NCLT Amaravati Admits CIRP Against Kallam Textiles, Holds SARFAESI And DRT Proceedings No Bar To Section 7 Over ₹210 Crore Default

NCLT Amaravati Admits CIRP Against Kallam Textiles, Holds SARFAESI And DRT Proceedings No Bar To Section 7 Over ₹210 Crore Default

Introduction

The National Company Law Tribunal, Amaravati Bench, in Union Bank of India v. Kallam Textiles Ltd., admitted a Section 7 application under the Insolvency and Bankruptcy Code, 2016 against Kallam Textiles for a default exceeding ₹210 crore. The Bench comprising Judicial Member Kishore Vemulapalli and Technical Member Umesh Kumar Shukla held that once the existence of financial debt and default crossing the statutory threshold stood established, there was no legal basis to refuse admission. The Tribunal rejected the corporate debtor’s objection that the insolvency proceedings were merely a recovery tactic because SARFAESI and DRT proceedings were already pending.

Factual background

Kallam Textiles Ltd., incorporated in 1992, had been availing various credit facilities since 1999 from Andhra Bank, which later merged into Union Bank of India. The loan account was classified as NPA on 29 June 2023. Thereafter, Union Bank issued a demand notice under the SARFAESI Act on 11 September 2024 for dues exceeding ₹185 crore and also initiated proceedings before the Debt Recovery Tribunal.

Before the NCLT, the financial creditor relied on the loan documents, certified account statements, CIBIL records, and the corporate debtor’s own financial statements to establish the debt and default. A significant factor noted was the company’s balance sheet for the financial year ending 31 March 2025, where the outstanding liability was expressly acknowledged, thereby reinforcing the existence of debt and default.

Procedural background

Union Bank moved the Amaravati Bench under Section 7 of the IBC seeking commencement of CIRP against Kallam Textiles. The corporate debtor resisted admission by arguing that debt figures were disputed, reconciliation was pending in consortium lending arrangements, and parallel enforcement actions under SARFAESI and before the DRT rendered the insolvency petition an abuse of process. The Tribunal confined itself to the limited jurisdiction applicable at the admission stage namely, whether a financial debt existed and whether default had occurred.

Issues

1. Whether Union Bank established the existence of a financial debt and default above the threshold under Section 7 IBC.

2. Whether pending SARFAESI and DRT proceedings barred initiation of CIRP.

3. Whether the Section 7 petition was merely a disguised recovery proceeding.

Contentions of parties

Union Bank contended that the loan account had turned NPA, the debt was reflected in account statements and credit records, and the corporate debtor had itself acknowledged the liability in its latest balance sheet. It argued that these materials conclusively established both debt and default well beyond the ₹1 crore threshold.

Kallam Textiles disputed the debt computation, contending that the figures had not been fully reconciled because of consortium lending and security enforcement issues already pending before the DRT. It further argued that since recovery measures under SARFAESI and DRT were already underway, invocation of IBC amounted to misuse of the insolvency framework as a debt recovery mechanism. It also highlighted that it remained operational and was taking steps to regularise the account.

Reasoning and analysis

The Tribunal reiterated the settled principle that at the stage of admission of a Section 7 application, the adjudicating authority is only required to determine whether there exists a financial debt and whether default has occurred. Disputes regarding exact quantification or reconciliation of dues are not decisive at this threshold stage.

On the objection regarding parallel SARFAESI and DRT proceedings, the Bench held that there is no statutory bar under the IBC against initiation of CIRP merely because other recovery mechanisms have been invoked. The remedies are distinct in character: SARFAESI and DRT focus on enforcement and recovery, while IBC seeks collective insolvency resolution.

The Tribunal specifically rejected the debtor’s submission that the petition was a recovery action in disguise, observing that once debt and default stood established, invocation of the Code was a legitimate statutory remedy. The existence of acknowledgment in the company’s own financial statements further weakened the debtor’s defence.

Decision

The Amaravati Bench admitted the Section 7 petition, commenced CIRP against Kallam Textiles Ltd., imposed the moratorium under Section 14, and appointed Rajesh Chillale as the Interim Resolution Professional. The Tribunal held that no exceptional circumstances existed to deny admission and clarified that the pendency of SARFAESI or DRT proceedings does not preclude insolvency initiation under the IBC.

In this case the appellant was represented by Advocate Peri Rama Krishna. Meanwhile the respondent was represented by Advocate P. Aditya Harsha Vardhan.