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2025 Supreme(Online)(NCLT) 1717
NATIONAL COMPANY LAW TRIBUNAL
Manni Sankariah Shanmuga Sundaram, Dr. Sanjeev Ranjan, JJ
M/s Saivi Finance Private Limited – Appellant
Versus
M/s AKJ Metals Private Limited – Respondent
Company Petition (IB) No. 24 of 2024 | IA/1044/ND/2024
For the Appellants/Petitioners: Adv. Akshay Goel, Adv. Harsh Jadon
For the Respondents: Adv. Tanvi Jain
For RP: Adv. Abhishek Anand, Adv. Karan Kohli, Adv. Komal Harlalka
Fraudulent initiation of insolvency proceedings disqualifies an application under Section 7, even if there is debt and default, necessitating careful examination by the Adjudicating Authority.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 7 - Corporate Insolvency Resolution Process - Financial creditor filed a petition alleging default by corporate debtor in repayment of loan amounting to Rs. 15,23,60,564/-, claiming failure to adhere to repayment schedule subsequent to loan agreement - Adjudicating Authority found fraudulent initiation of insolvency proceedings due to collusion and malicious conduct between parties, compelling a dismissal of the application. (Paras 29, 30 and 31).
(B) The authority emphasized that despite a debt and default existing, fraudulent initiation necessitates careful scrutiny to prevent misuse of the process under the Code. (Para 21)
(C) Conduct of the parties indicated a premeditated strategy aimed at abusing insolvency proceedings for ulterior motives rather than genuine resolution of financial distress. (Paras 16, 22, and 29)
(D) Penalties under Section 65 of the Code were enforced due to established evidence of mala fide intent, leading to a directive for financial penalties against the filing creditor. (Paras 27, 30, and 31)
Facts of the case:
The financial creditor provided a substantial loan to the corporate debtor, which subsequently defaulted on payments, prompting the creditor to seek CIRP despite the debtor’s claims of the agreement being onerous and fraudulent.
Findings of Court:
The petition was dismissed due to findings of fraudulent behavior, with an imposed penalty on the financial creditor for misconduct in initiating the insolvency resolution process.
Issues: Whether the initiation of corporate insolvency resolution process was fraudulent or malicious, and if penalties under Section 65 were warranted.
Ratio Decidendi: Initiation of CIRP for ulterior motives constitutes abuse of the insolvency process, warranting dismissal of the application even if debt and default are proven.
Result: Application dismissed; Financial Creditor penalized with Rs.10,00,000/- under Section 65 of the Code.
| Table of Content |
|---|
| 1. jurisdiction established for cirp (Para 1 , 2 , 3) |
| 2. arguments regarding loan agreement validity (Para 4 , 5 , 6 , 7) |
| 3. analysis of loan transaction legitimacy (Para 9 , 10 , 11 , 12 , 13 , 14 , 15) |
| 4. criteria for fraudulent insolvency actions (Para 21 , 22 , 23) |
| 5. order of dismissal and penalties imposed (Para 29) |
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 w
