Tribunal Confirms Independent Insolvency Proceedings Despite RBI Circular's Nullification; Farmers' Interests to be Considered
The National Company Law Appellate Tribunal (NCLAT) has upheld the initiation of the Corporate Insolvency Resolution Process (CIRP) for Simbhaoli Sugar Limited, dismissing appeals challenging the process on the grounds of an ultra vires RBI circular. The decision, delivered on July 13, 2026, confirms the proceedings were independent of the contentious RBI circular dated February 12, 2018, thus exempting them from the Supreme Court's nullification ruling in the Dharani Sugars case.
The case, brought forth by financial creditor Oriental Bank of Commerce, now Punjab National Bank, involved significant debts of Rs. 1436.92 crores owed by Simbhaoli Sugar Limited, classified as non-performing by lenders since November 2016. Despite restructuring attempts within the Joint Lender's Forum (JLF), no consensus was reached, leading to the creditor's petition under Section 7 of the Insolvency and Bankruptcy Code (IBC) in September 2018. The tribunal emphasized that the CIRP initiation predated the circular and was based on established debt and default, reaffirming the mandatory admission under Section 7 in such circumstances.
The tribunal also addressed the concerns of sugarcane farmers, represented by Surender Pal Singh Mangat, emphasizing the statutory obligations under the Uttar Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1953. These provisions mandate timely payments to farmers, recoverable as arrears of land revenue, underscoring the importance of protecting farmers' interests during insolvency proceedings. The resolution professional was urged to consider these statutory dues in accordance with law, reflecting the tribunal's sensitivity to the agricultural community's plight.
While the tribunal dismissed the appeal by Simbhaoli's suspended director, Gursimran Kaur Mann, the farmers' appeal was disposed of with directives ensuring their claims are duly considered, aligning with precedents such as the Excel Engineering case. The tribunal's decision marks a significant step in balancing financial creditor rights with statutory obligations towards farmers within the insolvency framework.
Bottom line:-
Insolvency and Bankruptcy Code - Proceedings under Section 7 of IBC are valid where debt and default are conclusively established, and no reliance is placed on an ultra vires RBI circular. Farmers' dues arising under statutory obligations must be duly considered in resolution proceedings.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 7, Uttar Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1953 Sections 16 and 17
