Uday J. Desai vs Bank Of India & Anr. & Ors

NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI Comp. App. (AT) (Ins) No. 187 of 2023 & I.A. No. 677, 678, 679 of 2023 (Arising out of the Order dated 09.02.2023 passed by the National Company Law Tribunal, Mumbai Bench, in Company Petition (IB) No. 973/MB/2020)

IN THE MATTER OF: Uday J. Desai Aged 66 years, S/o Late Sh. Jayant M Desai R/o S- 279, 2nd Floor, Panchsheel Park, Malviya Nagar, ...Appellant New Delhi- 110017 Versus 1. Bank of India (Acting through its Authorised Officer) Branch Office at: Kasturba Marg Branch, 26/41. Thapar House, Birhana Road, Kanpur - 208001 Head Office at: Star House, C5, G-Block, Bandra Kurla Complex Bandra (East), Mumbai - 400051 ...Respondent No. 1

2. Frost International Limited Through the Interim Resolution Professional (IRP) Registered Office at: 709, C Wing, One BKC, Near Indian Oil Petrol Pump, Bandra Kurla Complex, Bandra East Mumbai -40005 ...Respondent No. 2

Present For Appellants: Mr. Malak Bhatt, Ms. Neeha Nagpal, Ms. Samridhi, Mr. Shreyansh Chopra, Advocates.

For Respondents: Mr. Prakash Shinde, Ms. Ruchita Jain, Advocates for R-1. Mr. Varun Kalra, Advocate for R-2/RP.

Page 1 of 36 JUDGEMENT

( 27.02.2026)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present appeal has been filed by the Appellant i.e., Uday J. Desai, who

is the ex-director of Frost International Ltd. ("Corporate Debtor"), under

Section 61 of the Insolvency and Bankruptcy Code, 2016 ('Code') against the

Order dated 09.02.2023 ("Impugned Order") passed by the National Company

Law Tribunal, Mumbai Bench ("Adjudicating Authority") in Company

Petition (IB) No. 973/MB/2020.

Bank of India, who is the Financial Creditor of the Corporate Debtor, is the

Respondent No.1 herein.

Frost International Ltd., who is the Corporate Debtor, is Respondent No. 2,

herein, represented by Mr. Amit Chandrakant Shah, Resolution Professional of

the Corporate Debtor.

2. The Appellant submitted that Corporate Debtor is a company incorporated

in the year 1995 and has been engaged in the business of trading commodities for

more than two decades. Its primary activity is Merchanting Trade. It is a

government-certified 3-star rated Export and Trading House dealing in a wide

range of commodities including agricultural products, electronic and computer

items, minerals and metals. The Appellant further submitted that the Merchanting

Trade operations of the Corporate Debtor were regularly scrutinised and audited

by the consortium of 14 banks - Bank of India, Punjab National Bank, Allahabad

Page 2 of 36 Bank, Indian Overseas Bank, Bank of Baroda, UCO Bank, Central Bank of India,

United Bank of India, Oriental Bank of Commerce, Canara Bank, BOB (erstwhile

Vijaya Bank), Syndicate Bank, Andhra Bank and Union Bank of India - as well

as by the Reserve Bank of India. The Appellant stated that all audits found the

operations to be completely in order.

3. The Appellant submitted that the Financial Creditor, Bank of India (the

Respondent No. 1) had extended various credit facilities of Rs. 756.75 Crores to

the Corporate Debtor under sanction letters dated 25.08.2015, 07.12.2016 and

05.09.2017.

4. The Appellant submitted that on 08.02.2018, a consortium meeting was

held in which all lender banks, including the Respondent No. 1, expressly

confirmed that the Corporate Debtor's account was in the standard category with

no overdues and no issues of concern at their end.

5. The Appellant submitted that on 12.02.2018, the Reserve Bank of India

(RBI) issued Circular No. RBI/2017-18/131 prescribing a revised framework for

resolution of stressed assets. In view of the said circular, certain other proceedings

against a group company and an anonymous complaint, the consortium of banks,

including the Financial Creditor, abruptly froze all credit lines without prior

intimation or justification. The banks also adjusted advances received from

foreign buyers against their outstanding dues. It is the case of the Appellant that

these actions of the Banks, completely stopped the business of the Corporate

Debtor whereas even at that stage, the Corporate Debtor remained committed to

Page 3 of 36 repay the banks and submitted several resolution plans. The Appellant tried to

impress upon that out of the total Letter of Credit (LC) devolvement of Rs. 5,988

crores, substantial amounts have already been repaid by the Corporate Debtor.

6. The Appellant submitted that the Corporate Debtor's account continued to

be treated as standard and regular by all banks till as late as April 2018. On

17.03.2018, another Bank's consortium meeting was held. Despite the RBI

circular of 12.02.2018 having come into force and proceedings against another

group having commenced, all banks again confirmed that the accounts OF THE

Corporate Debtor were standard and regular. The Appellant submitted the Deputy

General Manager of the lead bank (Bank of India/ Financial Creditor/Respondent

No. 1) specifically advised all member banks in the said meetings to actively

associate with the Corporate Debtor so that day-to-day business is not affected

and no overnight stipulations are imposed to strangle the account of the Corporate

Debtor.

7. The Appellant submitted that between mid-March and early April 2018,

the banks suddenly stopped extending fresh LCs, which were essential for the

continuous trade cycle by the Corporate Debtor. The Appellant conceded that this

was the first time the accounts went into stress. The Appellant stated that on

03.04.2018, a high-level meeting of top management of all lender banks was held,

where it was resolved that normal operations would be allowed up to sanctioned

limits and that a forensic audit would be conducted from FY 2012-13 onwards.

