Non-Disclosure By Bankrupt Prompts NCLT Kochi To Condone 470-Day Delay In Federal Bank Claim

The National Company Law Tribunal (NCLT) at Kochi has condoned a 470-day delay in filing a claim by Federal Bank in bankruptcy proceedings against personal guarantor Reena Paul, holding that the delay stood sufficiently explained due to non-disclosure and suppression of material facts by the bankrupt.

A coram of Judicial Member Vinay Goel passed the order, observing:

"…this Adjudicating Authority is of the considered view that although the Applicant is bound by the public announcement, the delay in filing the claim stands sufficiently explained due to the non-disclosure and suppression of material facts by the Bankrupt.”

The application was filed by Federal Bank Limited seeking condonation of delay in submitting its claim in the bankruptcy proceedings initiated against Reena Paul.

The bank had extended multiple credit facilities to the borrower and co-borrower, which were secured by way of an equitable mortgage over a residential property in Chennai.

The bank submitted that it had no prior knowledge of the bankruptcy proceedings initiated on April 18, 2024, and became aware of the same only upon receiving an email from the Bankruptcy Trustee on June 13, 2025. It thereafter submitted its claim on July 1, 2025, which came to be rejected on the ground of delay.

It further contended that the delay was neither wilful nor deliberate, and that a substantial amount remained outstanding. Since no dividend had been declared or distributed, admission of its claim would not prejudice any stakeholders.

The Bankruptcy Trustee, while pointing out the delay, acknowledged that the debt arose from secured lending and stated that there was no objection to condonation of delay and processing of the claim upon verification.

The Tribunal noted that although a public announcement inviting claims had been issued and would ordinarily bind all creditors, the present case did not fall within ordinary circumstances. It found that the bankrupt had failed to make full and truthful disclosures and had not cooperated with the Trustee despite repeated directions.

It observed that the existence of the mortgaged residential property, and the bank's involvement as a secured creditor, came to light only at a later stage after multiple proceedings concerning non-cooperation. Consequently, the Trustee could not identify the bank initially and no individual intimation was issued.

“In these circumstances, the delay in filing the claim cannot be attributed to any wilful or negligent conduct on the part of the Applicant, but is a consequence of the non-disclosure and conduct of the Bankrupt.”

Referring to Rule 12(3) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019 and Section 176(2) of the Insolvency and Bankruptcy Code, the Tribunal observed:

“In the present case, it is an admitted position that the Bankruptcy Trustee has neither realised the estate of the Bankrupt nor initiated the process of declaration or distribution of dividend. Therefore, the stage contemplated under Section 176 has not yet been reached. In such circumstances, the opportunity for submission of claims, as provided under Rule 12(3), still remains available.”

Further, referring to Section 177 of the Insolvency and Bankruptcy Code, the Tribunal observed:

“Section 177 of the Insolvency and Bankruptcy Code,2016, provides that a creditor who has not proved its debt before declaration of any dividend cannot disturb past distributions but is entitled to participate in future distributions upon proving its debt. This provision clearly indicates that the legislative intent is not to shut out legitimate claims on technical grounds of delay, particularly when no distribution has taken place.”

Noting that no dividend had been declared or distributed, the tribunal held that admission of the bank's claim would not prejudice any stakeholders. On the contrary, denying such an opportunity to a secured creditor would result in manifest injustice.

Accordingly, the tribunal condoned the delay of 470 days and directed the Bankruptcy Trustee to admit and process the claim in accordance with law.

For Applicant: Advocate Mohan Jacob George

For Respondent: Advocate Vinod P.V