NCLAT New Delhi Upholds Dismissal Of Panshul Agro Food Plea Over Removal Of Hypothecated Machinery

A Bench of Judicial Member Justice Mohd Faiz Alam Khan and Technical Member Naresh Salecha held that the application had been filed with malicious intent to stall State Bank of India's (SBI) recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The Tribunal observed:

“We are also of the considered view that removal of plant and machinery from the factory site during the process of recovery is a veryserious incident. Though, it has been submitted by Ld. Counsel for the appellant that no proceedings have been initiated by the bank with regard to such removal of such machinery and plant but we are not convinced with this superficial submission and we are in agreement with the conclusion drawn by Ld. Adjudicating Authority that the application under Section 10 of the Code has been moved with malicious intent..”

Panshul Agro Food LLP was facing financial distress and disclosed debts of more than Rs. 42.20 crore, including Rs. 40.92 crore owed to SBI, along with liabilities towards other financial institutions.

SBI classified the account as a Non-Performing Asset (NPA) on 18 April 2025 and thereafter issued a notice under Section 13(2) of the SARFAESI Act, which requires a borrower to discharge its liability within the prescribed period. The bank also initiated proceedings before the Debt Recovery Tribunal (DRT) and took symbolic possession of the property.

Panshul Agro Food LLP filed an application under Section 10 of the IBC on 26 August 2025 before the Ahmedabad Bench of the National Company Law Tribunal (NCLT), seeking initiation of the Corporate Insolvency Resolution Process (CIRP), appointment of an Interim Resolution Professional and declaration of a moratorium.

SBI opposed the application, alleging that the filing was a calculated attempt to derail its recovery proceedings. The bank submitted that an inspection of the project site showed that machinery installed there had been removed by the appellant.

It further submitted that the corporate debtor had no immovable assets and that the land on which the factory was constructed belonged to its partners and guarantors.

The appellant argued before the NCLAT that the NCLT had erred in dismissing the Section 10 application merely because SARFAESI proceedings were pending. It submitted that the Adjudicating Authority's role was to determine the existence of debt and default and that dismissal without issuing notice or examining the merits was improper. He also contended that it could not be held responsible for the missing machinery since the bank had already taken possession of the property.

The Tribunal noted that machinery found at the site during an inspection in May 2025 was missing when the premises were inspected again in February 2026. It observed that removal of hypothecated machinery without the creditor's consent was a serious incident that affected the creditor's interests. It also noted the absence of trade receivables, loan receivables and fixed asset registers.

The NCLAT agreed with the NCLT's conclusion that the Section 10 application had been filed with malicious intent under Section 65(1) of the IBC, which provides for a penalty where insolvency proceedings are initiated fraudulently or with malicious intent. It held:

“…it is not only the jurisdiction but the duty of the Ld. Adjudicating Authority to sift the material available on record in order to assess as to whether the filing of application under Section 10 of the Code is a genuine attempt on the part of the applicant to resolve the debt or the exercise is being done only to derail the process of recovery initiated by the financial creditors before the Ld. DRT under the SARFAESI Act. Therefore, it could not be said that the duty of the Ld. Adjudicating Authority is to act like a rubber stamp.”

The Bench also held that the NCLT is required to examine whether a Section 10 application is a genuine attempt to resolve the corporate debtor's debts or is being used to derail recovery proceedings, and is therefore not required to act mechanically upon proof of debt and default.

However, finding the Rs. 10 lakh penalty excessive, the NCLAT reduced it to Rs. 5 lakh and partly allowed the appeal.

For Appellants: Advocate Keith Varghese

For Respondents: Advocates Siddharth Sangal, Richa Mishra, Kashish Tewatia, Mrinalini Tandon