Kerala State Industrial Development Corpn Ltd Vs KGR Gems And Bullion Private Limited (NCLT Kochi)
The Kerala State Industrial Development Corporation Ltd. (KSIDC) filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), before the National Company Law Tribunal (NCLT), Kochi Bench, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against KGR Gems and Bullion Pvt. Ltd., a company incorporated on 09.10.2019 to establish a gold refinery and bullion facility in Kerala. The petition sought admission of insolvency proceedings, declaration of moratorium, and appointment of an Interim Resolution Professional (IRP). The amount claimed in default was ₹6.25 crore as on 31.05.2025.
Petitioner’s Case
KSIDC, a Government of Kerala undertaking, had sanctioned three loan facilities to the Corporate Debtor:
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A Term Loan of ₹5 crore sanctioned on 20.07.2021,
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A Working Capital Term Loan of ₹1.5 crore on 08.03.2022 under the COVID-19 Samashwasa Padhathi, and
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A Term Loan of ₹2 crore on 15.04.2024 under the Chief Minister’s Special Assistance Scheme.
These loans were secured by hypothecation of movable assets, mortgage of land, and personal guarantees by the directors, with all charges duly registered with the Registrar of Companies. Despite repeated follow-ups, the Corporate Debtor defaulted on repayments. KSIDC initiated recovery through the Revenue Recovery (RR) mechanism and filed Form C with the National E-Governance Services Ltd. (NeSL) to record default. The total outstanding was ₹6.25 crore, excluding further accruals.
Respondent’s Objections
The Corporate Debtor contested the petition, alleging that the petitioner had itself breached financing terms. It claimed that disbursement of the ₹5 crore loan was delayed by nearly a year—first disbursement being ₹1.95 crore on 19.07.2022—and that total disbursement was only ₹3.75 crore. The debtor argued that the project finance structure linked repayment to the Commercial Operation Date, and thus, KSIDC’s delay and premature invocation of recovery caused artificial default. It further contended that KSIDC sanctioned working capital funds before completing capital expenditure, reversing the intended funding sequence and triggering repayment obligations before the project became operational.
The debtor also highlighted substantial repayments—₹1.37 crore, ₹94.94 lakh, and ₹6.27 lakh—made before commercial operation, showing good faith. It noted that it had filed W.P.(C) No. 25448/2025 before the Kerala High Court challenging coercive RR proceedings, which remain pending. It alleged the IBC filing was a coercive recovery tool, not a genuine insolvency action, and that default dates (15.08.2024, 19.09.2024, 03.12.2024) and debt computations were inconsistent. The debtor also disputed charging interest on undisbursed sums and claimed the petition was time-barred. It relied on Supreme Court judgments—Innoventive Industries, Vidarbha Industries Power, Swiss Ribbons, Embassy Property Developments, and Beacon Trusteeship—to argue that insolvency proceedings cannot be used for recovery or where debt is genuinely disputed.
Petitioner’s Rejoinder
KSIDC clarified that the disbursement clause (Clause 29 of the sanction letter) required promoter contribution of ₹6 crore as a precondition for proportionate disbursement. Since this condition was not fulfilled, KSIDC disbursed proportionate funds. Despite the shortfall, KSIDC still extended additional support by sanctioning further loans in 2022 and 2024. The financial creditor denied charging interest on undisbursed funds and stated that the total outstanding matched NeSL records. The pending writ before the High Court pertained only to RR proceedings and did not restrict IBC action, as Section 238 of the Code overrides other laws.
Tribunal’s Analysis and Findings
The NCLT noted that three loan facilities were duly executed, with security and registration of charges proving a financial debt. The debtor’s allegation of delay in disbursement was rejected, as Clause 29 explicitly tied disbursement to promoter contribution, which was not met. Hence, the creditor’s proportionate release of funds was contractually compliant.
Further, the debtor continued to seek and avail new loans in 2022 and 2024, indicating affirmation of the earlier arrangements and waiver of any alleged irregularity. The tribunal held that admitted part-payments, statutory filings, and RR notices constituted acknowledgement of liability and proof of default.
The pendency of writ proceedings before the Kerala High Court concerning RR actions did not affect the present insolvency proceedings, which were limited to determining the existence of financial debt and default. By virtue of Section 238 of the Code, IBC proceedings override State recovery laws.
The tribunal found that the outstanding amount of ₹6.25 crore was supported by unrebutted documentary evidence. Even excluding interest, the principal outstanding exceeded the minimum default threshold. Objections regarding penal interest or computation were issues for later verification by the Resolution Professional and did not negate existence of default.
The NCLT emphasized that at the admission stage, its inquiry is limited to verifying existence of financial debt and default, not detailed adjudication of contractual disputes. Citing Innoventive Industries Ltd. v. ICICI Bank, it held that once default is established through credible evidence, admission follows. The respondent failed to show exceptional circumstances as per Vidarbha Industries Power Ltd. v. Axis Bank Ltd. to justify rejection of admission. Reliance on Embassy Property Developments and Beacon Trusteeship was found misplaced, as those dealt with issues of jurisdiction and fraudulent initiation, neither of which applied here.
Order
The petition under Section 7 of the IBC was admitted. A moratorium under Section 14 was declared with immediate effect, and public announcement of CIRP was directed. While the financial creditor had proposed Mr. Jasin Jose as IRP, the tribunal appointed Mr. Surendranath Karat Thazhethethil Nair as IRP from the IBBI panel to ensure workload balance. Mr. Nair was directed to submit written consent within three days. Subsequently, on 08.11.2025, he declined the assignment for health reasons and nearing age ineligibility. KSIDC then proposed Mr. George Varkey as replacement, whose written consent was accepted. The tribunal replaced Mr. Nair with Mr. Varkey as IRP and directed communication accordingly. All other directions in the admission order dated 07.11.2025 remained unchanged.
FULL TEXT OF THE NCLT JUDGMENT/ORDER