Page 4 of 36 The Appellant alleged that the decision of the Banks to allow normal operations

of the Corporate Debtor was never implemented by the Banks.

8. The Appellant submitted that on 30.06.2018, the Respondent No. 1

declared the account of the Corporate Debtor as NPA. The Appellant pleaded that

the Corporate Debtor, as directed by the banks, submitted a resolution plan on

09.07.2018, providing clear timelines of the irregularities to be cleared by

December 2018 and overall exposure to be reduced thereafter. The Appellant

submitted that on 17.07.2018, the consortium rejected the plan on frivolous

grounds and called for a revised plan, and in the same meeting, the banks

themselves noted that they had adjusted payments received during the stressed

period, contrary to the April 2018 high-level decision and had not allowed

operation or opening of fresh LCs, thereby frustrating the business of the

Corporate Debtor.

9. The Appellant submitted that the Corporate Debtor submitted a revised

resolution plan on 06.08.2018, which was rejected by the Bank arbitrarily without

any reasons on merit. On 30.08.2018 the banks asked for a settlement proposal

and on 07.09.2018, the Corporate Debtor offered a One Time Settlement (OTS)

which was not accepted by Bank and no reasons were ever given to the Corporate

Debtor.

10. The Appellant submitted that on 10.09.2018, the Respondent No. 1 filed

the first Section 7 petition being CP No. 3608 of 2018. Between September and

November 2018, the Corporate Debtor supplied numerous documents and

Page 5 of 36 information to Haribhakti & Co. for the forensic audit. On 27.12.2018 the

consortium meeting noted that Haribhakti & Co., forensic auditors, had failed to

consider the documents and directed preparation of an addendum after verifying

all papers and working out cash flows for alleged diversion. The Appellant stated

that on 05.01.2019, Haribhakti & Co. submitted the Forensic Audit Report,

without carrying out fund trailing, verification of book debts or considering any

material supplied by the Corporate Debtor. The Appellant argued that on the basis

of this flawed forensic audit report, the banks declared the account of the

Corporate Debtor as "fraud".

11. The Appellant submitted that on 02.04.2019, the Hon'ble Supreme Court

of India, in Dharani Sugars and Chemicals Ltd. v. Union of India, (2019) 5

SCC 480 (in which the Corporate Debtor was one of the petitioners) quashed the

RBI Circular dated 12.02.2018, as ultra vires and held that all proceedings

initiated on the basis of the said circular become non-est. The first Section 7

petition was accordingly dismissed by the Adjudicating Authority on 14.10.2019.

12. The Appellant submitted that on 07.06.2019, the RBI issued a fresh

Stressed Assets Resolution Framework. The Appellant conceded that the

Corporate Debtor, somehow, could not avail the benefit of this framework or the

subsequent COVID Regulatory Package dated 23.05.2020 solely because of the

illegal "fraud" declaration by the Banks.

13. The Appellant submitted that despite dismissal of the first section 7

application, the Financial Creditor filed the second Section 7 petition being

Page 6 of 36 CP(IB) No. 973/MB/2020 claiming default of Rs. 872,58,08,402/-. The

Corporate Debtor filed IA No. 2001/2022 under Section 60(5) of the Code raising

preliminary objections of maintainability, res judicata and violation of RBI

guidelines dated 07.06.2019, default caused by banks' arbitrary conduct,

violation of fair play and that actions under the quashed 2018 circular were void,

however the Adjudicating Authority rejected the submission of the Appellant in

the Impugned Order.

14. The Corporate Debtor held 20% participating interest in Oil Block in the

Cambay Basin under the Product Sharing Contract with the Government of India.

Commercial production was expected to commence in FY 2022-23 and was to

generate substantial cash flows sufficient to clear all dues. The Appellant pleaded

that initiation of CIRP results in automatic termination of the Product Sharing

Contract under Article 30.3, wiping out the value of this prime asset.

15. The Appellant submitted that the impugned order dated 09.02.2023, is a

non-speaking order as it merely states that default above threshold is established

and does not deal with any of the detailed contentions raised in the maintainability

application, Reply, Additional Affidavit or written submissions.

16. The Appellant submitted that the second application under Section 7 of the

Code by the Respondent No. 1 is barred by res judicata. The first petition CP No.

3608 of 2018 was filed on the same cause of action and for the identical debt and

was dismissed by the Adjudicating Authority. No liberty was granted to file a

fresh petition. The second petition does not even disclose the earlier dismissal.

Page 7 of 36

17. The Appellant submitted that second application under Section 7 of the

Code by the Respondent No. 1, was filed without proper authority as the

document was an unsigned resolution and does not comply with the Ministry of

Corporate Affairs Notification dated 01.03.2019. The Appellant further

submitted that several documents relied upon by the Respondent No. 1 are

unstamped or insufficiently stamped and therefore, are inadmissible.

18. The Appellant submitted that the second application under Section 7 of the

Code by the Respondent No. 1 violates the RBI Framework dated 07.06.2019, as

no opportunity was given to the Corporate Debtor to submit a resolution plan or

to restructure under inter-creditor arrangement. The illegal "fraud" declaration

has made the Corporate Debtor ineligible for restructuring under the said

framework.

