Equipment Finance Limited Vs Kitply Industries Limited (NCLT Guwahati)
Summary: The National Company Law Tribunal (NCLT), Guwahati Bench, rejected a petition filed by SREI Equipment Finance Limited (SEFL) under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Kitply Industries Limited for an alleged outstanding financial debt of ₹333,58,76,382 as on 26 April 2024. The claim arose from two loan agreements dated 24 January 2019, under which facilities of ₹130 crore and ₹120 crore had been sanctioned by SEFL and SREI Infrastructure Finance Limited (SIFL), respectively. SEFL asserted that the loans matured on 28 January 2024 and that Kitply had failed to discharge its repayment obligations. Kitply disputed the genuineness and enforceability of the transactions, alleging that the proceedings were being used for debt recovery rather than genuine insolvency resolution.
Kitply contended that the disputed financing arrangements were connected with an earlier resolution plan approved by the NCLT on 7 December 2018. According to Kitply, SIFL had held a substantial voting share in the earlier Committee of Creditors, while entities associated with the SREI group were involved in implementing the resolution plan. It alleged that funds advanced by SEFL and SIFL were substantially used to discharge obligations under that plan, including payments flowing back to SIFL, and that the transactions involved circular movement of funds rather than genuine independent borrowing. Kitply also questioned the transfer of lending rights from SIFL to SEFL, the absence of the underlying business transfer agreement from the petition, and the simultaneous pursuit of proceedings concerning allegedly fraudulent transactions. SEFL denied these allegations and maintained that valid loan agreements, actual disbursements, security documents and acknowledgements established financial debt and default.
The Tribunal examined the significance of parallel proceedings involving the same loan agreements and transactions. It noted that the Calcutta High Court had appointed a sole arbitrator to adjudicate disputes concerning the nature, legitimacy and enforceability of the financing arrangements, while proceedings under Section 66 of the IBC concerning alleged fraudulent and wrongful trading were pending before the NCLT, Kolkata Bench. The Tribunal also considered allegations of sham arrangements, related-party control, round-tripping of funds and possible forum shopping. It held that these matters extended beyond a straightforward determination of debt and default and required detailed adjudication. In the circumstances, the Tribunal concluded that the disputed transactions did not present a clear and undisputed financial debt suitable for determination within its limited summary jurisdiction under Section 7.
The Tribunal separately considered the request made by Kitply and the intervening workmen for action and penalties under Section 65 of the IBC on the ground that the insolvency proceedings had been initiated fraudulently or maliciously. It observed that Section 65 is penal in nature and requires a clear finding of fraudulent or malicious intent. Although the circumstances surrounding the transactions raised substantial suspicion, the record also contained executed loan agreements, evidence of disbursement, security arrangements and documents relied upon by SEFL to support its claim. The Tribunal therefore held that rejection of the Section 7 petition did not automatically establish abuse of the insolvency process and that the higher threshold for imposing a penalty under Section 65 had not been satisfied. It also considered Kitply’s objection under Section 10A and found, prima facie, that the alleged maturity default of 28 January 2024 fell outside the statutory prohibited period.
Accordingly, the NCLT rejected CP(IB)/8/GB/2024, holding that the underlying transactions involved serious and substantial disputes already subject to arbitration and other proceedings, making the matter unsuitable for admission under Section 7 of the IBC. IA(IBC)/59/GB/2025 and Inv. Pet. (IBC)/1/GB/2024 were partly allowed only to the extent that the request for dismissal of the insolvency petition succeeded. The prayers for initiating proceedings and imposing penalties against SEFL under Section 65 were rejected. The Tribunal did not finally determine that the loan transactions were fraudulent or that no enforceable liability could arise; its decision concerned the suitability of the disputed claim for admission to the CIRP in the circumstances before it.
Cases Discussed
- Ocean Deity Investment Holdings Ltd. v. Suraksha Asset Reconstruction Ltd. — 2022 SCC OnLine NCLAT 3534
- Zoom Communications Private Limited v. Par Excellence Real Estate Private Limited — NCLT New Delhi; NCLAT order dated 27 July 2022
- Phoenix ARC Private Limited v. Cherupushpam Films Private Limited — 2023 SCC OnLine NCLT 12700
- Ramesh Kymal v. Siemens Gamesa Renewable Power Pvt. Ltd. — Civil Appeal No. 4050 of 2020; (2021) 3 SCC 224
- Mobilox Innovations Private Limited v. Kirusa Software Private Limited — (2018) 1 SCC 353
- Binani Industries Limited v. Bank of Baroda & Anr. — Company Appeal (AT) (Ins.) No. 82 of 2018; 2018 SCC OnLine NCLAT 565
- SS Engineers v. Hindustan Petroleum Corporation — 2022 SCC OnLine SC 1385
- Invent Asset Securitisation and Reconstruction Private Limited v. Girnar Fibres Limited — 2022 SCC OnLine SC 808
- Transmission Corporation of A.P. Ltd. v. Equipment Conductors & Cables Ltd. — Citation not confirmed from supplied extract
