IBC Proceedings Not Barred By Pending Writ Petition Or Administrative Classification Of Account As NPA Or Fraudulent: NCLT Kochi

The financial creditor, Axis Bank, filed an application u/s 7 of the IBC read with rule 4 of the NCLT Rules, 2016, seeking initiation of CIRP against the corporate debtor, Euro Tech Maritime Academy Pvt. Ltd., for an outstanding debt of Rs. 14.60 Cr.

The corporate debtor defaulted in the repayment of the loan and has also acknowledged that the payment is due and payable.

Submissions of the Parties

The corporate debtor argued that it submitted the restructuring proposal, which was rejected by the financial creditor; hence, the restructuring request remained unapproved.

It highlighted that being an MSME entity, it is eligible for benefits of the central government notification and the RBI's framework related to revival and rehabilitation of the MSME sector. The Corporate Debtor also highlighted the RBI's Master Direction on Lending to MSMEs, which provides guidelines for MSME lending and also for restructuring and rehabilitation of loans for the appellant.

It submitted that the above aspects were brought before the financial creditor, but still they rejected the restructuring application without considering it, which violates the mandate of the prescription.

After this the corporate debtor approached the Hon'ble High Court of Kerala, seeking enforcement of circulars for revival, which was opposed by the financial creditor. However, the court granted the liberty to file the fresh writ. The fresh writ was filed and admitted, and the matter is sub judice.

The corporate debtor relied on the judgment of M/s Pro Knits v. The Board of Directors of Canara Bank and submitted that the bank must constitute a committee to take corrective measures before classifying the MSME's account as NPA. Here, the bank didn't comply with this, as no committee was formed and no action was taken for revival or rehabilitation; hence, the action of the bank is invalid and void ab initio.

With this, the corporate debtor made the submission that if the petition is admitted, then the High Court's proceedings would become redundant.

In its rejoinder, the financial creditor submitted that it has complied with the central government notification and the RBI's direction. Also, the reliance of the corporate debtor on M/s Pro Knits (Supra) is misconceived, as the facts distinguish.

Observations of the Adjudicating Authority

The Adjudicating Authority observed that the corporate debtor has acknowledged the debt and restructuring but failed to maintain financial discipline.

Also, the bank set up the committee for revival and rehabilitation of MSME units for various accounts, including the corporate debtors.

It was also observed that the proceedings pending before the Hon'ble High Court are related to the classification of the account as a fraud account, and that has nothing to do with the present proceedings.

And, the documents made it clear that there exist a debt and the default is continuing; hence, there is no bar to section 7 admission. The bench discussed the ruling of the Hon'ble Supreme Court in the case of Suresh Kumar Reddy v. Canara Bank, where the court ruled that if the NCLT is satisfied that default has occurred, then there is hardly any discretion left to refuse the admission.

Considering the argument of the corporate debtor that by virtue of the writ petition it has an interim protection in its favor, the bench discussed that the corporate debtor was asked whether they have filed any application for a stay of the Section 7 application; they replied in the negative.

When the court reserved the matter for orders, subsequently, it received communication from the Hon'ble High Court regarding OP(C) No. 1861 of 2025, wherein the respondent had sought a stay of the proceedings before the NCLT. However, the Hon'ble High Court rejected the prayer for the stay. Hence, considering the merits of the application, the adjudicating authority admitted the application.

Case Name: Axis Bank Limited v. Euro Tech Maritime Academy Private Limited

Case No.: IA(IBC)/226/KOB/2025 & CP(IBC)/10/KOB/2025

Bench: comprising Mr. Vinay Goel (Member-Judicial) and Madhu Sinha (Member-Technical),

Order Date: 22nd August 2025

Click Here To Read/Download The Order