NCLT Guwahati Admits IL&FS Insolvency Plea, Holds Pledged Shares Dispute No Defence To Default
The Guwahati National Company Law Tribunal (NCLT) has held that a dispute over the invocation and appropriation of pledged securities cannot defeat an insolvency petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, once the existence of financial debt and default is established.
A Bench of Judicial Member Rammurti Kushawaha and Technical Member Yogendra Kumar Singh made the observation while admitting an insolvency petition filed by IL&FS Financial Services Limited against Adhunik Meghalaya Steels Private Limited. It held:
“We are, therefore, of the considered opinion that the objections raised by the Corporate Debtor regarding the invocation of 2,52,17,391 pledged shares, the recoveries of Rs. 8,30,61,278/-, the alleged retention of 78,86,958 shares, and the manner of appropriation of the sale proceeds do not affect the maintainability of the present proceedings under Section 7 of the Code. These objections do not extinguish the 'financial debt' or dislodge the occurrence of 'default' established from the material placed on record.”
IL&FS Financial Services Limited filed the petition under Section 7 of the Code, which allows a financial creditor to initiate the Corporate Insolvency Resolution Process (CIRP) against a corporate debtor upon default, seeking initiation of CIRP against Adhunik Meghalaya Steels Private Limited for a financial debt of Rs. 55.45 crore.
Adhunik Meghalaya Steels had availed a term loan of up to Rs. 30 crore under a Loan Agreement, of which Rs. 24.44 crore was disbursed. Following defaults in repayment, its account was classified as a non-performing asset. IL&FS Financial Services subsequently issued an Event of Default Notice and recalled the facility.
IL&FS Financial Services relied on Adhunik Meghalaya Steels' audited financial statements as an acknowledgment of liability. Adhunik Meghalaya Steels opposed the petition, primarily contending that it was barred by limitation. It also alleged that the loan was secured by pledged equity shares worth approximately Rs. 50 crore and that IL&FS Financial Services had failed to properly realise the securities. It contended that the proceeds had instead been appropriated towards interest while the principal remained outstanding.
After considering the material on record, the Tribunal held that IL&FS Financial Services had established the existence of the financial debt and that Adhunik Meghalaya Steels had committed default in repayment. It held:
“The transaction clearly satisfies the ingredients of a “financial debt” under Section 5(8) of the Insolvency and Bankruptcy Code, 2016, being money disbursed against consideration for the time value of money.”
Section 5(8) defines “financial debt” to mean a debt along with interest, if any, which is disbursed against the consideration for the time value of money, and includes the categories specified in the provision.
On limitation, the Bench held that the issue no longer survived for consideration. It noted that the Supreme Court, by its judgment dated 30 July 2025, had set aside the earlier orders of the Tribunal and the National Company Law Appellate Tribunal and held that the Section 7 application was filed within limitation, taking into account the acknowledgment dated 12 August 2020 and the exclusion of the COVID-19 period. It noted:
“The findings recorded by the Hon'ble Supreme Court are binding upon this Tribunal. In view thereof, the objection raised by the Corporate Debtor with respect to limitation stands concluded and is rejected.”
The Tribunal then considered Adhunik Meghalaya Steels' objections concerning the pledged securities. The objections related to the timing and manner of their invocation, appropriation of the sale proceeds towards interest and principal, and IL&FS Financial Services' decision to pursue the insolvency proceedings despite continuing to hold 78,86,958 pledged shares.
It noted that Clause 6.2(b) of the Pledge Agreement gave IL&FS Financial Services the right, but not the obligation, to enforce the pledged securities upon an Event of Default. It further observed that even if the entire amount realised from the pledged shares had been adjusted towards the principal, the admitted debt would still have remained above the statutory threshold for initiating CIRP. It observed:
“Accordingly, the Financial Creditor had not faulted in invoking or realising the pledged securities at any particular point of time, as the decision regarding such enforcement falls within its commercial discretion. Such discretion does not affect the existence of the 'financial debt' or the occurrence of 'default' and therefore, does not constitute a valid defence to the present application under Section 7 of the Code.”
Accordingly, the NCLT admitted the petition and appointed Sanjay Kumar Poddar as the Interim Resolution Professional.
For Petitioner: Advocates Shaunak Mitra, Kiran Sharma and Soumyajit Saha
For Respondent: Senior Advocate D.N Sharma, Advocates Nilay Sengupta and Sujit Banerjee