cannot defeat a Section 7 application when debt and default were proven.

Read More: Date of Default Not Mandatory in Invoice-Based Demand Notice: NCLAT Sets Aside Section 9 Rejection

Further, the Tribunal leaned on M. Suresh Kumar Reddy v. Canara Bank (2023) 8 SCC 387, stating that once default was established, it had little discretion but to admit the application. Finding financial debt proven through sanction letters and default established through authenticated NeSL records within limitation, the Tribunal admitted the application.

Accordingly, the Tribunal admitted the application filed by the applicant for initiating CIRP against the Corporate Debtor with a declaration of moratorium under Section 14 of the IBC, 2016 and Babita Jain was appointed as the Interim Resolution Professional.

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