Borrower Cannot Use Lender Dispute to Block Insolvency: NCLT Kochi in AKS Cold Storage Case

The National Company Law Tribunal (NCLT) Kochi bench has admitted Indian Bank's insolvency petition against AKS Cold Storage Limited for a default of ₹40.48 crore, delivering a significant ruling that a corporate debtor cannot exploit disputes between consortium lenders to stall proceedings.

The bench of Judicial Member Vinay Goel and Technical Member Ravichandran Ramasamy also held that one-time settlement (OTS) proposals constitute valid acknowledgments of liability under the Limitation Act, extending the limitation period for filing insolvency petitions.

The Debt Story: From Lending to Restructuring

AKS Cold Storage, a public limited company operating cold storage facilities in Tamil Nadu and Kerala, had availed credit facilities from Indian Bank dating back to 2006. The lending relationship eventually evolved into a consortium arrangement with the erstwhile Syndicate Bank, with Indian Bank acting as the lead lender.

As the corporate debtor struggled to service its loans, the facilities were restructured on December 31, 2019, and again in March 2020. Existing exposure was converted or rephased into Working Capital Term Loan (WCTL-1, WCTL-2), Funded Interest Term Loan (FITL), and rephased Medium Term Loan (MTL) with revised repayment schedules. Despite these accommodations, AKS Cold Storage failed to comply with the restructured terms, leading to the accounts being classified as non-performing assets (NPAs) on March 31, 2022.

The Corporate Debtor's Defence: Limitation, Quantum and Consortium Issues

AKS Cold Storage raised multiple objections against admission of the petition. It argued that the petition was barred by limitation, that the financial creditor had not established a consistent date of default, and that the claimed amount of ₹40.48 crore was unsupported. It also pointed to alleged inconsistencies in records from the National E-Governance Services Limited (NeSL) and contended that the restructuring had been undertaken without consulting other consortium members, specifically Canara Bank (which had succeeded Syndicate Bank).

The corporate debtor further submitted that its OTS proposals were conditional settlement offers that did not amount to unequivocal acknowledgment of liability under Section 18 of the Limitation Act, 1963.

Tribunal's Reasoning: Key Findings

Rejecting the corporate debtor's arguments, the tribunal observed that a mere dispute over the quantum of debt—without disputing its existence or default—cannot defeat a Section 7 application. The NCLT noted that AKS Cold Storage had not placed any competing statement of account on record and had not challenged the availment of facilities or execution of documents.

On the consortium objection, the tribunal held:

"The Corporate Debtor cannot be permitted to take advantage of an inter se dispute between the Financial Creditors so as to delay or defeat the insolvency proceedings, particularly when the existence of the financial debt and the default are otherwise established."

The tribunal clarified that any dispute between Indian Bank and other consortium members must be resolved among themselves under their inter-se arrangements.

The Limitation Question: OTS Letters as Acknowledgment

Addressing the limitation issue, the NCLT ruled that the original date of default—December 31, 2019—survived the failed restructuring. It applied the principle from the NCLAT's decision in Puneet P. Bhatia v. ASREC (India) Ltd. that upon failure of a restructuring arrangement, the original default date remains relevant.

The tribunal then examined the OTS proposals submitted by AKS Cold Storage on June 26, 2023, February 7, 2025, and October 3, 2025. The June 2023 proposal specifically acknowledged an outstanding amount of ₹23.44 crore as on the NPA date and proposed to settle for ₹15 crore.

The bench held that such proposals constitute acknowledgment of subsisting liability under Section 18 of the Limitation Act, giving rise to a fresh limitation period. It also applied the Supreme Court's COVID-19 exclusion direction, excluding the period from March 15, 2020 to February 28, 2022 from limitation computation.

"The acknowledgement contained in the OTS proposals dated 26.06.2023, 07.02.2025 & 03.10.2025 gives rise to a fresh period of limitation in terms of Section 18 of the Limitation Act, 1963 ."

Final Order: Petition Admitted, Moratorium Declared

Finding that the requirements of Section 7 of the IBC were satisfied, the NCLT admitted the petition and declared a moratorium under Section 14 of the Code. It appointed Mr. Mahalingam Suresh Kumar as the Interim Resolution Professional (IRP) to take forward the corporate insolvency resolution process.

The tribunal directed the IRP to make a public announcement within three days and ordered the financial creditor to deposit ₹2 lakh to meet initial expenses. The powers of the board of directors of AKS Cold Storage stand suspended, with management vesting in the IRP.

The ruling reinforces that corporate debtors cannot leverage inter-creditor disputes or conditional settlement offers to evade insolvency proceedings when the existence of debt and default is clearly established.