Non‑Issuance Of NOCs By Financial Creditor Not Fraud In Insolvency Proceedings: NCLAT New Delhi

The National Company Law Appellate Tribunal (NCLAT), New Delhi, on 27 March, held that the non-issuance of No Objection Certificates (NOCs) by a financial creditor cannot be treated as fraudulent or malicious in the initiation of insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). A Section 7 petition remains valid where a corporate debtor defaults on its debt obligations, irrespective of later contractual disputes with homebuyers.

The Bench, comprising Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra, dismissed two separate appeals filed by homebuyers of Vatika Ltd challenging two orders passed by the Chandigarh Bench of the National Company Law Tribunal (NCLT) on 3 February 2026. The Tribunal held:

“When we look into the observations in Para 17, it is clear that issue pertaining to non-issuance of NOC had arisen subsequent to occurrence of default. The Adjudicating Authority after considering the relevant pleadings and submissions of the parties rightly came to the conclusion that Section 65 application filed by the Appellants deserve to be rejected.”

Vatika Ltd, the corporate debtor, was developing a real estate project named "Aspirations" in Gurugram, registered with the Haryana Real Estate Regulatory Authority in December 2022. Allotment letters were executed between the appellants and Vatika on 17 October 2023. Despite making payments, the homebuyers neither received possession nor conveyance deeds.

In June 2024, IDBI Trusteeship Services Ltd, acting as debenture trustee, filed a Section 7 application seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Vatika for default in repayment obligations under a Debenture Trust Deed dated 30 June 2017.

The homebuyers filed their Section 65 application only in September 2025, around 20 months after the Section 7 petition and after the case had reached the stage of final arguments. The Chandigarh NCLT examined the application and rejected it. The Tribunal found that the application was filed belatedly, long after the Section 7 petition had reached the stage of final arguments, and failed to demonstrate any mala fide intent by the financial creditor.

The homebuyers then filed two separate appeals before the NCLAT: one challenging the rejection of their Section 65 application, and the other challenging the admission of IDBI Trusteeship's Section 7 petition.

They contended that the financial creditor's non-issuance of NOCs breached contractual obligations, particularly as payments from allottees were to be received in an escrow account controlled by the financial creditor or its representative.

IDBI Trusteeship countered that the Section 65 application was filed belatedly, and maintained that the corporate debtor had committed default under the debenture trust deed. It also argued that non-issuance of NOCs was a contractual matter and did not constitute fraud, and alleged collusion between the homebuyers and the corporate debtor to obstruct insolvency proceedings.

After examining the pleadings, the NCLAT held that the homebuyers failed to establish fraud or malicious intent, and that the NOC issue arose after the default had occurred, which could not dilute statutory consequences under Section 7.

The Bench relied on the Supreme Court's judgement in Elegna Co-Op Housing and Commercial Society Ltd. v. Edelweiss Asset Reconstruction Company Ltd., which held that post-default events, such as refusal to issue NOCs, cannot dilute the consequences of an admitted default.

Accordingly, the NCLAT (i) dismissed the Company Appeal regarding the Section 65 application and (ii) disposed of the Company Appeal challenging the admission of the Section 7 petition.

For Appellants: Senior Advocates Krishnendu Dutta and Sanjiv Sen with Advocates Ashish Aggarwal, Nalin Dhingra and Yash Tandon, Prahalad Balaji, Jharna Singh and Simran Gupta

For Respondents: Senior Advocates Gopal Jai and Abhijeet Sinha with Advocates Nalin Kohli, Meghna Mishra, Nikhil Ratti Kapoor, Yashodhara Gupta, Kevin Chadha and Saikat Sarkar

Advocates for IRP: Guarav Mitra and Adhish Srivastava