Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(NCLAT) 570

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Ashok Bhushan, J
J & K Integrated Textiles Park Ltd. – Appellant
Versus
Silklon Processors Pvt. Ltd. – Respondent
Company Appeal (AT) (Insolvency) No. 235 of 2025 | Company Appeal (AT) (Insolvency) No. 289 of 2025 | Company Appeal (AT) (Insolvency) No. 307 of 2025 | Company Appeal (AT) (Insolvency) No. 308 of 2025 | Company Appeal (AT) (Insolvency) No. 309 of 2025 | Company Appeal (AT) (Insolvency) No. 333 of 2025 | Company Appeal (AT) (Insolvency) No. 334 of 2025 | Company Appeal (AT) (Insolvency) No. 338 of 2025 | Company Appeal (AT) (Insolvency) No. 339 of 2025 | Company Appeal (AT) (Insolvency) No. 340 of 2025 | Company Appeal (AT) (Insolvency) No. 352 of 2025 | Company Appeal (AT) (Insolvency) No. 353 of 2025 | Company Appeal (AT) (Insolvency) No. 341 of 2025 | Company Appeal (AT) (Insolvency) No. 342 of 2025 | Company Appeal (AT) (Insolvency) No. 343 of 2025 | Company Appeal (AT) (Insolvency) No. 349 of 2025 | Company Appeal (AT) (Insolvency) No. 364 of 2025 | Company Appeal (AT) (Insolvency) No. 378 of 2025

Advocates:
For the Appellants/Petitioners: Abhijeet Sinha, Akshat Singh, Utkarsh Kandpal, Bishwajit Dubey, Kunal Godhwani, Kinjal Chadha
For the Respondents: Bishwajit Dubey, Kunal Godhwani, Kinjal Chadha, Aditya Wadhwa, Arunav Sarma, Abhyankar Pant, Abhijeet Sinha, Akshat Singh, Utkarsh Kandpal

The validity of a Section 7 application under the IBC depends on the existence of a financial debt, valid authorisation, and proof of default, not on a related party relationship or concurrent SARFAESI proceedings by another creditor.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 5(8), 5(24), 7, 65 - Financial Debt - Related Party - Authorisation - The court interpreted the scope of 'financial debt' under Section 5(8)(f) to include an unsecured loan with interest, especially when evidenced by a loan agreement and shown as unsecured loan in the corporate debtor's balance sheet - The court clarified that a related party finding under Section 5(24) requires strict proof of the specific sub-clause, and mere friendship between directors does not suffice - Also, the court held that a Board Resolution authorizing a person to represent the company in any court of law, passed before the enactment of the IBC, remains valid for filing a Section 7 application. (Paras 11-22)

(B) Penalty - Section 65(1) - Strict Construction - The court reaffirmed that Section 65 is a penal provision requiring strict proof of fraudulent or malicious intent - Initiating a Section 7 application while SARFAESI proceedings are underway, by itself, does not constitute malicious intent - The court also held that a penalty under Section 65 can only be imposed on the person who initiates the proceedings (financial creditor, operational creditor, or corporate applicant), and not on the corporate debtor. (Paras 26-31)

(C) Appeal - The Adjudicating Authority's decision to reject a Section 7 application and impose a penalty was set aside as it was based on erroneous findings regarding the absence of a financial debt, lack of valid authorisation, and a related party relationship. The court directed that the Section 7 application be admitted. (Para 33)

Facts of the case:
These appeals arose from nine Section 7 applications filed by a Financial Creditor (an SPV for a textile park) against nine Corporate Debtors (industrial units). The corporate debtor was granted a lease of land and an unsecured loan of Rs. 3,55,00,000 with 13% interest, as per a Loan Agreement dated 16.10.2018. The corporate debtor defaulted. The Adjudicating Authority dismissed the Section 7 applications, holding that there was no financial debt, the filing was unauthorised due to an old Board Resolution, the parties were related, and the petition was collusive, and imposed a penalty of Rs. 25,00,000 on both the financial creditor and the corporate debtor under Section 65.

Findings of Court:
The court reversed all findings of the Adjudicating Authority. It held that the unsecured loan clearly constituted a financial debt. The Board Resolution from 2014 was valid to authorize the filing. The related party finding lacked proof under Section 5(24). The penalty was unjustified as the elements of Section 65 were not met, and a penalty could not be imposed on the corporate debtor who did not initiate the proceedings. The court directed the Adjudicating Authority to admit the Section 7 applications.

Issues: (I) Whether the Section 7 application was incompetent due to an invalid Board Resolution? (II) Whether the transaction involved a financial debt under Section 5(8)? (III) Whether the Financial Creditor was a related party to the Corporate Debtor under Section 5(24)? (IV) Whether the interveners proved the ingredients of Section 65(1) for imposing a penalty on the Financial Creditor? (V) Whether the Adjudicating Authority rightly imposed a penalty on the Corporate Debtor under Section 65?

