The National Company Law Appellate Tribunal has affirmed that a financial creditor may initiate Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code solely on the basis of an unpaid interest component exceeding the statutory threshold, even where the principal has been substantially repaid under a breached One-Time Settlement. This ruling reinforces the Code’s focus on objective debt and default, not subjective commercial fairness.
Background & Facts
The Dispute
The dispute arose between Indian Renewable Energy Development Agency Limited (IREDA), a financial creditor, and JHV Sugar Limited (Corporate Debtor), a sugar manufacturing company with operations in Uttar Pradesh. IREDA had extended a term loan of ₹57.10 Crores in 2011 to finance the expansion of JHV Sugar’s mill and a 20 MW bagasse-based co-generation project. The loan was disbursed in tranches under a Loan Agreement and Deed of Hypothecation dated 03.10.2011. IREDA disbursed only ₹17.72 Crores of the sanctioned amount, leading to incomplete project execution and subsequent financial distress for the Corporate Debtor.
Key Facts
- Loan Agreement executed on 03.10.2011 for ₹57.10 Crores (₹27.41 Crores Main Loan + ₹29.69 Crores Bridge Loan)
- IREDA disbursed only ₹17.72 Crores by 30.11.2015, of which ₹7.16 Crores went directly to vendors and ₹10.55 Crores to the Corporate Debtor’s trust account
- Corporate Debtor defaulted on repayment obligations from 2013 onwards
- IREDA issued a demand notice on 16.12.2015 for outstanding dues
- First Section 7 petition filed on 18.07.2018 (C.P.(IB) No. 153/KB/2018) seeking ₹26.41 Crores
- OTS-1 agreed on 16.05.2019; First petition withdrawn on 17.07.2019
- OTS-2 (Effective OTS) executed on 26.11.2021, with repayment deadline of 25.11.2022
- Effective OTS terms: ₹1996.84 Lakhs principal + ₹50 Lakhs + 12.45% simple interest; monthly payment of ₹1 Crore from 31.01.2022
- Clause: OTS would be withdrawn automatically on default, reviving original loan terms
- Corporate Debtor paid ₹13.25 Crores by 25.11.2022; requested extension till 31.03.2023
- IREDA emails dated 25.11.2022, 19.12.2022, 22.12.2022, and 28.12.2022 acknowledged extension till 15.03.2023
- Corporate Debtor paid ₹5 Crores between 02.01.2023 and 24.03.2023
- IREDA withdrew OTS-2 via email dated 12.12.2022, citing default
- Total payments by Corporate Debtor: ₹27,46,79,638/- (₹17,82,30,809/- principal + ₹9,64,48,829/- interest)
- Outstanding interest claimed by IREDA: ₹2,98,85,658/- as of 31.03.2023
- IREDA filed new Section 7 petition on 28.04.2023 (C.P.(IB) No. 131/KB/2023) claiming ₹24,95,05,121/-
- Corporate Debtor’s registered email: [email protected] (as per MCA records)
- Service of petition attempted via email on 06.06.2023 and registered post to registered office
- Registered post returned undelivered; newspaper publication conducted on 02.07.2024 and 01.10.2024
- NCLT passed ex-parte admission order on 07.04.2025
- Appellant (Gaurav Jaiswal, suspended director) filed appeal on 28.03.2025
Procedural History
- 03.10.2011: Loan Agreement executed between IREDA and JHV Sugar Limited
- 16.12.2015: First demand notice issued by IREDA
- 18.07.2018: First Section 7 petition filed (C.P.(IB) No. 153/KB/2018)
- 16.05.2019: OTS-1 agreed upon
- 17.07.2019: First petition withdrawn by IREDA
- 26.11.2021: OTS-2 (Effective OTS) executed
- 12.12.2022: IREDA withdrew OTS-2 via email
- 15.03.2023: Deadline for OTS-2 payments extended to this date
- 28.04.2023: New Section 7 petition filed by IREDA (C.P.(IB) No. 131/KB/2023)
- 06.06.2023: Service of petition via registered email [email protected]
- 06.03.2024 & 10.05.2024: NCLT registry attempted service via registered post; returned undelivered
- 02.07.2024 & 01.10.2024: Newspaper publication of notice
- 18.11.2024: NCLT set proceedings ex-parte
- 07.04.2025: NCLT admitted petition and appointed IRP
- 28.03.2025: Appeal filed before NCLAT (Company Appeal (AT) (Ins.) No. 594 of 2025)
- 30.06.2026: NCLAT delivered judgment
The Parties' Positions
Appellant (Mr. Gaurav Jaiswal, suspended director of JHV Sugar Limited):
- Argued that service of petition was defective as it was not served on operational offices or directors’ personal emails
- Claimed IREDA concealed facts about partial disbursement and full repayment of principal
- Asserted that only ₹2.98 Crores interest remained, which is insufficient for CIRP
