The Supreme Court has ruled that time extension charges under a NOIDA lease deed, levied as a percentage of lease premium to penalise the defaulting developer, cannot be treated as CIRP costs when the developer has been replaced by a Successful Resolution Applicant and the homebuyers have pooled resources to complete the project. The Court drew a clear distinction between the default of the Corporate Debtor and the position of the homebuyers and the SRA, holding that penalising the latter for the past sins of the former is impermissible, particularly where the local authority is essentially entrusted with development and welfare functions.
The Apex Court rejected NOIDA’s attempt to extend the time extension framework beyond the original three-year lease cap by relying on its office order dated Oct 18, 2019, holding that even the expanded 10-year penalty regime cannot be foisted as CIRP costs on the SRA and the homebuyers. The Court reaffirmed that the underlying purpose of a NOIDA lease is development of an urban and industrial township, and that this welfare purpose would be defeated if the authority insisted on recovery of default charges from innocent homebuyers and a fresh resolution applicant seeking to complete a stalled project.
IBC Cannot Be Used to Revive Time-Barred Operational Debt: Supreme Court
In a significant ruling on limitation under the Insolvency and Bankruptcy Code, the Supreme Court has asserted that the subsistence of a continuing contract does not provide a continuing cause of action, and mere service of legal notices cannot reset the limitation clock under Article 137 of the Limitation Act, 1963. The Apex Court held that an EPC contract cannot be said to be frustrated by efflux of time merely because works have been suspended due to non-payment, as frustration under Section 56 of the Indian Contract Act applies only to a supervening impossibility and not to self-induced frustration arising from the act or election of a party.
The Court further held that the existence of a pre-existing dispute under Section 8(2)(a) of the IBC must be assessed on the basis of the conduct of the parties and communications between them, and consistent silence over a prolonged period can be strong evidence of the absence of any genuine dispute. On limitation, the Court reaffirmed the principles laid down in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd. [(2020) 15 SCC 1] and held that the period of three years under Article 137 of the Limitation Act, 1963 runs from the date of default, and the IBC cannot be invoked to revive debts that have already become time-barred.
The Mumbai Bench of the National Company Law Tribunal (NCLT) has held that the Bank Guarantee in question, being a contract of guarantee furnished by the Bank (surety) on behalf of the Corporate Debtor, falls squarely within the exception carved out under Section 14(3)(b) of the IBC. The Tribunal observed that the Bank Guarantee is a ‘contract of Guarantee’ provided/furnished by the Bank, the ‘surety’, to perform the ‘promise’, or ‘discharge’ the liability, of the third person, being the Corporate Debtor, in case of his ‘default’.
From the plain reading of Section 14(3)(b) of the IBC, 2016, along with Section 126 of the Indian Contract Act, 1872, it is apparent that the Bank Guarantee given by the Bank is covered by the exclusion given in Section 14(3)(b) and that the provisions of Section 14(1) shall not apply, added the Tribunal.
The NCLT concluded that the Bank Guarantee provided by the Bank is held to be covered by the exception provided in provisions of Section 14(3)(b) of IBC, 2016, and the Moratorium prescribed under Section 14(1) of IBC, 2016, shall not apply to its ‘Encashment’. In view of the same, the invocation of the Bank Guarantee by the Respondents does not constitute enforcement against the assets of the Corporate Debtor and is not barred by the moratorium under Section 14(1) of the IBC.
The Chennai Bench of the National Company Law Tribunal (NCLT) has ruled that foreign companies incorporated outside India do not qualify as ‘corporate persons’ under Section 3(7) of the IBC, and that Section 60(1) anchors NCLT jurisdiction strictly to the registered office of the Corporate Debtor within India. The Bench therefore dismissed PNB’s petition under Section 95 of the IBC against Reji Abraham, the Personal Guarantor for foreign currency loan and SBLC facilities aggregating to USD 128 Million extended to four Aban Group entities incorporated in Singapore and Norway, holding that the Bench lacked territorial jurisdiction since none of the principal borrowers had a registered office in India.