Ratio Decidendi: The court held that a financial debt includes an unsecured loan for time value of money, evidenced by a loan agreement and the corporate debtor's balance sheet. A general authorisation via a Board Resolution passed before the IBC's enactment remains valid for filing a Section 7 application. A 'related party' finding requires specific proof under the clauses of Section 5(24). Penalties under Section 65 require strict proof of fraudulent or malicious intent and can only be imposed on the initiator of the CIRP. Result : All 18 appeals were allowed. The impugned orders rejecting the Section 7 applications were set aside, the penalty imposed was quashed, and the Adjudicating Authority was directed to admit the Section 7 applications and pass consequential orders within 30 days. No order as to costs. (Para 33)

Table of Content
1. background facts and procedural history of the case. (Para 1 , 2)
2. issues framed and arguments made by parties. (Para 3 , 4)
3. submissions of counsel for appellants and respondents. (Para 5 , 6 , 7 , 8 , 9 , 10)
4. validity of board resolution and authorisation for filing petition. (Para 11 , 12 , 13 , 14 , 15)
5. determination of financial debt and its commercial effect. (Para 16 , 17 , 18 , 19 , 20 , 21)
6. analysis of related party relationship under section 5(24). (Para 22 , 23 , 24 , 25)
7. assessment of fraudulent or malicious intent under section 65. (Para 26 , 27 , 28 , 29)
8. penalty imposable only on initiator of proceedings. (Para 30 , 31 , 32)
9. final order allowing appeals and setting aside impugned order. (Para 33)

J U D G M E N T

(19^th May, 2026)

Ashok Bhushan, J.

1.These 18 Appeals have been filed challenging nine separate orders passed by the Adjudicating Authority (National Company Law Tribunal) Chandigarh Bench, Court-1, Chandigarh in nine Section 7 applications filed by J&K Integrated Textiles Park Limited (Appellant, the Financial Creditor). Adjudicating Authority by the impugned order has dismissed Section 7 application and imposed penalty on Appellants as well as on the Corporate Debtors of Rs.25,00,000/- in each case. Aggrieved by the order passed by the Adjudicating Authority imposing penalty on the Corporate Debtor, Corporate Debtors in each case have also filed separate nine Appeals which are Appeals (by Corporate Debtors). All these Appeals raises common questions of fact and law, hence have been heard together and are being decided by common judgment.

2. Background facts giving rise to these Appeals are:-

2.1. The Government of India, Ministry of Textiles launched a scheme in 2005 namely— Scheme for Integrated Textiles Park (SITP). The object of SITP was to provide the industry with world-class state of the art infrastructure facilities for setting up their textile units. Under the Scheme, textile park was to be set up in industrial area Kathua, State of Jammu & Kashmir. Integrated Textile Parks had several components including land, common infrastructure, building for common facility, buildings for production purposes, plant & machinery, work space for textile units. At each integrated textile parks, there would be a separate Special Purpose Vehicle (SPV) formed with the representatives of local industry, financial institutions, State and Central Government which shall be corporate body registered under the Companies Act. J&K Integrated Textiles Park Limited, the Appellant (Financial Creditors) in Appeals was incorporated as a Special Purpose Vehicle (SPV) to implement the scheme for integrated textiles parks. J&K State Industrial Development Corporation Ltd. granted a lease of 200 Kanals of land at industrial estate Kathua (25 acres) in favour of the Appellant by Lease Deed dated 22.03.2012. Lease Deed was for a period of 90 years. The lessee was liable to pay an amount of Rs.1,50,000/- per kanal as premium with annual ground rent of Rs.3,000/- per kanal per annum. Lessee in part performance of the terms and conditions of the allotment has paid an amount of Rs.3,00,00,000/- as premium and Rs.12,00,000/- also as advance ground rent for two years. The lease contemplated that member units of SPV, as and when propose to set up independent entities in the park shall be required to get the Lease Deed executed directly with J&K State Industrial Development Corporation Ltd. Lessee was authorised to raise necessary construction (factory building etc.) on the lease premises. Ownership of the land was to remain with the State of Jammu and Kashmir. After the above Lease Deed, a Memorandum of Agreement was entered on 29.05.2013 on behalf of the President of India through Secretary of Ministry of Textile, Government of India and J&K Integrated Textile Parks Limited, Appellant, the Financial Creditor. Under the MoU, SPV was responsible for implementing the project as per approval granted by Ministry of

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2026 Supreme(Online)(NCLAT) 570

The validity of a Section 7 application under the IBC depends on the existence of a financial debt, valid authorisation, and proof of default, not on a related party relationship or concurrent SARFAESI proceedings by another creditor.

Cases Referred (3)