- Contended that IREDA’s role was supervisory, not merely financial, disqualifying it as a financial creditor
- Alleged misuse of IBC as a recovery tool, citing pending DRT proceedings and 8 NI Act cases
- Invoked principles of natural justice and equitable conduct
Respondent No. 1 (IREDA):
- Maintained service was valid via MCA-registered email [email protected]
- Argued that OTS-2 was validly withdrawn on 12.12.2022 due to default
- Submitted that debt of ₹2.98 Crores interest exceeds ₹1 crore threshold under Section 7
- Provided certified ledger under Bankers Book Evidence Act, 1891 and NeSL report as proof
- Rejected claims of mala fide intent, citing prior correspondence and admissions
- Emphasized that IBC is a self-contained code and does not bar interest-based petitions
Relief Sought
The Appellant sought:
- Setting aside of the NCLT’s admission order dated 07.04.2025
- Dismissal of the Section 7 petition
- Direction to release the Corporate Debtor from CIRP
- Costs of litigation
The Legal Issue
Can a Corporate Insolvency Resolution Process be initiated under Section 7 of the Insolvency and Bankruptcy Code solely on the basis of an unpaid interest component exceeding ₹1 crore, where the principal debt has been discharged under a breached One-Time Settlement, and where service of the petition was effected only at the MCA-registered email address?
Arguments Presented
For the Appellant
The Appellant contended that the initiation of CIRP was legally impermissible because:
- The principal debt of ₹17.72 Crores had been fully repaid (₹27.46 Crores paid), leaving only ₹2.98 Crores interest outstanding
- The OTS-2, though breached, was a binding contractual arrangement under Bijnor Urban Cooperative Bank v. Meenal Agarwal and State Bank of India v. Arvindra Electronics, and its withdrawal required formal compliance
- IREDA’s email withdrawal of OTS-2 on 12.12.2022 was unsigned and unauthorized, hence invalid
- Service of the petition was defective: IREDA knew the Corporate Debtor’s operational addresses and directors’ emails but deliberately served only the MCA-registered email, which was inactive
- The Appellant relied on Dharampal Satyapal Ltd. v. Dy. Commissioner of Central Excise to argue that denial of hearing vitiates any order
- The Appellant cited Swiss Ribbons and Mobilox to assert that IBC is not a recovery mechanism and cannot be invoked where a genuine dispute exists
- The Appellant argued that IREDA’s role was supervisory under the Loan Agreement, making it ineligible as a financial creditor under Section 5(7)
- The Appellant highlighted that IREDA had already filed an OA before DRT for the same debt, acknowledging that the proper forum was not IBC
For the Respondent
IREDA countered that:
- Service via the MCA-registered email [email protected] was valid under Rule 38 of the NCLT Rules, 2016, and Section 20(2) of the Companies Act, 2013
- The Appellant had failed to update its registered address despite ceasing operations there, placing the burden of compliance on the company
- The OTS-2 was explicitly conditional and provided for automatic withdrawal on default, which occurred on 25.11.2022
- The withdrawal of OTS-2 revived the original loan obligations, making the entire outstanding debt (including interest) recoverable
- The interest component of ₹2.98 Crores exceeds the ₹1 crore threshold under Section 7, making the petition maintainable
- The Appellant had admitted the existence of the debt and default in its own communications
- The Appellant’s reliance on Sunil Sanghavi and Amit Jain was distinguishable, as those cases involved lack of any service, whereas here, service was effected and acknowledged
- The NCLT’s role under Section 7 is limited to verifying existence of debt and default, not adjudicating commercial disputes
- The Appellant’s claims about 25,000 families and operational viability are irrelevant to the statutory test under Section 7
The Court's Analysis
The NCLAT undertook a rigorous analysis of service, statutory interpretation, and the nature of default under Section 7. The Tribunal first addressed the Appellant’s central contention that the ex-parte admission order was void due to defective service.
"Service of a Section 7 petition on the registered email address of the Corporate Debtor, as reflected in the records of the Ministry of Corporate Affairs, constitutes valid and sufficient service under Rule 38 of the NCLT Rules, 2016."
