The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has set aside the Chandigarh NCLT’s orders dismissing nine Section 7 insolvency applications filed by J&K Integrated Textiles Park Ltd. (JKITPL) against various corporate debtors and quashed the ₹25 lakh penalties imposed on both the financial creditor and the corporate debtors in each case.
The dispute arose from the Government of India’s Scheme for Integrated Textiles Park (SITP), under which JKITPL was incorporated as a special purpose vehicle to develop an integrated textile park in Kathua, Jammu & Kashmir. JKITPL had allocated plots to nine textile units and subsequently entered into tripartite agreements and separate loan agreements with them. Under these arrangements, apart from lease-related obligations, unsecured loans carrying 13% interest were allegedly extended to the units for project development. Defaults in repayment led JKITPL to initiate insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC).
The NCLT had dismissed the petitions on multiple grounds, including that the applications were filed without valid authorisation, that the claimed amount did not qualify as a “financial debt” under Section 5(8) of the IBC, and that the proceedings were collusive because JKITPL and the corporate debtors were allegedly related parties. It had further held the petitions to be malicious and imposed ₹25 lakh penalties under Section 65 of the IBC on both sides, directing deposit into the Prime Minister National Relief Fund.
Before the appellate tribunal, JKITPL argued that the NCLT ignored the express terms of the 2018 loan agreements, which clearly treated ₹3.55 crore as unsecured loans repayable with interest, thereby constituting financial debt. It also challenged the finding that its 2014 board resolution authorising its managing director had become “obsolete” merely because the IBC came into force later.
The NCLAT agreed with JKITPL, rejecting the NCLT’s reasoning on authorisation. It held that a valid general board authorisation empowering the managing director to initiate legal proceedings could not be treated as ineffective simply because the IBC was enacted after the resolution was passed. The tribunal relied on Supreme Court precedent recognising that broad authorisations remain sufficient for initiating insolvency proceedings.
The appellate tribunal also found fault with the NCLT’s conclusion that no financial debt existed, observing that the adjudicating authority failed to properly appreciate the loan agreements and the commercial nature of the transactions.
On the allegation of collusion and related-party status, NCLAT held that the NCLT failed to establish the statutory ingredients required under Section 5(24) of the IBC. Mere assertions of relationship, without demonstrating common control, management overlap, or statutory linkage, could not sustain a finding of collusion.
Importantly, the tribunal also held that the imposition of penalties under Section 65 was unsustainable. It observed that initiation of SARFAESI proceedings by Punjab National Bank could not, by itself, render JKITPL’s insolvency petitions fraudulent or malicious. A financial creditor’s statutory right to invoke Section 7 remains independent of recovery proceedings initiated by another creditor.
NCLAT further held that Section 65 penalties could not have been imposed on the corporate debtors in the manner done by the NCLT, particularly when they were not the initiating parties to the insolvency proceedings.
Accordingly, the appellate tribunal allowed the appeals, set aside the impugned NCLT orders, and restored the Section 7 proceedings for fresh consideration in accordance with law.
Appearances:
For Appellant : Mr. Abhijeet Sinha, Sr. Advocate with Mr. Akshat Singh and Mr. Utkarsh Kandpal, Advocates.
For Respondents: Mr. Bishwajit Dubey, Mr. Kunal Godhwani and Ms. Kinjal Chadha, Advocates for R-1.
Mr. Aditya Wadhwa, Mr. Arunav Sarma and Mr. Abhyankar Pant, Advocate for PNB
