Corporate Debtor Cannot Use Dispute Between Lenders To Delay Insolvency Proceedings: NCLT Kochi

The National Company Law Tribunal (NCLT) at Kochi bench has ruled that a borrower cannot use a dispute between consortium lenders over restructuring to block insolvency proceedings. This is so when the financial debt and default are otherwise established.

“The Corporate Debtor cannot be permitted to take advantage of an inter se dispute between the Financial Creditors so as to delay or defeat the insolvency proceedings,” Judicial Member Vinay Goel and Technical Member Ravichandran Ramasamy observed.

The ruling came while admitting Indian Bank's insolvency petition against AKS Cold Storage Limited over a default of ₹40.48 crore.

AKS operates cold storage facilities in Tamil Nadu and Kerala. Indian Bank's lending relationship with entities connected with the AKS Group dates back to 2006 and later developed into a consortium arrangement with the erstwhile Syndicate Bank. Indian Bank acted as the lead bank in the consortium.

The facilities were restructured on December 31, 2019 and again in March 2020 after AKS struggled to service the loans. Existing facilities were converted or rephased into WCTL-1, WCTL-2 and FITL, with revised repayment schedules.

AKS later failed to meet those terms. The bank treated December 31, 2019 as the date of default, while the accounts became NPAs on March 31, 2022. The tribunal said the two dates were distinct. AKS disputed the December 31, 2019 default date.

It also questioned the NeSL records, the amount claimed, and whether Indian Bank had complied with the consortium arrangements when restructuring the facilities.

The tribunal rejected that defence. It found that AKS had not disputed availing the financial facilities or executing the loan and security documents. Nor had it disputed that the facilities were subsequently restructured.

The tribunal also noted that AKS had not produced a competing statement of account. Its challenge to the ₹40.48 crore figure was therefore treated as a vague and general denial, particularly since the amount was well above the statutory threshold.

The tribunal also rejected the consortium objection. Any dispute between Indian Bank and the other consortium lenders, it ruled, had to be resolved between those lenders under their inter-se arrangements. AKS could not rely on that dispute to defeat a Section 7 proceeding.

On the default date, the tribunal found no inconsistency in Indian Bank treating December 31, 2019 as the date of default. The subsequent restructuring did not erase the earlier default.

It held that when a restructuring arrangement later fails, the original default date remains relevant, noting that AKS had not complied with the restructured terms. Section 238A of the IBC makes the Limitation Act applicable to insolvency proceedings.

The tribunal also excluded March 15, 2020 to February 28, 2022 under the Supreme Court's COVID-19 exclusion. It further held that AKS's OTS proposals acknowledged its subsisting liability under Section 18.

In simple terms, such an acknowledgement can give rise to a fresh limitation period.

The tribunal relied on OTS proposals dated June 26, 2023, February 7, 2025 and October 3, 2025. It found that these proposals demonstrated the continued subsistence of AKS's liability towards Indian Bank.

The June 2023 OTS acknowledged ₹23.44 crore as outstanding as on the NPA date. AKS proposed to settle that liability for ₹15 crore.

The tribunal held that seeking a lower settlement amount did not take away the acknowledgement of liability. The fact that the proposal was conditional on acceptance by the bank also did not change that conclusion.

Finding the petition within limitation, the tribunal also held that the requirements of Section 7, which is of debt and default, had been met.

The tribunal accordingly admitted the insolvency petition against AKS and declared a moratorium.

It appointed Interim Resolution Professional Mahalingam Suresh Kumar to take forward the Corporate Insolvency Resolution Process.

For Petitioner: Advocate Pranoy Harilal

For Corporate Debtor: Advocate Jinish Paul