NCLAT Fortnightly: Important orders on IBC (May 1 – May 15, 2025)

The following is a snapshot of the important orders passed by the National Company Law Appellate Tribunal (“NCLAT”), under the Insolvency and Bankruptcy Code, 2016 ("Code”), during the period between April 1, 2025 to April 15, 2025.

For ease of reference, the orders have been categorized and dealt with in the following categories i.e., Pre-admission stage, Corporate Insolvency Resolution Process (“CIRP”) stage, Post CIRP stage, Liquidation and Miscellaneous.

1. In Devika Resources Private Limited v. MAA Manasha Devi Alloys Private Limited (Comp. App. (AT) (Ins) No.938 of 2024), the NCLAT clarified that for the purpose of maintaining an application under Section 9 of the Code, the threshold default prescribed under Section 4 should be assessed at the time of filing the application, and not at the time of its admission. It was observed that any subsequent reduction in the amount of default, such as due to a payment made after filing, which reduced the claim amount below the statutory threshold, would not affect the maintainability of such application.

2. In Vinita Pramod Devkar v. Rameshwar Textile Mills Private Limited (Company Appeal (AT) (Ins.) No. 364 of 2024), reiterating that service of the demand notice under Section 8 of the Code not being an empty formality, the NCLAT held that upon the failure of delivery by registered post, service of the demand notice is valid if sent to the registered email address of the corporate debtor, as reflected on the records of the Ministry of Corporate Affairs and continued disclosures in statutory filings, even where the email is non-operational.

3. In Sugan Choudhary v. Arun Enterprises (Company Appeal (AT) (Ins.) No. 746 of 2022), the NCLAT held that the consideration received as an advance under an agreement to sell an immovable property, which was later sought to be refunded with interest due to non-performance, cannot amount a financial debt under Section 5(8) of the Code, since it is not disbursement against time value of money. By observing that the real nature of the transaction has to be ascertained to determine if a claim would qualify as a financial debt, it was observed that the mere presence of an interest clause in a cancellation agreement for purchase of assets would not convert the transaction into a financial arrangement.

4. In SNJ Synthetics Limited v. PepsiCo India Holdings Private Limited (Company Appeal (AT) (Ins.) No. 386 of 2025), the NCLAT held that in the absence of any clause for interest in the supply agreement, stipulation of interest in the invoices can only override such a written agreement upon mutual consent by both parties. The NCLAT observed that the Adjudicating Authority is not the appropriate forum for making a determination on the liability to pay interest under the MSME Act, 2006 or Interest Act, 1978. It was further observed that when the principal amount was repaid after reconciliation, there would be no legally enforceable unpaid operational debt to trigger CIRP under Section 9(5) of the Code. The NCLAT stated that the provisions of the Code could not be turned into a debt recovery proceeding.

5. Highlighting the contrast between an application under Sections 7 and 9 of the Code, the NCLAT, in Kavindra Kumar v. Desein Private Limited (Company Appeal (AT) (Ins.) No. 1272 of 2023), held that while financial creditors are permitted to jointly file an application, the same has not been provided for operational creditors, and they need to individually satisfy the threshold of default under Section 4. Accordingly, it was further held that the note to Part-V of Form-5 of rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 does not create an exception for employees or workmen, but merely facilitates joint filing by one authorized person, and hence it cannot be read to permit operational creditors to jointly file the claim to satisfy the threshold of default. Further, it was observed that each employee is a separate operational creditor and would be required to give a separate demand notice under Section 8(1) of the Code.

1. In Arabinda Kumar Rath v. Siba Kumar Mohapatra (Company Appeal (AT) (Insolvency) No. 1482 of 2023), the NCLAT dealt with the issue of locus of the suspended management to challenge the quantum of claims admitted by the resolution professional as well as such suspended management’s right to receive a detailed valuation report. In relation to the first issue, the NCLAT observed that where the creditors inter se had not disputed the admission of relevant claims, the suspended director who was also the personal guarantor had no locus to challenge the quantum of such claim.

In the context of the suspended director’s right to receive detailed valuation report, it was observed that there was no statutory requirement of sharing valuation report with the suspended board, nor can the suspended director claim to be prejudiced on account of such non-sharing, as they lacked the right to vote on approval of the valuation report which falls solely under the review of the commercial wisdom of the Committee of Creditors (“CoC”).

The decision further emphasized the commercial wisdom of the CoC to be paramount and held that its jurisdiction to interfere with resolution plans approved by the Adjudicating Authority is limited to the grounds specified under Section 61(3) of the Code.

1. In Gateway Investment Management Services Limited v. ASC Insolvency Services LLP (Company Appeal (AT) (Ins.) No. 148 of 2025), the NCLAT held that a resolution applicant cannot modify or enhance its financial proposal after the timeline stipulated under the challenge process document and the request for resolution plans. The NCLAT emphasized on the importance of the commercial wisdom of the CoC in considering the resolution plans and disregarding a revised payment proposal sent by the resolution applicant via email after voting had already commenced. It further observed that the Adjudicating Authority has a limited scope of jurisdiction to interfere with the same.

