NCLT Indore Admits ₹95.31 Crore Insolvency Plea, Holds SARFAESI Proceedings No Bar to CIRP Initiation

NCLT Indore Admits ₹95.31 Crore Insolvency Plea, Holds SARFAESI Proceedings No Bar to CIRP Initiation

Introduction

The NCLT Indore Bench admitted a Section 7 insolvency application filed by Central Bank of India against Narmada Extrusions Limited for default exceeding Rs. 95.31 crore. The Tribunal held that the existence of financial debt and default was clearly established and that parallel proceedings under the SARFAESI Act do not bar initiation of CIRP under the Insolvency and Bankruptcy Code, 2016.

Factual Background

Narmada Extrusions Limited, incorporated in 1984 and based in Madhya Pradesh, had availed multiple credit facilities from Central Bank of India, including cash credit, term loans, letters of credit, and bank guarantees. The company defaulted on repayment, leading to irregularities in the loan account, including overdrawal due to devolvement of letters of credit. Consequently, the account was classified as a Non-Performing Asset on 28 February 2024. The bank issued a recall notice and initiated recovery proceedings under the SARFAESI Act. Although a temporary relief in the form of “holding-on operations” was granted to allow continued business operations subject to certain conditions, the Corporate Debtor failed to comply with those conditions and did not regularize its dues.

Procedural Background

The Financial Creditor filed an application under Section 7 of the Insolvency and Bankruptcy Code seeking initiation of CIRP against the Corporate Debtor. The Corporate Debtor opposed the application, raising objections regarding absence of default and maintainability of proceedings due to parallel SARFAESI action. The matter was heard by the NCLT Indore Bench.

Issues

1. Whether the Financial Creditor had established the existence of financial debt and occurrence of default.

2. Whether pendency of SARFAESI proceedings bars initiation of CIRP under the IBC.

Contentions of Parties

The Financial Creditor contended that the Corporate Debtor had defaulted on repayment of its financial obligations and that the outstanding amount exceeded the statutory threshold. It was argued that despite recall notices and opportunities, including temporary relief through “holding-on operations”, the Corporate Debtor failed to regularize its account or comply with stipulated conditions. The Corporate Debtor, on the other hand, argued that no crystallised default existed as of the relevant date, as the bank had permitted continued operations under a restructuring arrangement. It further contended that it had made partial payments and initiated restructuring proposals, demonstrating bona fide intent to revive the business. Additionally, it argued that the insolvency application was not maintainable in view of parallel proceedings initiated under the SARFAESI Act.

Reasoning and Analysis

The Tribunal held that the existence of financial debt and default was clearly established from the account statements and documentary evidence on record. It rejected the Corporate Debtor’s contention that “holding-on operations” negated the occurrence of default, observing that such temporary concessions were conditional and did not alter the classification of the account as NPA. The Tribunal noted that the Corporate Debtor failed to fulfil the conditions attached to the relief, including infusion of required funds and regularisation of overdue liabilities.

On the issue of maintainability, the Tribunal clarified that proceedings under the SARFAESI Act and the IBC operate in distinct statutory domains. While SARFAESI proceedings relate to enforcement of security interests, CIRP under the IBC is aimed at resolution of insolvency of the corporate debtor as a whole. Accordingly, pendency of SARFAESI action does not bar initiation of insolvency proceedings. The Tribunal further observed that the outstanding debt amount far exceeded the statutory threshold under Section 4 of the Code, thereby justifying admission of the application.

Decision

The NCLT admitted the application under Section 7 and initiated CIRP against Narmada Extrusions Limited. It declared a moratorium under Section 14 of the Code, appointed Mr. Kuldeep Tank as the Interim Resolution Professional, and directed the Financial Creditor to deposit ₹2,00,000 towards initial CIRP costs.

In this case the appellant was represented by Advocate Shantanu Chourasia. Meanwhile the respondent was represented by Advocate Rohit Dubey.