The Tribunal explained that foreign companies, though recognised for limited regulatory purposes under Chapter XXII of the Companies Act, 2013, do not become ‘companies’ within the meaning of Section 2(20) and cannot be brought within the fold of Section 3(7) of the IBC without express statutory inclusion, and the residuary limb ‘any other person incorporated with limited liability under any law for the time being in force’ must be read as referring only to Indian law.
ESI Contributions Held in Trust, Cannot Be Treated as Ordinary Operational Debt Under IBC: NCLAT
The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) has held that ESI contributions deducted from employee’s wages and payable by the employer under the ESI Act, 1948 are held by the Corporate Debtor in trust for the beneficiaries and fall within the exclusion under Section 36(4)(a)(i) of the IBC. The Tribunal explained that the procedural act of filing a claim in Form-B does not convert a statutory trust amount into an ordinary operational debt of the Corporate Debtor.
The NCLAT clarified that Section 36(4)(a)(iii) of the IBC, which specifically refers to provident fund, pension fund, and gratuity fund, is not the source of the exclusion for ESI contributions; the exclusion flows independently from Section 36(4)(a)(i) read with Section 40(4) of the ESI Act. Hence, ESI contributions cannot be subjected to the waterfall distribution mechanism under Section 53 of the IBC, and a Resolution Plan that treats them as ordinary Government or Operational Creditor dues requiring only a fractional payout is liable to be set aside to that extent.
In a significant ruling for insolvency and banking practitioners, the New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) has dismissed appeals challenging the eviction of related-party occupants from properties of M/s Venus Garments (India) Ltd. (in liquidation), where SBI is the financial creditor. The NCLAT clarified that the liquidator can validly continue an eviction application originally filed by the Resolution Professional, as Section 35 of the IBC vests pari materia powers identical to Sections 18 and 25, and the contents of the application govern maintainability.
The Tribunal explained that Section 238 of the IBC operates as a complete override and prevails over the East Punjab Urban Rent Restriction Act, 1949 to the extent of any inconsistency, being a special, later legislation enacted for time-bound resolution and realisation of distressed assets. Further, the Tribunal emphasised that an unregistered lease deed for 30 years is inadmissible in evidence under Section 49 of the Registration Act, and occupants who are close relatives of the suspended directors of the Corporate Debtor cannot defeat the liquidation mandate by asserting tenancy rights based on such unregistered documents.
In a decisive ruling, the Calcutta High Court has quashed all fresh proceedings and adjustments relating to the pre-transfer period, holding that statutory dues stand extinguished if not part of the approved Resolution Plan and that Section 238 of the IBC overrides the Income Tax Act. The Court explained that once a Resolution Plan is approved by the NCLAT under Section 31 of the IBC, all claims stand frozen and any claim not forming part of the approved plan is extinguished, and no fresh proceedings can be initiated or continued in respect of such claims.
The Court said that income tax dues, being ‘crown debts’, carry no priority over secured creditors and stand extinguished upon approval of the Resolution Plan if not included therein. Section 238 of the IBC gives the Code overriding effect over any inconsistent provision of any other law for the time being in force, including the Income Tax Act. The Income Tax Department, having submitted its claim before the Resolution Professional and having had it rejected after collation, cannot subsequently revive or adjust pre-CIRP demands against refunds arising in the post-transfer period.
The High Court of Madhya Pradesh at Jabalpur Bench has held that pre-CIRP land acquisition agreements and welfare-oriented rehabilitation benefits stand extinguished under Section 31(1) read with Section 238 of the IBC once the NCLT approves a resolution plan, and the State cannot fasten such liabilities on the new corporate debtor. The Court clarified that once the NCLT approves a resolution plan, all non-plan claims stand extinguished by operation of law and the successful resolution applicant steps into the shoes of the corporate debtor free of pre-existing liabilities.
The High Court went on to observe that overriding effect of the IBC extends to State enactments, executive instructions, and welfare-oriented policies such as the Madhya Pradesh Model Rehabilitation Policy, 2002, which cannot be invoked as an exception to fasten liabilities on the new corporate debtor. Hence, land acquisition and rehabilitation agreements executed between the State and the erstwhile corporate debtor prior to approval of the resolution plan cannot be enforced against the resolution applicant or the converted entity.