2. In Alchemist ARC v. ASC Insolvency Services LLP (Company Appeal (AT) (Ins.) No. 179 of 2025), the NCLAT rejected the argument that the plan would require a prior approval from the Competition Commission of India, by observing that the value of the corporate debtor fell below the statutory threshold for being qualified as a combination within the meaning of the Competition Act, 2002. It further held that an assignment of debt by an asset reconstruction company to a non-asset reconstruction company is not prohibited under the SARFAESI Act, 2002 or Master Direction- Reserve Bank of India (Asset Reconstruction Companies) Directions, 2024, provided that it forms part of the resolution plan approved by the CoC.

3. In Hari Vitthal Mission v. Suasth Healthcare Foundation (Company Appeal (AT) (Ins) No. 04 & 05 of 2024), the NCLAT held that where the liquidation value was insufficient to meet the claims of secured creditors, the allocation of nil payment to an unsecured financial creditor was held to be valid and non-violative of Sections 30(2) or section 53 of the Code. It was further observed that the differential treatment of related parties from unrelated creditors under the Code is not discriminatory, especially where all similarly situated creditors are treated alike. It was also held that the Adjudicating Authority had no equity based jurisdiction while approving the plan and cannot interfere with the commercial wisdom of the CoC to approve a plan treating secured and unsecured financial creditors differently. It was further noted that while the Adjudicating Authority can direct the CoC to take a pragmatic and holistic approach, it cannot mandate a specific amount or interfere with its commercial decisions.

In a related matter, in the case of Shankar Mukherjee v. Suasth Healthcare Foundation (Company Appeal (AT) (Ins.) No. 01 of 2024), the NCLAT held that members of the suspended board of directors do not have locus standi under Section 61 of the Code to challenge the approval of a resolution plan when they are not aggrieved but merely disappointed by its order, or nor do they have the locus to raise the issue of name allocation to an operational creditor. The NCLAT reaffirmed that a resolution plan cannot be set aside merely on perceived irregularities or assumptions without specific legal injury or prejudice and refused to entertain a challenge to the plan by noting that when the claims were being settled on a pro-rata basis, the plan cannot be faulted for not specifying the exact amount payable. The NCLAT further noted that there is no scope for the Adjudicating Authority or NCLAT to proceed on any equitable assumptions and presumptions to assess the resolution plan on the basis of quantitative analysis, and that the power of judicial review in Section 31 of the Code is not akin to the power of a supervision jurisdiction to deal with the merits of the decision of any lower judicial authority.

1. In Satish Kumar v. Lion Buildcon Private Limited (Company Appeal (AT) (Ins.) No. 1723 of 2024), the NCLAT held that the absence of a written contractual agreement does not negate the existence of a financial debt when the existence of such loans and advances has been recorded in the audited financial statements of the corporate debtor. The NCLAT further noted that the information utility records would only be a prima facie evidence or additional evidence and would not dilute the debts granted by the financial creditor. The NCLAT took into consideration the date of default in Part IV of Form I of the Section 7 application to reject the contention that the date of default fell within the Section 10A period. Lastly, the NCLAT also went onto observe that the liquidator had obtained prior approval from the Adjudicating Authority to initiate recovery proceedings and was within his rights to take any legal action including filing Section 7 application for recovering the recoverable dues from any entity under regulation 39 of the Liquidation Process Regulations, 2016, which does not violate the Code.

1. In Divyang Soni v. Bank of Baroda (Company Appeal (AT)(Ins) No. 1988 of 2024), the NCLAT held that recoveries made by a financial creditor through auction of mortgaged property pursuant to a recovery certificate or decree of the Debt Recovery Tribunal does not amount to part payment by the debtor or guarantor to extend limitation under Section 19 of the Limitation Act, 1963, and such recovery cannot be relied upon by the personal guarantor to bypass the limitation issue while filing an application under Section 94 of the Code for initiation of insolvency resolution.

2. The NCLAT, in Shrinathji Spintex Private Limited v. Shantilal Parbatbhai Lakkad (Company Appeal (AT) (Ins.) No. 1694 of 2024), delved into the issue of whether a consent decree would constitute a valid contract of guarantee under Section 126 of the Indian Contract Act, 1872 for the purpose of the Code. Answering in the negative, the NCLAT observed that since the consent decree lacked an express promise to act as a guarantor which could determine liability, it would merely amount to a private settlement. The NCLAT also noted that the consent decree being obtained during the moratorium period under Section 14 of the Code, the failure to disclose the insolvency status of the corporate debtor, and imposition of obligations without consent would amount to fraud and could not be the basis for initiation of insolvency proceedings under Section 95 of the Code. Further, it was also noted that the Adjudicating Authority was entitled to impose penalty on the resolution professional for his failure to perform his basic duty of verifying the existence of guarantee.

About the authors: Arka Majumdar is a Partner, Vikram Chaudhuri is a Senior Associate and Aakriti Garodia is an Associate at Argus Partners.