Show Cause Notice Does Not Create Enforceable Debt Claimable In Liquidation: NCLT Ahmedabad

The Ahmedabad bench of the National Company Law Tribunal (NCLT) has recently held that a show cause notice is merely a proposal to determine liability and does not create an enforceable debt while dismissing the Commissioner of Customs' delayed Rs 1.63 crore claim against Spel Granito Pvt. Ltd. in liquidation.

Judicial Member Shammi Khan and Technical Member Sanjeev Sharma observed:

“A Show Cause Notice is only a proposal to determine liability and does not create an enforceable or adjudicated debt as on the liquidation commencement date.”, the tribunal held.

“In absence of adjudication, the claim cannot be treated as a 'debt' within the meaning of Section 3(11) of the Code nor can it be admitted under Regulation 12 of the IBBI (Liquidation Process) Regulations, 2016.”, it added.

Spel Granito Pvt. Ltd. was ordered into liquidation on September 12, 2024. The Liquidator issued a public announcement on September 17, 2024, fixing October 12, 2024 as the deadline for claims.

The Customs Department submitted its ₹1.63 crore claim only in May 2025, citing alleged non-fulfilment of export obligations under EPCG licences. The Liquidator rejected the claim as time-barred on June 14, 2025, following which Customs approached the tribunal.

Customs argued that liability arose from statutory obligations under the EPCG scheme and that the delay was due to departmental procedures. It contended that statutory dues should not be rejected merely on technical grounds.

The Liquidator opposed the plea, arguing that the claim was filed about 230 days late and that the appeal itself was delayed by 199 days. He also argued that no adjudicated liability existed when liquidation commenced.

In a connected matter, the tribunal also dealt with a bank guarantee of ₹18.5 lakh issued by Cosmos Co-operative Bank in favour of Customs in 2014, backed by a fixed deposit margin provided by the corporate debtor.

The tribunal noted that the guarantee expired in 2017, with extensions only till April 1, 2020, and that Customs attempted invocation only in February 2026.

Holding the invocation unenforceable, the bench reiterated that a bank guarantee is an independent contract enforceable strictly in accordance with its terms.

“The Fixed Deposit represents the margin money of the Corporate Debtor and does not partake the character of an independent third-party asset. Once the Bank Guarantee stands expired and unenforceable, the lien over the margin money cannot survive independently.”

The tribunal directed Cosmos Co-operative Bank to release ₹18.5 lakh with accrued interest to the liquidation account within 14 days, and directed Customs to issue a formal discharge of the guarantee within seven days.