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2025 Supreme(Online)(NCLAT) 167
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Justice Ashok Bhushan (Chairperson) , Hon'ble Mr. Arun Baroka (Member (Technical)) ,
SANTOSHI FINLEASE PRIVATE LIMITED – Appellant
Versus
STATE BANK OF INDIA AND ANR. – Respondent
974/ND/2023 COMPANY APPEAL(AT)(INS)
Mr. Saurabh Balwani, Mr. Anand Prakash and Mr. Chirag Rathor for Appellant; Mr. Harshit Khare and Mr. Prafful Saini for Respondent
A Section 7 application under the IBC can be dismissed if found to be filed with malicious intent, despite the existence of debt and default.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 7 and Section 65 - Appeal against dismissal of Corporate Insolvency Resolution Process (CIRP) application - Appellant filed Section 7 application for non-payment of loan amounting to INR 4,89,28,694/- - NCLT dismissed the application citing collusion and malicious intent - Penalty of Rs.10,00,000/- imposed on Appellant. (Paras 1, 30, 50)
(B) Legal Principles - A Section 7 application cannot be rejected if a default has occurred and the application is complete - However, if the application is found to be filed with malicious intent, it may be dismissed. (Paras 8, 43)
(C)
Facts of the case:
The Appellant filed a Section 7 application against the Corporate Debtor for non-payment of a loan, which was alleged to be fraudulent and malicious. The loan agreement was executed during a period when the same family controlled both entities. (Paras 2, 35)
(D)
Findings of Court:
The court found that the loan was not a genuine financial debt but rather an investment to gain control over the Corporate Debtor, and thus the application was dismissed. (Paras 39, 50) (E)
Issues: Whether the Section 7 petition was filed with malicious intent and whether the penalty imposed was justified. (Paras 33, 50) (F)
Ratio Decidendi: The court ruled that the existence of debt and default is necessary for a Section 7 application, but if filed with malicious intent, it can be dismissed regardless of these factors. (Paras 37, 50) (G)
Result: Appeal dismissed; penalty upheld.
J U D G M E N T
(Hybrid Mode)
[Per: Arun Baroka, Member (Technical)]
The present Appeal is being preferred by the Appellant challenging the order dated 12.06.2023 (“Impugned Order”) passed by the National Company Law Tribunal, Principal Bench, New Delhi (Ld. Adjudicating Authority) in Company Application No.1695/D/2023 in CP. No. IB-662/2022 (the “Application”) in which the CP was dismissed and the IA No. 1695/2023 of the Respondent No. 1- Bank under Section 65 of IBC was allowed with penal cost of Rs.10,00,000/- against the Appellant.
Brief facts of the case
2. The Appellant, M/s Santoshi Finlease Pvt Ltd, filed a Section 7 Application under the Insolvency and Bankruptcy Code (IBC), 2016, against the Corporate Debtor - M/s Mothers Pride Dairy India Pvt Ltd for non- payment of a loan amount of INR 4,89,28,694/- (rupees four crores, eighty- nine lakhs, twenty-eight thousand, six hundred and ninety-four only) disbursed from 08.07.2019 to 15.11.2019. The loan was sanctioned under a term “loan agreement” signed on 17.08.2019, with interest set at 18% per annum, payable quarterly, and various terms for loan disbursement and processing fees. The total outstanding amount due from the Corporate Debtor is INR 9,32,52,937/- (rupees nine crores, thirty-two lakhs, fifty-two thousand, nine hundred and thirty-seven only) including both principal (INR 4,89,28,694/- rupees four crores, eighty-nine lakhs, twenty-eight thousand, six hundred and ninety-four only) and interest (INR 4,43,24,243/- rupees four crores, forty-three lakhs, twenty-four thousand, two hundred and forty- three only). The State Bank of India (SBI), as Respondent No. 1, filed IA No. 1695/2023 alleging that the Appellant’s application for Corporate Insolvency Resolution Process (CIRP) was fraudulent and malicious, seeking its dismissal under Section 65 of IBC. Against the same Corporate Debtor, earlier also CIR proceedings had been admitted on 13.11.2019 by the NCLT Delhi, but was later set aside by the NCLAT on 05.08.2022. Per contra the Appellant contends that the dismissal of the section 7 Petition was improper, as facts were overlooked and there was absence of any fraud or malice in the Application. The NCLT’s dismissal was accompanied by a penalty of Rs 10,00,000/- (rupees ten lakhs only) to be paid to the Prime Minister’s Relief Fund. Therefore, the Appellant has appealed to the Appellate Tribunal, seeking the initiation of the CIRP and justice for the non-payment of dues.
Case History:
3. Recapitulating the sequence of events, we note that the CD was incorporated on 30.09.2014. The original main promoters of the CD viz. Anant Kumar Chaudhary and Shalini Chaudhary had taken a term loan of Rs.26.67 crs from SBI as per sanction dated 20.12.2015. The original promoters of the Corporate Debtor, holding 90% of the shares resigned from the Board and transferred their entire shareholding to Navneet Jain, Sushil Kumar Singh and Vikash Yadav. Later on, in and around 2019, the then directors of the Corporate Debtor entered into some investment arrangement with a group (family members) of people namely: Ms Seema Mittal, Mr Kaushal Mittal, Mr Yug Mittal and Mr Rishik Mittal ("Mittal Family Members") and all of them were directors of the Corporate Debtor from 01.07.2019 till 23/24.09.2019. During this period the Mittal Family Members constituted majority on the Board of the Corporate Debtor. During the said period, the alleged “board resolution” of the Corporate Debtor dated 30.07.2019 was passed and alleged “loan agreement” dated 17.08.2019 was executed between the Appellant and the Corporate Debtor. One Mr Kaushal Mittal passed the alleged board resolution dated 30.07.2019 on behalf of the Corporate Debtor who has been the Director of the Respondent since 02.8.2005 till today.
4. While Mr Yug Mittal, the then director of the Corporate Debtor and an existing director of the Appellant i.e. Santoshi Finlease executed the alleged loan agreement on behalf of the Corporate Debtor, one Ms. Kriti