19. The Appellant submitted that the alleged default of Rs. 872,58,08,402/-

was caused entirely by the arbitrary actions of the Financial Creditor as the banks

froze limits, stopped LCs, adjusted foreign buyer advances and failed to

implement their own resolutions despite the account of the Corporate Debtor

being standard till April 2018. The Appellant pleaded that the Corporate Debtor

acted with complete bona fides and made every possible effort to resolve the

matter.

20. The Appellant submitted that the Corporate Debtor is solvent and viable

and is facing only temporary hardship caused by the banks. The Code cannot be

used to penalise a solvent company in temporary default, as held by the Hon'ble

Page 8 of 36 Supreme Court of India in Vidarbha Industries Power Ltd. v. Axis Bank Ltd.,

2022 SCC OnLine SC 841. It is the case of the Appellant that Admission of CIRP

by the Adjudicating Authority and now it's continuation, would defeat the very

object of the Code, which is to maximise asset value and revive the Corporate

Debtor, not to liquidate a healthy entity.

21. Concluding its arguments, the Appellate requested this Appellate Tribunal

to set aside the Impugned Order and allow this appeal and to restore its pre-CIRP

status forthwith.

22. Per contra, the Respondent No. 1 and the Respondent No. 2, denied all

averments made by the Appellants as misleading and baseless.

23. The Respondent No. 1 contended that the Corporate Debtor had availed

credit facilities under sanction letters dated 25.08.2015, 09.03.2016, 07.12.2016

and 05.09.2017. The sanctioned facilities aggregated to Rs. 756.75 crores,

comprising Cash Credit Rs. 0.75 crore, EPC/FBP Rs. 30.00 crores (total fund-

based Rs. 30.75 crores), LC Rs. 700.00 crores, LOC for Buyers Credit Rs. 150.00

crores, ILC Rs. 30.00 crores, Bank Guarantee Rs. 50.00 crores and credit

equivalent exposure Rs. 26.00 crores. The Corporate Debtor executed all loan and

security documents including the Supplemental Working Capital Consortium

Agreement dated 26.11.2015, undertakings, omnibus counter guarantees,

omnibus indemnity, board resolution dated 26.11.2015, memoranda of entry

creating mortgage and charge on pari passu basis dated 26.11.2015, 14.12.2015,

09.07.2016, 04.03.2017 and hypothecation of stocks dated 26.11.2015. Personal

Page 9 of 36 guarantees were furnished by 13 individuals and corporate guarantees were given

by R.S. Builders, Global Exim, NSD & SD Nirman.

24. The Respondent No. 1 submitted that the Corporate Debtor committed

default on 12.04.2018 and the account of the Corporate Debtor was classified as

NPA with effect from 30.06.2018. As on 01.05.2020, the admitted outstanding

due and payable to the Respondent No. 1 stood at Rs. 872,58,08,402.27. The debt

and default are duly recorded in the NeSL Information Utility Report and the

CIBIL Report dated 11.11.2018, both of which are on record.

25. The Respondent No. 1 contended that the Corporate Debtor has repeatedly

admitted the debt and occurrence of default. The Corporate Debtor acknowledged

the liability vide letters dated 26.11.2015, 23.01.2017 and 23.03.2018. The debt

is also reflected in the audited balance sheets of the Corporate Debtor. The

Respondent No. 1 submitted that in its OTS proposal and in the Affidavit in Reply

dated 11.07.2022, the Corporate Debtor has expressly admitted the debt and

default.

26. The Respondent No. 1 submitted that the Appellant's contention that the

account remained standard with no overdues is factually incorrect. The

Respondent No. 1 explained that in the consortium meeting dated 17.03.2018, the

Corporate Debtor admitted that payments had been getting delayed since mid-

February 2018 due to prevailing scenarios in India and abroad. The Respondent

No. 1 emphasized that the consortium meeting dated 17.07.2018 recorded the

decision to initiate recovery steps including filing of application before

Page 10 of 36 Adjudicating Authority in case the resolution plan was not implemented within

the RBI timelines. The Respondent No. 1 stated that the resolution plan submitted

on 09.07.2018 by the Corporate Debtor and the revised resolution plan submitted

on 06.08.2018, which were rejected by the consortium of banks after due

consideration.

27. The Respondent No. 1 contended that there is no violation of the RBI

Prudential Framework dated 07.06.2019. The Corporate Debtor never submitted

any resolution plan under the said Framework. The Corporate Debtor itself

confirmed in its reply affidavit that pursuant to the forensic audit, the account of

the Corporate Debtor was classified as 'fraud' on 05.01.2019. The Respondent

No. 1 brought out that the writ petition challenging the forensic report was

dismissed by the Hon'ble Delhi High Court on 26.07.2019. The Letters Patent

Appeal No. 564 of 2019 is pending before the Hon'ble High Court of Delhi

without any stay and pendency of the Letters Patent Appeal is irrelevant for the

present proceedings.

28. The Respondent No. 1 submitted that the judgment in Vidarbha Industries

(Supra) is not applicable to the facts of this case as the Corporate Debtor is not

viable at all. The Corporate Debtor failed to take any steps to recover its own

trade receivables and continued to carry on business in a manner detrimental to

the interest of the Corporate Debtor and its stakeholders, thereby necessitating

the initiation of CIRP.

Page 11 of 36

29. The Respondent No. 1 contended that the documents relied upon are fully

admissible. The issue of stamping cannot be raised in the summary proceedings

under the Code. The Corporate Debtor itself has admitted the debt and default

and has offered settlement proposals, which were rejected as not viable and on

the lower side.

