Penal Charges In Debt Claim Do Not Oust NCLT's IBC Jurisdiction: Gujarat High Court

The Gujarat High Court, on 23 October, held that the inclusion of penal charges and interest in a financial creditor's claim does not, by itself, oust the National Company Law Tribunal's (NCLT) jurisdiction to entertain an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

Justice Nisha M. Thakore dismissed a writ petition filed by Takshashila Resicom Private Limited and its directors challenging the NCLT Ahmedabad Bench's orders admitting insolvency proceedings against the borrower entities and appointing an Interim Resolution Professional (IRP). The Bench observed:

“It is true that inclusion of interest and penalty components alters the quantum of the claim but does not inherently divest the NCLT of its jurisdiction. The NCLT operates in a summary jurisdiction under Section 7 and is only required to satisfy that a default of at least Rs.1 crore has occurred.”

The dispute arose from loan transactions under which Sheth Fincap advanced funds to the petitioners against mortgage security. Following disputes over the transactions, a criminal complaint was lodged, leading to the registration of an FIR in September 2025. Sheth Fincap subsequently issued recovery notices claiming outstanding dues exceeding Rs. 6.15 crore.

The directors approached courts in Mumbai seeking anticipatory bail. During the proceedings before the Bombay High Court, they filed affidavits undertaking to pay substantial amounts to the lender. The High Court granted them time to make the payments.

Before the expiry of the time granted, however, Sheth Fincap Services Private Limited initiated insolvency proceedings against the borrower entities. The NCLT admitted the applications, commenced the Corporate Insolvency Resolution Process (CIRP) and appointed an IRP, prompting the directors to approach the Gujarat High Court.

The financial creditor opposed the maintainability of the writ petition, arguing that the IBC provides a comprehensive appellate mechanism and that the petitioners had already filed an appeal before the National Company Law Appellate Tribunal (NCLAT) under Section 61 of the Code.

It also contended that the appointment of an IRP and commencement of CIRP restricted the company's and its directors' ability to independently institute proceedings.

The petitioners argued that the financial creditor had improperly invoked insolvency proceedings as a recovery mechanism. They contended that the claim included substantial penal charges and interest that did not qualify as financial debt under the IBC and that the NCLT lacked jurisdiction to adjudicate such components.

Justice Thakore noted that the petitioners had already challenged the NCLT's orders before the NCLAT and that the appeal remained pending. They had also raised substantially the same objections before the appellate tribunal, including the inclusion of penal charges in the financial creditor's claim.

The Court clarified that the Resolution Professional (RP) could refuse to admit any portion of the claim that was unverified, unsupported by the underlying loan agreement or not accompanied by the necessary calculations.

However, disputes concerning the verification and reconciliation of penal charges and interest did not automatically render the NCLT incompetent to entertain the Section 7 application.

Further, the Bench observed that contractual interest and penal charges stipulated in loan documents could form part of a creditor's claim, subject to verification during the insolvency process. The NCLT's summary inquiry under Section 7 primarily concerns whether a default exceeding the statutory threshold of Rs. 1 crore has occurred.

It reiterated that the availability of an alternative statutory remedy does not completely exclude the High Court's writ jurisdiction, but ordinarily warrants judicial restraint. Since the petitioners had failed to demonstrate any exceptional circumstances justifying interference and the same issues were already pending before the NCLAT, the Court declined to exercise its writ jurisdiction.

Accordingly, the High Court dismissed the writ petition.