The Tribunal relied on its own precedents in Akhilesh Kumar v. Bank of Baroda and Rajnish Gupta v. Union Bank of India, holding that the MCA-registered email address is the legally recognized channel for service. The Appellant’s failure to update its registered address under Section 12 of the Companies Act, 2013, placed the onus squarely on the company. The Tribunal emphasized that the law does not require personal service on directors or operational offices when the statutory address has been properly served.
The Tribunal further noted that service was also attempted via registered post to the registered office, which was returned undelivered, and newspaper publication was conducted as per Rule 38(3). The Appellant’s own letter dated 27.08.2024, sent from the registered address, confirmed its awareness of the address on record.
On the issue of default, the Tribunal held that the withdrawal of OTS-2 on 12.12.2022 revived the original loan obligations. The Appellant’s subsequent payments were adjusted against the revived debt, not the reduced OTS amount. The Tribunal cited Glamour India Private Limited v. Canara Bank and Bahadur Ram Mallah v. ARCL to affirm that breach of an OTS does not limit the creditor’s claim to the remaining OTS balance; the entire original debt becomes enforceable.
"The execution of a settlement agreement does not alter the nature of the underlying financial debt, and in the event of a breach, the financial creditor is entitled to claim the entire dues under the original financial arrangement."
The Tribunal rejected the Appellant’s argument that only interest remains and therefore IBC cannot be invoked. It relied on Base Realtors Pvt. Ltd. v. Grand Realcon Pvt. Ltd., holding that interest, if exceeding the ₹1 crore threshold, constitutes a valid financial debt under Section 5(8). The Appellant’s own admission of ₹2.98 Crores outstanding interest satisfied the statutory requirement.
The Tribunal dismissed the Appellant’s claims of mala fide intent and misuse of IBC, noting that the existence of parallel DRT proceedings does not invalidate the Section 7 petition. The Code is self-contained and does not bar concurrent remedies. The Tribunal also rejected the argument that IREDA’s supervisory role disqualified it as a financial creditor, noting that the definition under Section 5(7) is broad and includes any person extending financial debt, regardless of additional oversight.
The Tribunal concluded that the NCLT correctly applied the limited statutory test under Section 7: existence of debt and default. The Appellant’s arguments on socioeconomic impact, operational viability, and equitable conduct were outside the scope of adjudication under Section 7, as affirmed in Innoventive Industries v. ICICI Bank.
The Verdict
The appeal was dismissed. The NCLAT upheld the NCLT’s order dated 07.04.2025 admitting the Section 7 petition and initiating CIRP against JHV Sugar Limited. The Tribunal held that the outstanding interest of ₹2,98,85,658/- constitutes a valid financial debt exceeding the ₹1 crore threshold under Section 7 of the IBC. Service via the MCA-registered email address [email protected] was deemed valid and sufficient under Rule 38 of the NCLT Rules, 2016. The withdrawal of OTS-2 on 12.12.2022 revived the original loan obligations, and the Corporate Debtor’s subsequent payments were properly adjusted against the revived debt. The Corporate Insolvency Resolution Process shall continue as ordered. No costs were awarded.
What This Means For Similar Cases
Interest Alone Can Trigger CIRP Under Section 7
- Practitioners must now treat any unpaid interest component exceeding ₹1 crore as a standalone ground for initiating CIRP, even if principal is repaid
- Creditors may rely on certified ledgers under the Bankers Book Evidence Act, 1891 and NeSL reports to prove interest defaults
- Debtors cannot avoid CIRP by arguing that only interest remains outstanding
MCA-Registered Email Is Sufficient Service
- Service via the MCA-registered email address is now conclusively valid under Rule 38 of the NCLT Rules, 2016
- Companies must ensure their MCA-registered email and address are functional; failure to update constitutes waiver of notice defenses
- Attempts to challenge service on grounds of "non-receipt" or "wrong address" will fail if the MCA record was used
OTS Breach Revives Original Debt
- A breached One-Time Settlement does not cap the creditor’s claim to the remaining OTS balance
- The original loan terms revive automatically upon breach, unless the OTS explicitly states otherwise
- Creditors may claim the full original debt, including accrued interest, post-breach
- Debtors must treat OTS as conditional and risk full liability upon non-compliance
IBC Is Not a Recovery Tool - But It Is a Debt Enforcement Tool
- The IBC is not meant for recovery of small dues, but it is not barred from enforcing legitimate debts, even if interest-only
- Parallel proceedings in DRT or under NI Act do not preclude Section 7 petitions
- Courts will not entertain arguments on "equity," "clean hands," or "social impact" at the admission stage
- The focus remains strictly on debt and default - not commercial fairness or stakeholder consequences