The Mumbai Bench of the National Company Law Tribunal (NCLT) has held that margin money is the borrower’s contribution under lien only during subsistence of a live Bank Guarantee. The NCLT explained that margin money is the borrower’s contribution deposited as a condition precedent for issuance of Bank Guarantees and is not a ‘security interest’ of the Corporate Debtor under the IBC. Accordingly, upon expiry of the Bank Guarantee without invocation, the corresponding margin money must be released to the Corporate Debtor.
Once the underlying Bank Guarantees have lapsed, the Bank has no right to retain the margin money or adjust it towards any other liability of the Corporate Debtor, including fund-based working capital exposure, added the Tribunal.
The NCLT also observed that the tax department may determine tax, interest, fine or penalty and file its claim before the Resolution Professional during moratorium, but cannot enforce attachment or recovery against the Corporate Debtor’s property during the subsistence of the moratorium. However, permitting attachment or enforcement by the VAT Department during moratorium undermines the resolution process and prejudices the interests of all stakeholders, and is contrary to the spirit of the IBC.
While treating Corporate Debtor’s own audited balance sheets and ledger entries as conclusive acknowledgement of liability under Section 18 of the Limitation Act, 1963, the Mumbai Bench of the National Company Law Tribunal (NCLT) has rejected the limitation defence despite three-year gap from pleaded date of default. The NCLT held that the Financial Creditor (FC) and Corporate Debtor (CD) being sister concerns with common directors and shareholders is a relevant circumstance requiring scrutiny, but cannot by itself render the transaction sham or collusive when the CD has repeatedly acknowledged the liability in its own books.
The Tribunal clarified that the IBC does not mandate a document styled as a ‘loan agreement’, rather, what matters is the substance of the dealings and the surrounding documentary record, particularly the CD’s own audited financial statements and ledger entries. Following the Supreme Court’s ruling in M/s Orator Marketing Pvt Ltd. Vs M/s Samtex Desinz Pvt Ltd. [Civil Appeal No. 2231 of 2021], the Tribunal held that the absence of contractual interest does not, by itself, take a transaction outside Section 5(8), especially where the advance was made for working capital requirements and recognised by the recipient as a borrowing.
Ruling that the IBC 2026 amendment operates on pending applications and aligns guarantor treatment with SARFAESI regime, the Bombay High Court has curbed the rampant misuse of Sections 94–96 IBC by personal guarantors to corporate debtors. The Court explained that the newly inserted sub-section (4) of Section 96 of the IBC, introduced with effect from May 26, 2026, applies retroactively and covers applications under Sections 94 and 95 that were pending on the cut-off date, and those filed thereafter.
The Court went on to explain that the interim moratorium under Section 96 is procedural and transitory in nature, operating only till the resolution professional submits a report under Section 99, and does not create a vested right in the personal guarantor. The Court also invoked the Mischief Rule (Heydon’s Rule) to give full effect to the legislative intent of curbing the rampant misuse of the interim moratorium, which the IBBI Chairperson had flagged as the ‘number one mechanism’ for siphoning of crores by debtors.
The Court drew a clear distinction between ‘retrospective’ and ‘retroactive’ operation, holding that the amendment operates in futuro but is anchored to antecedent facts and pending transactions. Accordingly, all petitions were allowed, with directions to secured creditors (Indian Bank, RBL Bank, Godrej Finance, ARCIL, and Apna Sahakari Bank) to proceed with SARFAESI recovery, including execution of possession orders through Court Commissioners with police assistance.
While rejecting consortium-mandate and discharge objections, the New Delhi Bench of the National Company Law Tribunal (NCLT) has reaffirmed that a guarantor’s liability is co-extensive with the principal debtor and is not extinguished by the latter’s CIRP or liquidation. The NCLT clarified that a personal guarantor’s liability under a continuing guarantee is independent of the principal debtor’s insolvency proceedings and survives the conclusion of CIRP or liquidation of the corporate debtor.
The Division Bench comprising Manni Sankariah Shanmuga Sundaram (Judicial Member) and Reena Sinha Puri (Technical Member) rejected the objection that the application was barred by limitation, holding that the liability of the principal borrower and the Personal Guarantor arise from distinct legal obligations, and the period of limitation in respect of the Personal Guarantor is to be examined with reference to the guarantee obligations and the demand raised upon the guarantor. As per Clause 8 of the Agreement of Guarantee, the guarantee is in the nature of a continuing guarantee, and the liability of the guarantor continues so long as the debt remains unpaid.