30. The Respondent No. 1 submitted that the CIRP is at an advanced stage.

The Resolution Plan has already been approved by the requisite majority of the

Committee of Creditors (CoC). Interlocutory Application No. 135 of 2025 is

pending before the Adjudicating Authority for approval of the Resolution Plan.

The Respondent No. 1 argued that the present appeal is a clear afterthought and

amounts to abuse of the process of law with the sole intention to delay the time-

bound CIRP and defeat the rights of all stakeholders.

31. The Respondent No. 1 contended that the Corporate Debtor has never

disputed the existence of financial debt or the occurrence of default. The petition

under Section 7 was complete in all respects and well within limitation. The

Adjudicating Authority, after considering all pleadings and documents, rightly

admitted the petition and commenced CIRP. The order dated 09.02.2023 is in

accordance with the provisions of the Code and the law laid down by the Hon'ble

Supreme Court in Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407.

32. Concluding his arguments, the Respondent No. 1 requested this Appellate

Tribunal to dismiss the appeal with cost.

Page 12 of 36

33. The Respondent No. 2 submitted that during pleading before us, pursuant

to the e-voting conducted in relation to the 40th meeting of the CoC, which was

concluded on November 3, 2025, the Resolution Plan submitted by one

Greensward Enterprise Private Limited was approved by the CoC with 69.26%

voting share, being well in excess of the statutory threshold prescribed under

Section 30(4) of the Code and the said approval is duly recorded in the voting

results dated November 3, 2023. The Respondent No.2 further submitted that in

the same e-voting process concluded on November 3, 2025, the proposal

submitted by the ex-promoter (suspended director), Mr. Sujay U. Desai, (son of

Appellant, Mr. Uday J. Desai) under Section 12A of the IBC for withdrawal of

CIRP ("Section 12A proposal"), was categorically rejected by the CoC with

100% votes cast against the said Section 12A proposal. Accordingly, the Section

12A proposal stood finally rejected by the commercial decision of the CoC.

34. The Respondent No.2 submitted that Section 12A proposal was discussed

in detail by Mr. Sujay U. Desai in the 32nd CoC meeting held on February 13,

2025, and subsequently he had submitted an addendum for the same on May 14,

2025, to all the Lenders. The said Section 12A proposal was placed for e-voting

simultaneously with the Resolution Plans during 40th meeting of the CoC held

on June 3, 2025. Thus, the Appellant was given an equal opportunity, at par with

other Prospective Resolution Applicants. This fact was also acknowledged by Mr.

Sujay U. Desai in the 46th CoC meeting held on November 6, 2025. The

Respondent No.2 clarified that the minutes of the 46th meeting of the CoC clearly

Page 13 of 36 record and reaffirm that the Resolution Plan of Greensward Enterprise Private

Limited stands approved by the CoC, while all other resolution plans as well as

the Section 12A proposal submitted by the expromoter were not approved. The

CoC further resolved to proceed with issuance of the Letter of Intent to the

Successful Resolution Applicant and filing of the application before the

Adjudicating Authority, Mumbai for approval of the Resolution Plan.

35. The Respondent No. 2 submitted that the Resolution Plan, having been

found compliant with Section 30(2) of the Code, was duly placed before the CoC

and has been approved by the CoC with the requisite majority in exercise of its

commercial wisdom under Section 30(4) of the Code and pursuant to the approval

of Resolution Plan by the CoC, the Respondent No. 2 has filed an Interlocutory

Application, bearing I.A. No. 135 of 2025, before the Adjudicating Authority

seeking approval of the said Resolution Plan, which is currently pending

adjudication.

36. The Respondent No.2 submitted that once the resolution plan is approved

by the CoC, the same attains binding force inter se all stakeholders, subject only

to approval by the Adjudicating Authority under Section 31 of the Code. In any

case the Resolution Professional is a neutral person conducting the CIRP and does

not possess any adjudicatory or commercial powers. The Resolution Professional

is statutorily bound to act in accordance with the decisions taken by the CoC and

cannot independently entertain, reject, or act upon any proposal, including any

Page 14 of 36 belated settlement or objection raised by the ex-promoters of the Corporate

Debtor.

37. The Resolution Professional strongly refuted the allegations raised by the

Appellants against the Resolution Professional as vague, bald, and

unsubstantiated. The Respondent No. 2 also submitted that the ex-promoters like

the Appellant have no vested or enforceable right to interfere with or stall the

CIRP, particularly after approval of the Resolution Plan by the CoC. Upon

commencement of CIRP, the management and control of the Corporate Debtor

vests with the IRP/RP under Section 17 of the Code, and the role of the suspended

management stands expressly curtailed. The Respondent No.2 also submitted that

any attempt by the ex-promoters to stall CIRP after approval of the Resolution

Plan by the CoC, is contrary to Section 12A of the Code read with Regulation

30A of the CIRP Regulations. The statutory scheme clearly envisages strict

timelines and finality of process and does not permit reopening of the CIRP at the

whims of the erstwhile promoters.

38. In this regard, Respondent No. 2 places reliance on the judgment of this

Appellate Tribunal in Hem Singh Bharana v. Pawan Doot Estate (P) Ltd., 2023

SCC OnLine NCLAT 34, wherein it has been held that once a Resolution Plan

has been approved by the CoC, no settlement proposal or application under

Section 12A at the instance of an ex-promoter can be entertained, and that the

resolution professional cannot be faulted for proceeding with the CIRP in

accordance with the CoC's decision. This Appellant Tribunal further reiterated

Page 15 of 36 that the commercial wisdom of the CoC is paramount and nonjusticiable, and that

entertaining belated challenges by ex-promoters would defeat the very object of

the Code, which mandates timely resolution and certainty in insolvency

proceedings. The Respondent No.2 submitted that permitting such challenges at

this stage would open floodgates for disgruntled promoters to endlessly litigate

and delay resolution, thereby eroding creditor confidence and frustrating the

value maximisation objective of the Code.

