Bank's Fraud Classification Is Beyond Summary Jurisdiction In Bankruptcy Proceedings: NCLT Chennai

The Chennai Bench of the National Company Law Tribunal (NCLT) on 16 October held that a bank's decision to reject a restructuring proposal or classify a loan account as fraudulent cannot be examined in bankruptcy proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), as these issues fall outside the Tribunal's summary jurisdiction.

A Bench of Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy admitted a bankruptcy petition filed by Indian Bank against Kamalaben D. Patel, personal guarantor to Evershine Wood Packaging Private Limited. It held:

“…it is not permissible for the Respondent to raise extraneous issues such as the classification of the account as a wilful default or fraud, or the alleged conduct of the Petitioner regarding debt restructuring. These matters fall entirely beyond the summary jurisdiction of this Tribunal under the Code.”

The corporate debtor had availed credit facilities of Rs. 67 crore from Indian Bank, for which Patel had executed personal guarantees. Following repayment defaults, the bank classified the account as a non-performing asset.

The Tribunal admitted insolvency proceedings against the corporate debtor in June 2023 and personal insolvency resolution proceedings against Patel in June 2025. After the repayment plan was rejected, it closed the personal insolvency resolution process on 26 September 2025, granting the bank liberty to initiate bankruptcy proceedings.

Patel opposed the bankruptcy petition, alleging that the bank had altered the date of default to overcome limitation, that the default occurred during the suspension period under Section 10A of the IBC, and that the bank had not invoked the personal guarantee before issuing the demand notice. She also questioned the bank's authorisation and alleged that it had disregarded restructuring recommendations before classifying the account as fraudulent in 2025.

Rejecting the objections, the Tribunal noted that Patel had not challenged the date of default during the earlier personal insolvency resolution proceedings. Since the relevant orders had attained finality, she could not reopen the issue at the bankruptcy stage.

On the objection to the bank's authorisation, it held that a defect in the authority to sign, verify or institute pleadings was procedural and curable. As the bank had subsequently placed valid authorisation on record, the objection lacked merit.

Relying on the Supreme Court's decision in Pratap Technocrats (P) Ltd. v. Monitoring Committee of Reliance Infratel Ltd., the Bench reiterated that the Adjudicating Authority has no residual equity-based jurisdiction and must act within the statutory framework of the IBC.

Accordingly, the NCLT declared Patel bankrupt and appointed R. Sugumaran as the bankruptcy trustee.

For Financial Creditor: Advocates Pranava Charan, M.G Veerabathran and Prasanth

For Personal Guarantor: Advocates G Vairava Subramanian, B Raghupathy, A Kandhan, M Sunil Zachariah, R Omprakash, Varsha Velmurugan and K Monica