Recovery Certificate Validates Debt & Default: NCLT Admits IDBI Bank’s Sec. 7 IBC Petition for ₹20.17 Cr [Read Order]

The National Company Law Tribunal, Cuttack Bench, has admitted IDBI Bank’s application under Section 7 of the Insolvency and Bankruptcy Code, 2016, against the corporate debtor, holding that the Recovery Certificate issued by the Debt Recovery Tribunal in December 2022 constituted a fresh cause of action validating debt and default.

Financial creditor, IDBI Bank had extended multiple credit facilities, letters of credit, bank guarantees, bill discounting and cash credit aggregating initially to ₹ 4.5 crore in 2006, later enhanced to ₹ 9.75 crore by 2013. Following invocation of guarantees worth ₹ 3.68 crore, the bank recalled the facilities in September 2015 and approached the DRT, which directed payment of ₹ 8.20 crore with 14.5 % interest per annum.

The bank’s petition before NCLT claimed that, including accrued interest, the defaulted amount had reached ₹ 20.17 crore as of 1 December 2025. The date of default was pegged to the issuance of the Recovery Certificate on 12 December 2022.

Corporatedebtor, Minwool Rock Fibres Ltd admitted availing the facilities but attributed its financial distress to industry slowdown, power shortages during the Telangana agitation, and heavy losses in FY 2013‑14 (₹ 6.01 crore) and FY 2014‑15 (₹ 17.97 crore). It argued that the petition was a disguised recovery action and cited earlier liquidation proceedings before the Chhattisgarh High Court, which had been withdrawn or dismissed.

The company also referred to One‑Time Settlement (OTS) proposals of ₹ 2 crore submitted in September and November 2023, asserting that it had attempted resolution in good faith.

The Bench comprising Cheekati Radha Krishna (J) and Banwari Lal Meena (T) rejected the contention that business losses or prior liquidation petitions extinguished the debt, observing that “financial hardship may explain inability to repay but cannot constitute a defence to the existence of debt and default.”

It further held that the Recovery Certificate constituted a fresh cause of action, relying on Supreme Court precedents in Dena Bank v. C. Shivakumar Reddy and Kotak Mahindra Bank v. A. Balakrishnan. Since the petition was filed within three years of the certificate’s issuance, it was deemed within limitation.

The Tribunal also noted that the OTS correspondence amounted to an acknowledgement of liability, reinforcing the existence of debt.

Finding the debt and default established, the NCLT admitted the petition and declared a moratorium under Section 14 of the Code, prohibiting institution or continuation of suits, transfer of assets, or enforcement of security interests against the corporate debtor.

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