39. Concluding his arguments, the Respondent No. 2 requested this Appellate

Tribunal to dismiss the appeal.

Findings

40. After recording all the rival contentions of all the parties, we shall now deal

the issues raised by the Appellant in the present appeal before us.

41. We note that one Section 7 application was filed under Section 7 of the

code by the Respondent No. 1/ Bank of India Limited, seeking to initiate CIRP

against Frost International Limited ('the Corporate Debtor'). The present petition

was filed on 25.03.2022 on the ground that a loan for a sum of Rs. 756.75/- Crore

was advanced by the Financial Creditors i.e. along with interest of

Rs.238,39,26,438.43/- are payable by the Corporate Debtor and the Corporate

Debtor has defaulted in repayment of the same. The total amount claimed to be

in default by the Financial Creditors is Rs.8,72,58,08,402.27/-. The date of default

stated to be is 12.04.2018. We note that the Respondent No. 1 sanctioned various

Page 16 of 36 financial facilities like Cash Credit, EPC/FBP, LC, LoC for Buyers Credit, ILC,

Bank Guarantee, Credit Equivalent Exposure etc. Thus, the Corporate Debtor was

liable to repay the amount of Rs. 606,17,29,608.48/- (principal) along with

interest of Rs.238,39,26,438.43/- plus Penal interest of Rs.28,01,52,355.36/- as

on 01.05.2020. We observe that the Respondent No. 1 vide legal notice dated

06.08.2018 had called upon the Corporate Debtor to pay the principal amount

along with interest from 21.06.2018 and since the Corporate Debtor failed to

repay the amount, the account of the corporate Debtor was decaled as NPA w.e.f.

30.06.2018.

42. It has been brought to our notice that the Corporate Debtor vide Revival

Letter has acknowledged the liability to the Respondent No. 1. Further, vide

letters of acknowledgement of debt dated 23.01.2017 & 23.03.2018 and in the

audited Balance sheets respectively, the Corporate Debtor acknowledge debt

towards the Respondent No. 1.

43. During pleadings, the Appellant strongly pleaded that the Corporate Debtor

was a viable entity and even at this stage, is viable entity which is required to be

allowed to continue. The Appellant referred to the ratio of the judgement of the

Hon'ble Supreme Court of India delivered in the case of Vidarbha (Supra) where

Vidarbha was allowed to continue rejecting the admission of the CIRP on the

ground that Vidarbha was a viable entity.

The Appellant tried to impress upon us that based on the receivable and other

assets including resources available to the Corporate Debtor, the Corporate

Page 17 of 36 Debtor can easily overcome for financial distress and make suitable payments to

the lenders including Respondent No. 1.

44. In this regard, we note that Vidarbha stood on its own facts. We note that

the Supreme Court in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022)

held that under Section 7 of the Code, the Adjudicating Authority (NCLT) is not

bound to mandatorily admit a corporate insolvency resolution process (CIRP)

application upon mere proof of default, but has discretion to examine surrounding

facts and circumstances before admission. In this case, Axis Bank Ltd. had filed

a Section 7 application against Vidarbha Industries Power Ltd. for financial

default; however, Vidarbha contended that a substantial sum had been awarded

in its favour by the Appellate Tribunal for Electricity, which, if realized, would

enable it to clear the dues. The Supreme Court interpreted the word "may" in

Section 7(5)(a) as conferring discretionary power on the NCLT, unlike the

mandatory language used in Section 9 for operational creditors, and held that the

financial health and overall circumstances of the corporate debtor can be

considered before admitting insolvency proceedings. Accordingly, the Court set

aside the NCLAT's order and remanded the matter, emphasizing that insolvency

should not be triggered mechanically when viable grounds exist to justify non-

admission.

45. In this connection, we asked the Appellant to substantiate the arguments as

to how the ratio of Vidarbha (Supra) is applicable w.r.t. the financial position of

the Corporate Debtor. The Appellant submitted that the Corporate Debtor had

Page 18 of 36 huge turnover between 2010-2018 of approximately 92, 000 Crores and paid

taxes of Rs. 360 Crores. The Appellant submitted that as on 31.08.2018, the

Corporate Debtor had trade receivables of Rs. 4,288 crores against total bank

debts of approximately Rs. 4,041 crores. The net worth of the Corporate Debtor

was positive and the realizable value of assets far exceeds liabilities. On this

point, we note that in any case, these are past historical events and do not reflect

the viability of the Corporate Debtor at the stage of initiation of CIRP or even at

this stage of the present appeal.

46. We again put a pointed query to the Appellant to refer to the financial facts

which establish that the Corporate Debtor has assets or net worth of more than

outstanding dues payable by the Corporate Debtor to creditors especially

Respondent No. 1 of Rs. 872 Crores in order to fall itself in the ambit of Vidarbha

ratio. No specific averments or factual financial position could be brought out by

the Appellant to our notice, which could have confirmed the fact that the

Corporate Debtor indeed had required funds/ receivable which are

unconditional/unencumbered or imminent receivables, which could sail through

the Corporate Debtor out of financial mess and could pay outstanding dues of

financial creditors including Respondent No. 1. Thus, we do not find merit in the

arguments of the Appellant that as per the ratio of Vidarbha (Supra), the

Adjudicating Authority ought to have rejected the Section 7 application filed by

the Respondent No. 1.

