Tribunal holds term deposits as financial debt; joint application by 34 depositors exceeding Rs. 1 crore threshold is maintainable; automatic renewal clause insufficient to negate default
In a significant ruling delivered on September 1, 2026, the National Company Law Tribunal (NCLT), Allahabad Bench, admitted a Corporate Insolvency Resolution Process (CIRP) application filed jointly by 34 individual depositors against Koras Pin Savings Financial Services Nidhi Limited (the Corporate Debtor). The petitioners, led by Anju Maurya, approached the Tribunal under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, claiming default in repayment of term deposits amounting collectively to over Rs. 1.04 crore.
The depositors had made term deposits with the Corporate Debtor under Deposit Confirmation Certificates, each stipulating a fixed tenure and repayment upon maturity, with an option for renewal. Despite maturity of deposits between November 14, 2021, and December 20, 2023, Koras Pin Savings failed to repay the amounts. The depositors issued demand notices in December 2023, allowing 15 days for repayment, but the dues remained unpaid, prompting the insolvency application filed in February 2024.
The Corporate Debtor contested the petition on multiple grounds: the aggregate application by multiple depositors was impermissible as individual deposits did not meet the Rs. 1 crore threshold; the amounts were investments, not financial debt; an automatic renewal clause in the deposit certificates precluded default; the petition was barred by limitation; and the demand notice was not issued under any statutory provision.
Rejecting these objections, the Tribunal held that:
1. Maintainability of Joint Application: The IBC permits financial creditors to initiate CIRP either individually or jointly. The aggregate default amount of Rs. 1.04 crore exceeded the statutory threshold of Rs. 1 crore, making the joint application maintainable. The Tribunal relied on precedent from Hi-Tech Designs Pvt. Ltd. v. Sri Sai Car Sales Pvt. Ltd. and Vishnu Oil Mill Pvt. Ltd. v. Union of India, which upheld the validity of joint applications to meet the threshold.
2. Nature of Deposits as Financial Debt: The substance of the transactions was borrowing with a commercial effect. Term deposits accepted by the Nidhi company under Deposit Confirmation Certificates with promise of repayment and interest constituted financial debt under Section 5(8) of the IBC. The Corporate Debtor's attempt to classify the amounts as mere investments was untenable.
3. Automatic Renewal Clause: The renewal clause applied only when no maturity instructions were provided. The depositors had issued demand notices seeking repayment, showing their intention not to renew. The Corporate Debtor failed to produce evidence that the deposits were actually renewed after maturity. Mere existence of the clause was insufficient to negate default.
4. Limitation: The application was filed within three years from the respective dates of default, thus not barred by limitation.
5. Demand Notice Requirement: Issuance of demand notice under Section 8 of the IBC is not a pre-condition for filing proceedings under Section 7. Nevertheless, the demand notices issued were relevant evidence of the depositors' intention to recover the debt.
Consequently, the Tribunal admitted the application under Section 7, declared a moratorium on the Corporate Debtor's assets, and appointed Mr. Ankit Misra as Interim Resolution Professional (IRP). The IRP is tasked with initiating the CIRP, making public announcements, verifying claims, constituting the Committee of Creditors (CoC), and overseeing the insolvency process.
The order also directed cooperation from the suspended board of directors and auditors to provide access to books of accounts and records, with police assistance if necessary, to facilitate the CIRP.
This ruling reinforces that deposits accepted by Nidhi companies with fixed tenure and repayment terms constitute financial debt. It clarifies that multiple creditors can jointly approach the Tribunal to meet the default threshold, and that automatic renewal clauses cannot shield a corporate debtor from insolvency proceedings absent proof of actual renewal.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 Section 7 Joint application by 34 depositors maintainable - Term deposits accepted by Nidhi company constitute financial debt - Aggregate default can be considered to meet threshold of Rs. 1 crore - Automatic renewal clause cannot defeat claim of default in absence of proof of actual renewal - Demand notice is not mandatory for Section 7 proceedings - CIRP rightly admitted.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 4, 5(8), 7, 8, 13, 14, 15, 17, 18, 20, 21, 22, 33; IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 Regulation 6, 12(1); Companies Act, 2013 Section 128; Companies Accounts Rules, 2014 Rules 3(5), 3(6)