NCLAT: Arbitration Clause Cannot Bar Operational Creditor from Invoking Section 9 IBC
The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) directs admission of CIRP against cotton supplier, ruling that statutory remedy under IBC overrides private arbitration arrangement and that dispute raised only in reply to demand notice does not qualify as pre-existing dispute. The NCLAT clarified that an arbitration clause in a contract is a private legal remedy based on consensus and cannot deprive an Operational Creditor of the statutory remedy under Section 9 of the Insolvency and Bankruptcy Code, 2016, since the IBC has overriding effect under Section 238.
The Tribunal held that a person to whom an operational debt is owed qualifies as an Operational Creditor under Section 5(20) of the IBC, and where the underlying transaction involves supply of goods, the resulting claim assumes the character of operational debt under Section 5(21), entitling the creditor to invoke Section 9. The phrase ‘in respect of’ in Section 5(21) of the IBC must be interpreted in a broad and purposive manner to include all persons who provide or receive operational services from the corporate debtor, and the interpretation cannot be restricted.
A dispute raised for the first time in reply to a demand notice under Section 8 of the IBC does not qualify as a pre-existing dispute, and the mere existence of communications between parties referring to inter-se claims, without any material showing that the dispute was agitated before any adjudicatory platform, is insufficient to establish a pre-existing dispute, added the Tribunal.
The Mumbai Bench of the National Company Law Tribunal (NCLT) has ruled that homebuyers as a class, voting through the Authorised Representative, are bound by the collective majority decision, and the Successful Resolution Applicant cannot be compelled to honour pre-CIRP refund obligations under Section 18 of RERA or the original Agreement for Sale.
The NCLT dismissed the homebuyer’s application seeking to stall approval of the Resolution Plan on the ground that it did not incorporate refund or exit rights under Section 18 of RERA, holding that the IBC framework operates on collective resolution and individual remedies outside that framework are not maintainable. The Tribunal drew a clear distinction between the erstwhile promoter/developer and the Successful Resolution Applicant, holding that the SRA does not step into the shoes of the promoter until the Plan is approved, and therefore cannot be compelled to honour pre-CIRP contractual obligations under the Agreement for Sale or treated as a ‘promoter’ under RERA at the plan-approval stage.
The Tribunal reaffirmed that the commercial wisdom of the CoC is paramount and that judicial review under Section 30(2) of the IBC is confined to examining statutory compliance. Essentially, the Tribunal cannot direct modification of commercial terms or compel renegotiation of an approved Plan. Applying Section 25A(3A) of the IBC, the Tribunal held that individual members of the homebuyer class are bound by the collective decision taken through the Authorised Representative.
The New Delhi Principal Bench of the National Company Law Appellate Tribunal (NCLAT) has ruled that RBI’s deferment of interest recovery on working capital facilities postponed the ‘due and payable’ date, and that the 90-day Ad-Hoc facility expired on March 25, 2020, attracting the permanent statutory bar. The Appellate Tribunal held that the statutory definition of ‘default’ under Section 3(12) of the IBC requires the debt to be both ‘due’ and ‘payable’, and mere accrual or book entry, without present enforceability, does not constitute default.
For the Cash Credit facility, the Tribunal held that although interest was debited on Feb 29, 2020, and nominally payable on March 10, 2020, the RBI COVID-19 Circulars dated March 27, 2020, and May 23, 2020, interdicted recovery of interest on CC/OD facilities from March 01, 2020, to Aug 31, 2020, rendering the debt not ‘due and payable’ on the claimed default date. For the Ad-Hoc facility, applying Section 9 of the General Clauses Act, 1897, the Tribunal excluded the date of disbursement i.e., Dec 26, 2019, and computed the 90-day period to expire on March 25, 2020, with default crystallising only on March 26, 2020, squarely within the Section 10A protected period.