Page 19 of 36 To reiterate based on the pleadings before us, records made available and non-

submission of any concrete financial evidence by the Appellant to sustain facts

showing the financial strength and net worth of the Corporate Debtor, we find no

logical and legal grounds to interfere in the Impugned Order on this issue. Thus,

we hold that the alleged viability of the Corporate Debtor, as argued by the

Appellant is not established and therefore, the arguments of the Appellant on the

ground of viability based on Vidarbha (Supra) is found meritless and stand

rejected.

47. The Appellant also brought to our notice that it is due the conduct of the

Respondent No. 1, which led to the insolvency of the Corporate Debtor. The

Appellant referred to few meetings of Banks whereby the other consortium

bankers were willing to bail out the Corporate Debtor but the Respondent No. 1

stalled the same. The Appellant highlighted the minutes of the consortium

meeting held on 17.07.2018, in which the various banks representative were

present along with Appellant and in the same meeting IOB advised that they had

sanctioned FLC limit of Rs. 1500 Crores and the present devolvement amount

was Rs. 439 Crores. The Appellant also referred to Para 12 of the said meeting

dated 17.07.2018 where the UCO Bank raised issues that some banks has adjusted

amount received during the stress period and not allowed to open fresh LC's of

the Corporate Debtor. The Appellant tried to develop this as case where other

banks were willing to support the Corporate Debtor to revive the Corporate

Page 20 of 36 Debtor whereas the Respondent No. 1 along with the few selected banks were

bent upon to take the Corporate Debtor into CIRP and later into liquidation.

48. In this background, we take into consideration the relevant portion of the

minutes of the consortium meeting of banks dated 17.07.2018 which reads as

under: -

Page 21 of 36 Page 22 of 36 Page 23 of 36 Page 24 of 36

49. From above, we note that Para 12, in fact, was adjustment issue of the

proceeds from the Corporate Debtor, inter-se among the banks as lenders, rather

than any alleged support to the Corporate Debtor.

We further note from para 7 of the said minute that the Resolution Plan

submitted by the Corporate Debtor dated 09.07.2018 was indeed discussed in this

high-level meeting but was not found worth considering, since the Resolution

Plan of the Corporate Debtor was not prepared as per RBI Guidelines and further

no specified time was mentioned and the company was to bring 20% of

devolvement amount upfront, which the Corporate Debtor could not do.

We also note that the banks noted that the gross devolvement of LC amount

was Rs. 3169 Crores and therefore, the bank decided to issue recall notice to the

Corporate Debtor by individual banks, invocation of personal, corporate

guarantee by filing suit in DRT, file application in NCLT for insolvency of the

Corporate Debtor and also appoint detective agency for identification of personal

properties of promoters/ guarantors which are not mortgaged with the consortium.

Thus, the issues raised by the Appellant regarding misconduct by the

Respondent No. 1, whereas other banks allegedly tried to help the Corporate

Debtor, is not found correct based on the above facts.

Page 25 of 36

50. At this stage, we will also examine the issue raised by the Appellant

regarding of violation of RBI Circular dated 07.06.2019. The relevant para 9

reads as under: -

"9. All lenders must put in place Board-approved policies for resolution of stressed assets, including the timelines for resolution. Since default with any lender is a lagging indicator of financial stress faced by the borrower, it is expected that the lenders initiate the process of implementing a resolution plan (RP) even before a default. In any case, once a borrower is reported to be in default by any of the lenders mentioned at 3(a), 3(b) and 3(c), lenders shall undertake a prima facie review of the borrower account within thirty days from such default ("Review Period"). During this Review Period of thirty days, lenders may decide on the resolution strategy, including the nature of the RP, the approach for implementation of the RP, etc. The lenders may also choose to initiate legal proceedings for insolvency or recovery."

(Emphasis Supplied)

From above, we note that RBI specified as how the banks to consider the

Resolution Plan, which depends upon the nature of the Resolution Plan, approach

for implementation of Resolution Plan, resolution strategy etc. However, it is

important to note that the same was not exactly mandatory for the bank and the

RBI gave flexibility to the lenders to initiate legal proceedings for insolvency or

recovery against the Corporate Debtor.

Page 26 of 36

Thus, we are of the view that it is a commercial decision of the banks like the

Respondent No. 1 and no one else including the Adjudicating Authority or even

this Appellant Tribunal, can look into the reason for acceptance or rejections of

the Resolution Plan by the lender's banks in terms of RBI Circular dated

07.06.2019.

51. We find that debt and default was crystallised and remain undisputed. The

Appellant has also not denied the debt and default, therefore, the Adjudicating

Authority was required to admit the same in terms of the schemes of the Code as

well as judicial pronouncement by the Hon'ble Supreme Court of India especially

in view of Innoventive (Supra).

52. As regard, the plea of the Appellant regarding res judicata since, first

application filed by the Respondent No. 1 was rejected by the Adjudicating

Authority, we note that the first Section 7 application filed by the Respondent No.

1 was rejected by the Adjudicating Authority since the RBI Circular dated

12.02.2018 was declared as ultra-vires in the case of Dharani Sugar (Supra) and

not on merit of the case.

