Temporary Relief by Bank Cannot Nullify Default: NCLT Upholds ₹95.31 Cr CIRP Application Against Corporate Debtor [Read Order]

The National Company Law Tribunal (NCLT) Indore bench admitted the Corporate Insolvency Resolution Process (CIRP) petition and held that temporary holding on operations by the bank does not wipe out an established financial default.

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​The petition was filed by the Central Bank ofIndia the Financial Creditor against Narmada Extrusions Ltd the Corporate Debtor under Section 7 of the IBC to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor due to the default of ₹95,31,92,434 as of November 14, 2024.

However,the Corporate Debtor and the Financial Creditor have enjoyed a four decade long relationship with the bank. The latest credit facility enhancement was done by the bank in September 2022. Due to the devolvement of the Letters of Credit and the failure to regularize the account the bank classified the account as Non Performing Asset (NPA) on February 28, 2024.

The Corporate Debtor argued that the application was not maintainable as the bank had allowed holding on operations through a letter dated June 29, 2024 which had deleted the crystallized default. The Corporate Debtor further argued that the simultaneous initiation of SARFAESI proceedings by the bank was an act of forum shopping and the IBC was meant to be the last resort for solvent companies.

Further,the Financial Creditor argued that the holding on facility was merely a temporary measure with conditions that were not satisfied such as the infusion of ₹10 crore by the promoters when only ₹7.41 crore was infused.

The Bench comprising Mani Tripathi (Judicial Member) and Man Mohan Gupta (Technical Member) noted that the temporary measure of accommodation by the bank was conditional, and the withdrawal of the same by the bank due to non compliance meant that the same could not be said to have ignored the occurrence of any default.

The Tribunal noted that the remedies under the SARFAESI Act and the IBC operate in different domains of the law, i.e., security enforcement and insolvency resolution, respectively. As a result the Tribunal held that by establishing the existence of a financial debt and the occurrence of default beyond the threshold as well as the petition was admitted and Mr. Kuldeep Tank was appointed as the IRP.

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