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 Division Bench comprising Chitra Hankare (Judicial Member) and Dr. V. G. Venkata Chalapathy (Technical Member) observed that the petitioner was a money lender registered under the Gujarat Money Lenders Act, 2011, which is a state-regulated statute. The licence/registration in Form 3 was submitted for the period from Feb 20, 2024 to Feb 19, 2029. However, the applicant had not submitted any income tax filing, and had only submitted the PAN card of an individual named Asit Surendrabhai Shah. The stated loan was sanctioned to repay the corporate debtor’s outstanding loan to Yes Bank. The Tribunal held that a repayment arrangement made to enable the corporate debtor to repay its existing bank loan cannot be construed as the activity of a money lender, and the loan so granted by the applicant did not qualify as financial debt under Section 5(7) and Section 5(8) of the IBC, 2016.
The Tribunal further observed that the applicant could not be assigned the status of a financial creditor under the provisions of the IBC, 2016, even if it had arranged the facility. The stated amount was transferred from the Social Cooperative Bank (the applicant’s loan account) to the Yes Bank account, which the Tribunal held could not be construed as a loan disbursement to the respondent corporate debtor.
The Tribunal noted that Section 39 of the Gujarat Money Lenders Act regulates the money lender’s activity and imposes certain prohibitions regarding the mode of recovery, as also reflected in a Government of Gujarat Notification. The Tribunal concluded that the applicant was ineligible to file an application under Section 7 of the IBC, 2016, as the provisions of the IBC are for CIRP as defined in Chapter II, Section 6 and Section 7 of the IBC, and the applicant did not comply with the requirements for recovery of amount.
The Tribunal observed that the petition was not eligible to be filed, the credit to the Yes Bank loan account could not be treated as the date of sanction of loan, the date of default was not arrived at as per any terms, the applicant could not lend under the Money Lenders Act provisions and simultaneously claim the status of financial creditor, and the petition appeared to be apparently collusive.
Briefly, Mangaldas Finance, a sole proprietorship of Asit Surendrabhai Shah, operating as a registered money lender under the Gujarat Money Lenders Act, 2011, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Milano Papers Private Limited. The applicant claimed a default of Rs. 9.56 crores, comprising Rs. 9.33 crores towards principal and Rs. 23.92 lakhs towards interest, with the date of default stated as Nov 07, 2025.
The corporate debtor had approached the financial creditor in October 2024 for financial assistance, inter alia, to take over the outstanding loan owed to Yes Bank Limited. The corporate debtor passed a board resolution to this effect, and the financial creditor sanctioned four term loans aggregating Rs. 16.70 crores at an interest rate of 15% per annum with a tenure of 24 months. The applicant disbursed amounts directly to Yes Bank Limited on behalf of the corporate debtor, and these credit facilities were secured by way of mortgage over immovable properties pursuant to a mortgage deed.
The corporate debtor paid instalments from Oct 03, 2024 till Oct 08, 2025 but ceased repayments from Nov 07, 2025. The applicant issued a demand notice dated Nov 28, 2025 seeking repayment of the entire outstanding dues along with further running interest within 15 days. The corporate debtor, in its reply dated Dec 01, 2025, admitted receipt of the demand notice and expressed its inability to repay on account of a financial crunch, seeking 30 days’ time to repay, but no amount was repaid.
The applicant relied upon several documents to substantiate its claim, including its license under the Gujarat Money Lenders Act, 2011, PAN card of Asit Surendrabhai Shah, the sanction letter, bank statements, the mortgage deed, ledger statements, working computation of the outstanding amount, the demand notice, the corporate debtor’s reply, and a NeSL Form-C. The applicant proposed the name of Mr. Malhar Rashmikant Mehta as the Interim Resolution Professional.