53. We note that the present CIRP was requested by the Respondent No. 1,

based on revised Circular of RBI dated 07.06.2019, which has not been interfered

by any judicial authority till date and therefore, the Respondent No. 1 has rightly

filed the CIRP application on 25.03.2022 and has been correctly admitted by the

Adjudicating Authority through the Impugned Order on 09.02.2023. Thus, we

Page 27 of 36 do not find the principle of res judicate applicable in the present case and reject

the pleading of the Appellant on this issue.

54. We note that Appellant has challenged the Impugned Order, primarily on

grounds that the Corporate Debtor's account was in standard category and there

were no over dues, and relied on the minutes of the Consortium Meeting dated

08.02.2018, 17.03. 2018. It is also the case of the Appellant that the Respondent

has violated the RBI Prudential Framework for Resolution of Stressed Assets

dated 07.06.2019 by not providing an opportunity to the Corporate Debtor to

submit Resolution Plan.

55. As regards issue raised by the Appellant that The Hon'ble Division Bench

of the Delhi High Court vide order dated 26.07.2019, had dismissed the Writ

Petition challenging the Haribhakti & Co. LLP forensic report for fraud. We note

that the said Order was challenged in Letter patent appeal, before Hon'ble Delhi

High Court, however, there was no stay. Pursuant to Fraud declaration, CBI also

filed FIR on 19.01.2020. The union of India had taken cognizance of the

fraudulent transactions of the Corporate Debtor, and through Serious Fraud

Investigation Office and filed Company Petition No.410 of 2021, under relevant

provisions of the Companies Act, 2013. Further, the investigation is going on.

We are conscious of the fact that the Corporate Debtor had not given any

Resolution Plan in 2019. Thus, the argument of the Appellant that declaration of

Fraud, has been set aside, may not be relevant at this juncture.

Page 28 of 36

56. On this issue that the Corporate Debtor's Account was in standard category

till February 2018, we have recorded that the Corporate Debtor had breached the

terms and conditions of sanction letter, loan, security documents and had

committed default. We also note that the date of default is 12.04.2018 and the

account of the Corporate Debtor was classified as NPA w.e.f. 30.06.2018.

57. We observe that the Corporate Debtor has never disputed or denied the

debt and defaults and thus the Order dated 09.02.2023, is as per the Code and the

initiation of CIRP against the Corporate Debtor was rightly commenced. The

Respondent No.1 and No.2 brought to our notice that the CIRP process of the

Corporate Debtor is at advanced stage the Resolution Plan for the Corporate

Debtor has been approved by requisite majority vote of CoC and the Interlocutory

Application No.135 of 2025, is pending for Resolution Plan approval from the

Adjudicating Authority. We do not find any reason to interfere in this process at

this stage.

58. We note that the Corporate Debtor has pleaded that the present CIRP is in

violation of the RBI circular dated 07.06.2019 as no opportunity was given to the

Corporate Debtor to submit a resolution plan or restructure its debt under an inter

creditor arrangement. The Corporate Debtor submits that the Corporate Debtor

on 09.07.2018, had submitted a resolution plan which was rejected by the

Respondent No. 1 arbitrary grounds. Further the Corporate Debtor had submitted

a revised resolution plan which was also rejected by the Respondent No. 1 without

any consideration. The Corporate Debtor once again proposed OTS on

Page 29 of 36 07.09.2018 which was also not rejected by the Respondent No. 1. The Appellant

contended that the Respondent No. 1 has violated the principles of fair play and

equity by prejudicing the Corporate Debtor's case and denying it an opportunity

to present a revival plan under the RBI circular dated 07.06.2019. On this issue

raised by the Appellant, we observe that the Corporate Debtor had not submitted

any Resolution Plan under RBI circular dated 07.06.2019. We also note that the

Corporate Debtor in Affidavit in Reply has confirmed that pursuant to the

appointment of the forensic auditor by the Bank, the account of the Corporate

Debtor had been classified as 'fraud'. We wonder if the Corporate Debtor has not

even submitted the Resolution Plan in terms of extant RBI guidelines of

07.06.2019, how the Appellant can at this stage accuse the Respondent No. 1 for

not considering the same. Therefore, we do not find merit in arguments of the

Appellant on this issue.

59. We note that the application made by the Respondent No. 1 before the

Adjudicating Authority was complete in all respects and it clearly showed that

the Corporate Debtor was in default of a debt due and payable, and the default

was in excess of minimum amount stipulated under section 4 (1) of the Code.

Therefore, the debt and default stands established and there was no reason for the

Adjudicating Authority to deny the admission of the Petition.

60. We also take into consideration the latest judgement of the Hon'ble

Supreme Court of India, delivered, as recently on 18.02.2026, in the case of

Power Trust (Promoter of Hiranmaye Energy Ltd.) v. Bhuvan Madan (Interim

Page 30 of 36 Resolution Professional of Hiranmaye Energy Ltd.), 2026 SCC OnLine SC

248. We find same as applicable in present appeal, which confirm that the

Adjudicating Authority should admit section 7 appeal, once debt and default is

established. The relevant portion of the judgment reads as under:-

"17. It is further contended that the Corporate Debtor is a running and viable power project which cannot be treated as insolvent. The Corporate Debtor has a subsisting PPA for 25 years with WBSEDCL and has raised bills of about Rs. 906 crores between 01.11.2024 to 31.03.2025. It has a continuing fuel supply arrangement with Mahanadi Coalfields Ltd. under the SHAKTI Scheme, and had earned an EBIDTA of Rs. 20 crore per month during the CIRP. In this factual matrix, relying on Vidarbha Industries Power Ltd. v. Axis Bank Ltd, it is contended that the Section 7 application ought not to have been admitted. .....

