Institution Of Criminal Proceedings Against Officials Of Financial Creditor Does Not Bar Petition U/S 7 Of IBC: NCLT Cuttack
The National Company Law Tribunal (NCLT) Cuttack bench of Deep Chourasia (Judicial Member) and Babulal Meena (Technical Member) has held that institution of criminal proceedings or allegations of fraud against officials of the financial creditor do not bar an application under section 7 of the IBC. It was held that, unlike an application under section 9 of the IBC, the petition under...
The National Company Law Tribunal (NCLT) Cuttack bench of Deep Chourasia (Judicial Member) and Babulal Meena (Technical Member) has held that institution of criminal proceedings or allegations of fraud against officials of the financial creditor do not bar an application under section 7 of the IBC.
It was held that, unlike an application under section 9 of the IBC, the petition under section 7 cannot be rejected over a pre-existing dispute.
Background
In this case, Canara Bank advanced multiple credit facilities to the corporate debtor for the modernisation and expansion of its Aluminium Extrusion Plant.
They included cash credit, several term loans and bank guarantees. The account of the corporate debtor was classified as Non-Performing Assets subsequent to the default committed by it in repaying the debt, and actions under the SARFAESI Act were also initiated. Despite restructuring of debt and multiple OTS proposals, the corporate debtor failed to regularise its accounts which forced the bank to file the present petition under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).
The Applicant submitted that the liability by the corporate debtor was acknowledged by signed instruments, OTS proposals and restructuring agreements. Defaults in the present case continued even after the period under section 10A of the IBC. Due to repeated acknowledgement of debt, the limitation period was extended under section 18 of the Limitation Act.
The Respondent submitted that the documents of the bank are contradictory regarding sanctions dates and loan amounts. Forged signatures were obtained in creating a mortgage for which an FIR had already been registered. The loan in the present falls within the prohibited period under Section 10A of the IBC. The Company, being an MSME, did not follow the mandatory revival and rehabilitation frameworks laid down under the MSME Act.
Analysis
The Tribunal at the outset, rejected the arguments of the Respondent regarding fraud and held that the institution of criminal proceedings or fraud allegations against the officials of the Financial Creditor cannot bar an application under section 7 of the IBC. Unlike an application under section 9 of the IBC, the petition under section 7 cannot be rejected over a pre-existing dispute, it held.
It further observed that in the present case, acknowledgements of debt through one-time settlement 'OTS' proposals, restructuring agreements and the balance sheet of the corporate debtor extended the period of limitation under section 18 of the Limitation Act as held by the Supreme Court in Dena Bank.
The Tribunal further observed that defaults in the present case occurred subsequent to the period of prohibition under Section 10A as evidenced by loan account statements and NeSL records. Lastly, the plea of the MSME was also rejected on the ground that no proof of MSME registration was furnished. Accordingly, the present application was admitted.
Case Title: Canara Bank VERSUS M/S. S.S. ALUMINIUM PRIVATE LIMITED
Case Number: CP (IB) No 18/CB/2O24
Order Date: 09/09/2025