NCLT Ahmedabad Rejects Company's Own Insolvency Plea As Tactic To Stall Recovery By Lenders

The National Company Law Tribunal (NCLT) at Ahmedabad has refused to admit a company's own insolvency plea, holding that the move showed a “lack of bona fide intent” and was a “tactical measure to frustrate recovery proceedings” initiated by lenders.

A coram of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma said that even where debt and default are established, admission is “not so mechanical as to permit admission of every application,” and the tribunal must examine whether the plea is genuine or an abuse of process.

Q Top Fab Engineering Pvt. Ltd. moved the tribunal seeking to initiate its own insolvency process, pointing to a default of about Rs 1.27 crore. It blamed the COVID-19 pandemic for its financial troubles, saying it could no longer service loans taken from Punjab National Bank and HDFC Bank, part of which was later assigned to Phoenix ARC Private Limited.

The lenders pushed back, arguing that the plea was incomplete and missing crucial disclosures. They said it was not a genuine attempt at resolution but a move aimed at halting recovery proceedings already underway under the SARFAESI Act and before the Debt Recovery Tribunal.

The tribunal found merit in these objections. It noted that recovery action had begun well before the company approached it, and concluded that the dominant intent behind the filing was to trigger a moratorium and bring those proceedings to a standstill.

At the same time, the Bench acknowledged that the existence of financial debt and default was not in dispute. But it made it clear that this, by itself, is not enough to secure admission of a company's own insolvency plea.

What weighed heavily with the tribunal was the company's current state. It recorded that there had been no business activity since FY 2020–21. There were no employees on the rolls, no inventory, and no tangible assets left, with receivables already written off, leaving little to revive through the insolvency process. Initiating insolvency proceedings in such a situation, it held, would be “an exercise in futility.”

“The above financial position clearly establishes that the Corporate Applicant has no business operations, no inventory, no employees and no tangible assets, and has ceased to be a going concern at the time of filing of the petition under section 10 of the IBC, 2016,” the tribunal said.

The Bench also flagged serious defects in the application, including the absence of a clearly stated date of default, inconsistencies in financial disclosures, and incomplete documentation, rendering it non-compliant with the mandatory requirements under the Code.

Rejecting the company's reliance on the pandemic, the tribunal noted that defaults and financial indiscipline predated COVID-19.

Holding that the plea amounted to an “abuse of the process of law,” the tribunal dismissed the petition.