The Tribunal also held that the textual distinction between ‘moratorium’ for term loans and ‘deferment’ for CC/OD facilities in the RBI Circulars does not alter the substantive Section 3(12) inquiry, since the ‘due and payable’ requirement must be satisfied regardless of the label attached to the regulatory relief.
The Chennai Bench of the National Company Law Tribunal (NCLT) has laid down a three-fold ‘disbursement’ test, i.e., “Credit of Debt, Principle Purpose, and Application of Debt”, and held that all three limbs must be satisfied before a corporate entity can be pushed into Corporate Insolvency Resolution Process (CIRP). The NCLT ruled that a company registered under the Companies Act is a distinct juristic person from its directors and shareholders, hence, a loan disbursed directly into a director’s personal bank account cannot, by any stretch, be treated as a financial debt of the corporate entity.
The Bench placed significant weight on the Record of Financial Information from the NeSL portal, which the Petitioner itself had submitted, identifying the ‘Debtor’ as the individual director and not the company, turning the Petitioner’s own evidence against it. The Bench said that Petitioner must place contemporaneous documentary evidence, board resolutions, correspondence, and utilisation proof, on record to demonstrate that the funds were received and applied for the corporate debtor’s business; mere assertion is insufficient.
Essentially, the Bench clarified that where the NeSL record identifies the company only as a ‘Guarantor’ to the individual borrower, the Petitioner cannot maintain a Section 7 petition against the company as a Corporate Debtor without invoking the proceedings in the capacity of a Guarantor.
The New Delhi Principal Bench of the National Company Law Appellate Tribunal (NCLAT) has held that practising Chartered Accountants are not barred from submitting resolution plans under Section 29A, and that government dues, not provided for in an approved plan stand extinguished under the ‘clean slate’ doctrine. The NCLAT explained that the commercial wisdom of the CoC in approving a resolution plan with 100% voting share is non-justiciable and cannot be substituted by the Adjudicating Authority or the Appellate Tribunal. A suspended director’s challenge under Section 61 must demonstrate material prejudice, not merely procedural irregularity.
Further, the NCLAT asserted that a practising Chartered Accountant is not disqualified under Section 29A from submitting a resolution plan, and the ICAI has confirmed such eligibility subject to the restriction on acting as a whole-time director. At the same time, an OTS proposal does not terminate CIRP absent a Section 12A withdrawal, and the CoC is entitled to consider factors beyond the highest monetary bid. While interference with an implemented resolution plan is deprecated, the Tribunal imposed costs on both appellants for abusing the process of law.
Bombay HC Reaffirms IBC ‘Clean Slate’ Principle; Bars EPFO From Pursuing Pre-CIRP Claims
The Bombay High Court has ruled that Employees’ Provident Fund Organisation (EPFO) cannot continue inquiry under Section 7A of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act), during CIRP moratorium and that pre-resolution approval claims stand extinguished under Section 31(6) of the IBC, introduced with retrospective effect from 26 May 2026.
Essentially, the Court held that once moratorium is imposed under Section 14 of the IBC, no proceedings, including assessment proceedings under Section 7A of the EPF Act, can be continued against the Corporate Debtor that have the effect of creating new liabilities or seeking recovery. Where a resolution plan is approved by the Adjudicating Authority, pre-resolution approval claims stand extinguished under Section 31(6) of the IBC, and no proceedings, including proceedings for assessment, can be continued or instituted against the Corporate Debtor or its assets on the basis of such claims.
The High Court explained that “clean slate” principle enunciated in Ghanashyam Mishra vs Edelweiss Asset Reconstruction [Civil Appeal No.8129/2019] has been given legislative effect through the introduction of Section 31(6), which applies retrospectively from the date of commencement of the IBC. Further, Section 32A of the IBC grants immunity to the Corporate Debtor and its assets in relation to offences committed prior to CIRP upon change in management through approval of the resolution plan.
Section 96(4) IBC Applies To Pending Insolvency Proceedings Against Personal Guarantors: Bombay HC
The Bombay High Court has held that the newly inserted Section 96(4) of the Insolvency and Bankruptcy Code, 2016 (IBC) applies to applications already pending against personal guarantors of corporate debtors, thereby lifting the interim moratorium under Section 96 from 26 May 2026 onwards. The Court clarified that the amendment operates retroactively, not retrospectively, and therefore governs pending insolvency proceedings without disturbing vested rights.
