NCLAT Upholds CIRP Against Prayag Polytech, Says NOCs For Specific Charges Don't Wipe Out Entire Debt

The National Company Law Appellate Tribunal (NCLAT) at Delhi has recently upheld the admission of insolvency proceedings against Prayag Polytech Pvt. Ltd., rejecting the company's reliance on multiple No Dues Certificates and holding that these were issued only for satisfaction of specific charges and did not extinguish its overall liability to Canara Bank.

A bench of Judicial Member Justice Ashok Bhushan and technical member Barun Mitra held that the certificates relied upon by the suspended director could not be treated as proof that no debt remained outstanding.

“The above letters were written to the Registrar of Companies to record satisfaction for the charges created with the ROC. The said letters cannot be read to mean that the Bank has communicated that it has no outstanding dues against the CD.”, it said.

“Thus, No Due Certificate/ NOC regarding satisfaction of charge as relied on by the Appellant, cannot mean firstly that all charges in favour of Canara Bank have been satisfied and secondly there is no outstanding debt against the CD.”, it added.

The company had availed credit facilities of about Rs. 157 crore from Canara Bank, and its account was classified as a non-performing asset on October 3, 2019. The bank initiated recovery proceedings before the Debts Recovery Tribunal and later moved a Section 7 plea under the Insolvency and Bankruptcy Code, which was admitted by the NCLT. The suspended director challenged this admission before the appellate tribunal.

Before the NCLAT, the appellant argued that the NOCs showed that liabilities stood discharged. It also relied on the withdrawal of notices issued under the SARFAESI Act and a NeSL record reflecting default of only ₹96.99 lakh to contend that no financial debt or default existed.

The bank, however, maintained that the NOCs were limited to specific charge satisfactions and that several charges in its favour continued to remain unsatisfied as per MCA records. It also pointed to NeSL records relating to other loan accounts to show substantial default.

Agreeing with the bank, the tribunal found that the NeSL record cited by the appellant related to only one account and did not reflect the full extent of default.

“NeSL certificate, which is authenticated, clearly proves the default in the other two accounts. Hence, the submission of the Appellant that the default is only Rs.96,99,057.55 paisa, is incorrect.”, it said

“The said NeSL certificate relied by the Appellant relates to only one account. It is relevant to notice that in the Section 7 application, the account with respect to which the NeSL Certificate has been relied by the Appellant was not even mentioned.”, it added.

The tribunal also noted that the company had acknowledged its liabilities in its financial statements as well as through a subsequent letter, supporting the existence of debt and its consideration within limitation.

“Acknowledgement in the balance sheet as well as acknowledgement letter given on behalf of the CD, clearly indicate that CD has acknowledged the debt in the Financial Statements upto 2020-21 and the acknowledgement letter dated 13.06.2022.”

On the withdrawal of SARFAESI notices, the tribunal held that such withdrawal does not affect the bank's right to initiate insolvency proceedings.

“Withdrawal of notice under Section 13(2), thus, cannot have any effect on the right of the Bank to initiate proceedings under Section 7 for its debt and default.”

Finding no error in the NCLT's order, the appellate tribunal dismissed the appeal and upheld the initiation of insolvency proceedings, noting that debt and default stood established.