21. The Respondents also submit that the Appellant's emphasis on the Corporate Debtor's alleged viability is legally misplaced at the admission stage under Section 7, IBC. They contend that the Adjudicating Authority's role at that stage is limited to examining whether a financial debt exists and whether a default has occurred, and once those requirements are met, the Adjudicating Authority has scarcely any discretion to refuse admission. Proceedings under Section 7 cannot be expanded into a broad inquiry on business viability, equities, or surrounding circumstances. Reliance is placed on Innoventive Industries Ltd. v. ICICI Bank and M. Suresh Kumar Reddy v. Canara Bank .....

Page 31 of 36 23. Analysing the submissions of the parties, it appears the Appellant has assailed the admission of Section 7 application on the following issues:

i. Whether date of default fell between 25.03.2020 to 24.03.2021, and was thereby barred under Section 10A, IBC?

ii. Whether common loan agreement had been novated by 1st restructuring agreement dated 21.02.2020, which was followed by the 2nd restructuring agreement dated 29.09.2020, envisaging the repayment of debt in monthly instalments till 31.12.2042 and there was no existing debt due and payable by the Corporate Debtor at the time of admission of the Section 7 application? iii. Whether the Adjudicating Authority ought not to have admitted the Section 7 application mechanically without assessing the viability of the Corporate Debtor as an ongoing concern and its ability to repay the debts, in view of Vidarbha (supra)?

....

34. In a similar vein, the Adjudicating Authority is not required to go into the inability of a corporate debtor to pay its debt. This is a clear departure from the scheme of winding up envisaged under Section 433(e) of the erstwhile Companies Act, 1956 which required the Adjudicating Authority to come to a finding with regard to the inability of the company to pay the debt and thereby arrive at a requisite satisfaction whether it is just and equitable to wind up the company. The Code restricts the scope of enquiry for admission of an insolvency process by a financial creditor merely to the existence of default of a debt due and payable and nothing more. The legislative intent behind such prompt and summary

Page 32 of 36 intervention is "to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation."

35. The Appellant has heavily relied on Vidarbha (supra) to argue that the Adjudicating Authority has ample discretion to apply its mind to relevant factors including the feasibility of initiation of insolvency process notwithstanding the existence of default on a debt due and payable by the Corporate Debtor.

In Vidarbha (supra), this Court observed: --

"61. In our view, the Appellate Authority (NCLAT) erred in holding that the adjudicating authority (NCLT) was only required to see whether there had been a debt and the corporate debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP. The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The adjudicating authority (NCLT) was required to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC's appeal, pending in this Court, order of Aptel referred to above and the overall financial health and viability of the corporate debtor under its existing management.

...........................................................................

90. We are clearly of the view that the adjudicating authority (NCLT) as also the Appellate Tribunal

Page 33 of 36 (NCLAT) fell in error in holding that once it was found that a debt existed and a corporate debtor was in default in payment of the debt there would be no option to the adjudicating authority (NCLT) but to admit the petition under Section 7 IBC."

36. However, in review, this Court clarified that observations made in Paragraph 90 are restricted to the facts of Vidarbha (supra): --

"6. The elucidation in para 90 and other paragraphs [of the judgment under review] were made in the context of the case at hand. It is well settled that judgments and observations in judgments are not to be read as provisions of statute. Judicial utterances and/or pronouncements are in the setting of the facts of a particular case."

37. Finally, the apparent dichotomy between Innoventive (supra) and Vidarbha (supra) was set at rest in M. Suresh Kumar Reddy (supra), wherein this Court observed: --

"14. Thus, it was clarified by the order in review that the decision in Vidarbha Industries was in the setting of facts of the case before this Court. Hence, the decision in Vidarbha Industries cannot be read and understood as taking a view which is contrary to the view taken in Innoventive Industries and E.S. Krishnamurthy. The view taken in Innoventive Industries still holds good."

(emphasis supplied)

38. In light of the ratio in M. Suresh Kumar Reddy (supra) there is no cavil that the ratio in Innoventive (supra) lays down the correct

Page 34 of 36 proposition of law and the observations in Vidarbha (supra) were made in the facts of the case and do not operate as binding precedent.

39. Even otherwise on facts, Vidarbha (supra) does not come to the aid of the Appellant. In Vidarbha (supra), this Court had taken note of an award passed by APTEL in favour of the corporate debtor which far exceeded the claim of the financial creditor, and held in the setting of such facts, initiation of CIRP was unwarranted. In the present case, Appellant's contention regarding Corporate Debtor's viability is highly dubious. Though the Corporate Debtor strenuously demonstrates its commercial viability, the NCLAT has noted that the extent of outstanding liability as on 02.01.2024 was Rs. 3103.31 crore, which far exceeds the bills raised on WBSEDCL to the tune of Rs. 906 crore and EBITDA of Rs. 20 crore per month during the CIRP.

40. For these reasons, we are of the opinion the admission of the Section 7 application was lawful and does not call for interference.

(Emphasis Supplied)

61. We are bound by the above clear judgements, which is fully applicable in

the facts of the present case. This leaves no scope for any interference by us, in

the Impugned Order.

Page 35 of 36

62. In view of our detailed discussion above, we do not find any merit

whatsoever in the pleadings of the Appellant on any of the issues brought before

us as discussed in the preceding pages. The appeal sans merit and stand dismissed.

I.A., if any, are closed. No order as to cost.

[Justice Mohammad Faiz Alam Khan] Member (Judicial)

[Naresh Salecha] Member (Technical) Sim

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