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2025 Supreme(Online)(NCLT) 470
NATIONAL COMPANY LAW TRIBUNAL
SHRI MANNI SANKARIAH SHANMUGA SUNDARAM, DR. SANJEEV RANJAN, JJ
SAIVI FINANCE PRIVATE LIMITED – Appellant
Versus
AKJ METALS PRIVATE LIMITED – Respondent
C.P. (IB) - 24/2024
For the Petitioner:Akshay Goel
The initiation of Corporate Insolvency Resolution Process was found to be fraudulent and malicious, constituting an abuse of the legal process under the Insolvency and Bankruptcy Code.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 7 and Section 65 - Corporate Insolvency Resolution Process (CIRP) - Petition filed by Financial Creditor against Corporate Debtor for defaulting on loan repayment - Corporate Debtor defaulted on Rs. 10 crores loan with 18% interest - Allegations of fraudulent initiation of CIRP and collusion between parties - Tribunal found evidence of mala fide intent and abuse of process of law - Petition dismissed, and penalty imposed on Financial Creditor. (Paras 9-29)
(B) Corporate Debtor's default - Financial Creditor's claim of default admitted by Corporate Debtor - However, the initiation of CIRP was deemed to be for ulterior motives rather than genuine financial distress. (Paras 10-20)
(C) Legal principles regarding fraudulent initiation of insolvency proceedings - The Tribunal emphasized the need for due diligence by financial institutions before extending loans, especially to distressed entities. (Paras 10-12)
Facts of the case:
The Financial Creditor filed a petition under Section 7 of the Code against the Corporate Debtor for defaulting on a loan of Rs. 10 crores, which was due on 01.11.2023. The Corporate Debtor admitted the default but claimed the loan terms were onerous and the initiation of CIRP was fraudulent. (Paras 3-5)
Findings of Court:
The Tribunal found that the loan agreement was contrived, and the initiation of CIRP was an abuse of the process of law, leading to the dismissal of the petition and imposition of penalties. (Paras 29)
Issues: Whether the CIRP initiated by the Financial Creditor was tainted with malice or fraudulent intent, warranting the invocation of Section 65 of the Code. (Paras 9-20)
Ratio Decidendi: The Tribunal ruled that the evidence presented indicated a calculated effort to manipulate the insolvency process, thus constituting an abuse of the legal framework. (Paras 21-29)
Result: The application under Section 7 is dismissed, and a penalty of Rs. 10,00,000/- is imposed on the Financial Creditor.
ORDER
PER: MANNI SANKARIAH SHANMUGA SUNDARAM, MEMBER (JUDICIAL)
1. This Petition is filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 by M/s Saivi Finance Private Ltd. (“Financial Creditor”), seeking to initiate Corporate Insolvency Resolution Process (“CIRP”) against M/s AKJ Metals Private Limited [CIN: U74899DL1993PTC054127] (“Corporate Debtor”)
2. The Corporate Debtor was incorporated on 21.06.1993, under the Companies Act, 1956. Its registered office is at 109, 1st Floor, Vardhman Mayur Market, CSC, Mayur Vihar, Phase III, Kondli Gharoli, New Delhi – 110096. Therefore, this Bench has jurisdiction to deal with this petition.
3. The present petition was registered on 13.01.2024 before this Adjudicating Authority. It is submitted that the Corporate Debtor had defaulted the repayment of a total amount of Rs. 15,23,60,564/- (Rupees Fifteen Crores Twenty-Three Lakhs Sixty Thousand Five Hundred and Sixty Four) including 36% interest per annum, on December 1, 2023.
4. Ld. Counsel for the Applicant submits that:
a. The Financial Creditor is a Non-Banking Financial Company registered under Companies Act, 1956. The Financial Creditor is carrying on its business as a Non-Banking Financial Company inter alia for providing financial assistance to under-served businesses in India, in accordance with the rules, regulations and guidelines issued by the Reserve Bank of India from time to time and other applicable guidelines. The Corporate Debtor is a Private Limited Company limited by shares incorporated under provisions of Companies Act, 2013. The Corporate Debtor is engaged in the business of reprocessing of scrap and warehousing, manufacturing of aluminum strips, sheets and foil.
b. By the Loan Agreement dated 18.09.2023 (“Agreement”) [Agreement @A7/29] executed between the Corporate Debtor and the Financial Creditor, a loan amount of Rs. 10,00,00,000 (Rupees Ten Crores) (“Loan amount”) was provided to the Corporate Debtor. By the Memorandum of Deposit of Title Deeds dated 18.09.2023 [A13/76] executed between the Corporate Debtor and the Financial Creditor, the Corporate Debtor 1 deposited the possession letter and lease deed of the land and building measuring 11 kanal at Samba Growth Center, Jammu, Jammu and Kashmir with an intention to create an Equitable Mortgage in favour of the Financial Creditor. By the Deed of Guarantee dated 18.09.2023 [A11/69] executed by ITJ Retails Private Limited in favour of the Financial Creditor, ITJ Retails Private Limited serves as a guarantor for AKJ Metals Private Limited, towards the Loan amount. As per Loan Amortization Schedule [A8/56], the Loan was repayable on a monthly basis, in sixty (60) equal installments of Rs. 25,39,342/- per month starting from 01.11.2023 to 01.10.2028.
c. The first repayment date became due on 01.11.2023, but the Corporate Debtor did not make the payment for the initial instalment of Rs. 25,39,342/- or any instalment thereafter. Consequently on 04.01.2024, the Financial Creditor filed the Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) against the Corporate Debtor.
d. That in M. Suresh Kumar Reddy v. Canara Bank , 2022, (2023) 8 SCC 387, the Supreme Court held that while deciding a Section 7 application, the adjudicating authority is merely to see the evidence produced by the financial creditor to satisfy itself that the default has occurred, i.e., whether the ‘debt’ (which may still be disputed) was due and remained unpaid. If the adjudicating authority is of the opinion that a default has occurred, it has to admit the Section 7 application.
e. As per Loan Amortization Schedule [A8/56], the Loan was repayable on a monthly basis, in sixty (60) equal instalments of Rs. 25,39,342/- per month starting from 01.11.2023 to 01.10.2028. As per Clause 8 of the Agreement [A7/29 @ Pg. 34], an event of default 2 would occur, inter alia, upon any non-compliance with the terms and conditions of the Agreement by the Corporate Debtor, any breach of
