National Company Law Appellate Tribunal affirms rejection of insolvency plea aimed at derailing SARFAESI recovery proceedings, slashes penalty from Rs. 10 lakhs to Rs. 5 lakhs for disproportionate imposition
In a significant judgment delivered on August 25, 2026, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, upheld the dismissal of a Corporate Insolvency Resolution Process (CIRP) application filed by Panshul Agro Food LLP against the State Bank of India (SBI). The appeal was filed against the order dated April 29, 2026, passed by the National Company Law Tribunal (NCLT), Ahmedabad Bench, which had rejected the insolvency plea under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC).
The appellant, Panshul Agro Food LLP, had sought initiation of CIRP due to default in repayment of a debt amounting to over Rs. 42 crore, primarily owed to SBI and multiple other financial creditors. However, the NCLAT found that the application was filed with malicious intent and constituted a misuse of the insolvency framework, primarily to thwart the ongoing recovery proceedings initiated by SBI under the SARFAESI Act, 2002.
Key facts revealed during the hearing indicated that the appellant's account was declared a Non-Performing Asset (NPA) on April 18, 2025. Subsequently, SBI issued a statutory notice under Section 13(2) of the SARFAESI Act on June 20, 2025, and filed an Original Application before the Debt Recovery Tribunal (DRT) on August 20, 2025. In a strategic move, the appellant filed the CIRP application on August 26, 2025, which was immediately followed by symbolic possession of the property by SBI on September 6, 2025.
A crucial factor that weighed heavily against the appellant was the finding that substantial plant and machinery at the factory premises were missing during a bank inspection conducted on February 10, 2026. The machinery was reportedly present in May 2025 but had been removed without consent during the pendency of recovery proceedings, undermining creditor interests. The appellant failed to provide invoices or satisfactory explanations for the missing assets and did not maintain proper fixed asset registers.
The NCLAT emphasized that the Adjudicating Authority is not a mere rubber stamp and must assess whether an insolvency application is a bona fide attempt at debt resolution or an abuse of the insolvency process. Citing precedents such as Agroha Paper Industries Pvt. Ltd. vs. Bank of Maharashtra (2024) and Wave Megacity Centre Pvt. Ltd. vs. Rakesh Taneja (2023), the tribunal underscored that the timing and context of the application indicated a calculated attempt to misuse the CIRP mechanism to gain an unwarranted moratorium against the SARFAESI proceedings.
While the dismissal of the CIRP application was upheld, the NCLAT found the penalty of Rs. 10 lakhs imposed by the NCLT on the appellant to be excessive and lacking adequate reasoning. Applying the principle of proportionality, the tribunal reduced the penalty to Rs. 5 lakhs. The appellant was directed to deposit the reduced penalty amount within 30 days into the Prime Minister's National Relief Fund, with a refund provision if the higher penalty had already been paid.
This judgment reiterates the judiciary's stringent stance against misuse of the insolvency resolution process and safeguards the interests of creditors, ensuring that the CIRP mechanism is not exploited to derail legitimate recovery actions under other laws such as the SARFAESI Act. It also clarifies the discretionary role of the Adjudicating Authority in scrutinizing the genuineness of insolvency applications beyond the mere existence of debt and default.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 Section 10 Dismissal of application for initiation of Corporate Insolvency Resolution Process (CIRP) due to malicious intent and misuse of insolvency framework to derail recovery proceedings under SARFAESI Act is valid; however, penalty imposed must adhere to proportionality and rationale.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 10, Section 65; SARFAESI Act, 2002 Section 13(2)