Justice Somasekhar Sundaresan was deciding a petition under Section 9 of the Arbitration and Conciliation Act, 1996 filed by Tata Capital Financial Services Limited (now Tata Capital Limited) against a borrower LLP and its guarantors seeking interim protection pending arbitration. The lender had earlier initiated insolvency proceedings against the corporate debtor under the IBC, following which the company entered liquidation. It had also filed applications under Section 95 of the IBC against the individual guarantors, which automatically triggered the interim moratorium under Section 96 and stalled the Section 9 proceedings.
The Ahmedabad Bench of the National Company Law Tribunal (NCLT) has held that a registered money lender under the Gujarat Money Lenders Act, 2011, who arranges financing for the purpose of enabling a corporate debtor to repay an existing bank loan, does not qualify as a “financial creditor” and the amount advanced does not qualify as “financial debt” within the meaning of Section 5(7) and Section 5(8) of the Insolvency and Bankruptcy Code, 2016. The Court emphasised that transfer of funds from the applicant’s own loan account with a cooperative bank to the corporate debtor’s Yes Bank account cannot be construed as a loan disbursement to the corporate debtor.
A money lender regulated under a state enactment, subject to the prohibitions on mode of recovery under Section 39 of the Gujarat Money Lenders Act, 2011, is ineligible to maintain a petition under Section 7 of the IBC. The petition, appearing collusive in nature, with no properly ascertainable date of default and no compliance with the terms of the money lender’s licence, is liable to be dismissed with costs, added the Court.
The Delhi Bench of the National Company Law Tribunal (NCLT) has held that contractual rights available to financial creditors under Debenture Trust Deeds, including escrow arrangements, reserved matter approvals, inspection and monitoring rights, and oversight over fund utilisation, constitute protective covenants intended to safeguard the lenders’ financial exposure and ensure completion of the financed project. Such commercial safeguards, without evidence of actual management control over the affairs of the Corporate Debtor, cannot attract the statutory disqualification contained in Section 21(2) read with Section 5(24) of the Insolvency and Bankruptcy Code, 2016.
The Tribunal further held that the Applicants failed to establish that Respondent Nos. 3 and 4 exercised such pervasive management or policy control over the Corporate Debtor as would render them related parties within the meaning of Section 5(24) of the Code. The existence of contractual approval rights over specified transactions cannot automatically be equated with control contemplated under Section 5(24). The mere fact that the Security Trustee was the authorised signatory to escrow accounts does not, by itself, establish management or policy control over the Corporate Debtor.
The Ahmedabad Bench of the National Company Law Tribunal (NCLT) has admitted the petition filed by CFM Asset Reconstruction Private Limited against M/s Capbridge Venture LLP and commenced the Corporate Insolvency Resolution Process, holding that the statutory requirements of Section 7 stood fully established. The Tribunal held that the remedies under the SARFAESI Act and the IBC operate in different fields, and that the provisional attachment of the secured asset by the Directorate of Enforcement under the PMLA does not extinguish the Financial Debt or the occurrence of default, although it may have implications during the CIRP.
The Tribunal applied the well-settled principle that once the Adjudicating Authority is satisfied regarding the existence of a Financial Debt and the occurrence of default, the petition under Section 7 deserves admission. The Bench referred to judgments of Supreme Court in Innoventive Industries Ltd. v. ICICI Bank [(2018) 1 SCC 407], to hold that the statutory requirements of Section 7 stood fully established in the present case. The decision in Vidarbha Industries Power Ltd. v. Axis Bank [(2022) 8 SCC 352], which was relied upon by the Respondent, was distinguished on facts, with the Bench holding that it did not assist the Respondent because the Financial Debt and the default stood duly established by the loan documents, Statements of Account, and the Information Utility record.
The Tribunal reaffirmed that a corporate person who owes a debt falls within the definition of a Corporate Debtor under Section 3(8) of the Code, and that the liability of a co-borrower is sufficient to invoke Section 7. The Bench also reiterated that the IBC is not a recovery mechanism, but the existence of alternative remedies does not bar the maintainability of a Section 7 petition once the statutory ingredients are satisfied.