Unity Small Finance Bank Limited Vs Bafna Motors Private Limited (NCLT Mumbai)
Background and Parties Involved
Unity Small Finance Bank Limited (“Applicant/Financial Creditor”) filed C.P. (IB) No. 344/MB/2025 on 18.01.2025 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Application sought initiation of Corporate Insolvency Resolution Process (“CIRP”) against Bafna Motors Private Limited (“Corporate Debtor/CD”). The Applicant was incorporated on 25.08.2021, following the amalgamation of PMC Bank with the Applicant on 25.01.2022. The CD, incorporated in 1973, had been a borrower from the erstwhile PMC Bank.
The Applicant relied on sanction letters, loan agreements, statements of account, NPA certificates, SARFAESI notices, acknowledgement letters, hypothecation and mortgage deeds, guarantee letters, promissory notes, and CIBIL/NeSL reports to substantiate the financial debt and default.
Financial Transactions and Defaults
The CD availed multiple facilities from PMC Bank:
-
Cash Credit Facility of Rs. 17.5 Crore (disbursed 27.07.2010)
-
Mortgage Term Loan of Rs. 2.5 Crore (disbursed 22.06.2018)
-
Funded Interest Term Loan (FITL) of Rs. 1.04 Crore (sanctioned 30.09.2020)
These facilities were renewed periodically (2013, 2017, 2019) and secured through equitable mortgage, hypothecation, letters of guarantee, promissory notes, and lien arrangements. Repayment was agreed “on demand/annual renewal” or via structured installments for term loans.
The accounts of the CD became irregular, with the Cash Credit and FITL accounts partially serviced up to March 2021. The CD defaulted on repayment obligations, leading to classification of accounts as Non-Performing Assets (NPA) on 31.03.2021. Despite the issuance of a SARFAESI notice under Section 13(2) on 10.08.2021, the CD failed to clear dues. Subsequent acknowledgment letters, including one dated 01.06.2022, confirmed the debt and repayment proposal, but no full settlement was made.
After receiving Rs. 11 Crore from the sale of mortgaged property in 2022, the FITL account was closed, yet an outstanding of Rs. 19.83 Crore remained for Cash Credit and Term Loan facilities. A recall notice dated 22.11.2024 demanded repayment within seven days, which the CD did not comply with, confirming continuing default.
Legal Issues and Section 10A Considerations
The CD’s defense did not appear, and the Tribunal set the CD ex-parte after multiple opportunities to file a reply. The Applicant filed amended Form-1 excluding amounts falling under Section 10A of the Code (period from 25.03.2020 to 24.03.2021 during the COVID-19 moratorium). The default after 10A period amounted to Rs. 19.39 Crore, exceeding the statutory threshold of Rs. 1 Crore under Section 4 of the Code, validating the eligibility for initiating CIRP.
The Applicant also relied on judicial precedents to substantiate their claim:
