Lack of Bona Fides Defeats Corporate Applicant’s Section 10 CIRP Plea: NCLT Allahabad

In re Agroha Paper Industries Pvt. Ltd. (NCLT Allahabad)

Summary: Agroha Paper Industries Private Limited filed a petition under Section 10 of the Insolvency and Bankruptcy Code, 2016 read with Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 seeking initiation of CIRP against itself. The Corporate Applicant had availed cash credit and term-loan facilities from Bank of Maharashtra. Its account was declared NPA on 28.10.2018, following which the Bank initiated proceedings under the SARFAESI Act, 2002, including demand, possession and auction proceedings.

The Corporate Applicant maintained that its net worth had eroded following the economic scenario during the COVID period and that it lacked funds to pay creditors and continue business. It also alleged that the Bank had sold assets at throwaway or undervalued prices and relied upon proceedings before the DRT and the High Court.

The Financial Creditor opposed the Section 10 petition, alleging suppression, misrepresentation and lack of clean hands, and contended that the Corporate Applicant had sufficient means but was unwilling to repay. The Bank further stated that the Corporate Applicant had been avoiding proceedings concerning its classification as a willful defaulter and had also made efforts for OTS.

After considering the parties’ submissions, NCLT found substance in the Bank’s contentions. It observed that the Corporate Applicant appeared to have made all-out efforts to stall the recovery process through abuse of process of law.