TaxTMI 
TaxTMI 
2026 (5) TMI 1380
X X X X Extracts X X X X
X X X X Extracts X X X X
.... With Company Appeal (AT) (Insolvency) No. 333 of 2025 With Company Appeal (AT) (Insolvency) No. 334 of 2025 With Company Appeal (AT) (Insolvency) No. 338 of 2025 With Company Appeal (AT) (Insolvency) No. 339 of 2025 With Company Appeal (AT) (Insolvency) No. 340 of 2025 With Company Appeal (AT) (Insolvency) No. 352 of 2025 With Company Appeal (AT) (Insolvency) No. 353 of 2025 With Company Appeal (AT) (Insolvency) No. 341 of 2025 With Company Appeal (AT) (Insolvency) No. 342 of 2025 With Company Appeal (AT) (Insolvency) No. 343 of 2025 With Company Appeal (AT) (Insolvency) No. 349 of 2025 With Company Appeal (AT) (Insolvency) No. 364 of 2025 With Company Appeal (AT) (Insolvency) No. 378 of 2025 JUSTICE ASHOK BHUSHAN CHAIRPERSON AND BARUN MITRA MEMBER (TECHNICAL) For the Appellant : Mr. Abhijeet Sinha, Sr. Advocate with Mr. Akshat Singh and Mr. Utkarsh Kandpal, Advocates. For the Respondents : Mr. Bishwajit Dubey, Mr. Kunal Godhwani and Ms. Kinjal Chadha, Advocates for R-1. Mr. Aditya Wadhwa, Mr. Arunav Sarma and Mr. Abhyankar Pant, Advocate for PNB JUDGMENT Ashok Bhushan, J. These 18 Appeals have been filed challenging nine separate orders passed by the Adjudica....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... units of SPV, as and when propose to set up independent entities in the park shall be required to get the Lease Deed executed directly with J&K State Industrial Development Corporation Ltd. Lessee was authorised to raise necessary construction (factory building etc.) on the lease premises. Ownership of the land was to remain with the State of Jammu and Kashmir. After the above Lease Deed, a Memorandum of Agreement was entered on 29.05.2013 on behalf of the President of India through Secretary of Ministry of Textile, Government of India and J&K Integrated Textile Parks Limited, Appellant, the Financial Creditor. Under the MoU, SPV was responsible for implementing the project as per approval granted by Ministry of Textiles to ensure that textile park is used only for setting up units operating in textile sector. Government of India also sanctioned project cost of Rs. 39.70 Crores to the Appellant, Financial Creditor. After allocation of land and execution of MoU, the Appellant was to build up infrastructure on the allotted land for setting up the textile project. The Appellant allocated sites to nine industries (hereinafter referred to as Corporate Debtor). A Tripartite Agreement da....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stating that the Corporate Debtor has not been able to pay the outstanding amount, however, along with letter, post dated cheques for amount of Rs. 4,70,00,000/- were enclosed. The cheques which were issued by the Corporate Debtors were dishonoured. Notice was issued by the Financial Creditor to the Corporate Debtor for initiating proceeding calling upon the Corporate Debtor to make the payment of the amount failing which Financial Creditor shall be constrained to initiate proceeding under Section 138 of the NIA Act. Demand notices were issued from time to time to the Corporate Debtor demanding the amount. Punjab National Bank has also initiated proceeding under Section 13(2) of the SARFAESI Act, 2002 with respect to Corporate Debtors. Steps were taken by the Punjab National Bank to auction the assets of the Corporate Debtor. Auction was held by the Punjab National Bank and Sale Certificate were also issued to the auction purchaser. Section 7 application was filed by the Financial Creditor in December 2023. Section 7 applications were filed against the Corporate Debtor. 2.2. The details of separate nine Section 7 applications filed by the Financial Creditors against nine Corpora....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Appellant i.e., J AND K SYNTHETIC Private Limited; 9 353/25 Jyotsna Industries Pvt. Ltd. Vs. J&K Integrated Textiles Park Limited And Ors. & Ors 8-1-25 in CP(IB)/No. 307/CHDJ &K/2023 Set aside the Impugned Order in so far as it imposes penalty of Rs. 25,00,000/- on the Appellant i.e., JYOTSNA Industries Private Limited; 2.3. The Corporate Debtors have also filed nine appeals challenging the order. Details of the Appeals filed by the Corporate Debtor are noticed in tabular form as follows: Sl. No. Appeal No. Party Name Impugned Order Dated with NCLT Filing No. Relief Sought 1 289/25 Silklon Processors Private Limited Vs. J&K Integrated Textiles Park Limited & Ors & Ors 8-1-25 in CP(IB)/No. 309/CHD/ J&K/2023 Set aside the Impugned Order in so far as it imposes penalty of Rs. 25,00,000/- on the Appellant i.e., SILKLON PROCESSORS Private Limited; 2 307/25 Orbit Spinning Private Limited Vs. J&K Integrated Textiles Park Limited & Ors. & Ors 8-1-25 in CP(IB)/No. 312/CHD/ J&K/2023 Set aside the Impugned Order in so far as it imposes penalty of Rs. 25,00,000/- on the Appellant i.e., ORBIT SPINNING Private Limited; 3 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o.2 in Company Appeal (AT) (Insolvency) No.235 of 2025, a minority shareholder of the Financial Creditor praying that he has already initiated proceedings under Sections 241-242 against the Financial Creditors. It was pleaded that the penalty be imposed under Section 65 of the IBC and Section 7 application be dismissed. Similar, applications were filed by the Punjab National Bank and Sunder Lal Aggarwal in the proceeding against the other Corporate Debtors. Sunder Lal Aggarwal also pleaded that the Financial Creditor is not authorised to initiate proceeding under Section 7. The Financial Creditor raised objection regarding maintainability of application under Section 65 by the Punjab National Bank and Sunder Lal Aggarwal. Adjudicating Authority allowed the Financial Creditor to raise objection regarding maintainability of the application. Under the order of the Adjudicating Authority, the Financial Creditor also brought on record the Board Resolution dated 20.11.2014. The Corporate Debtor also filed reply. Adjudicating Authority heard the parties on Section 7 applications as well as on IAs filed by Punjab National Bank and Sunder Lal Aggarwal. Financial Creditor also filed NeSL rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....On Issue No.(D), the Adjudicating Authority held that the Financial Creditor and the Corporate Debtor are related parties and Section 7 petition filed by J&K Integrated Textiles Park Limited is collusive in nature. After answering the above issues, ultimate conclusion was recorded by the Adjudicating Authority in paragraph 30. Ultimate reasons for dismissing Section 7 applications were recorded in paragraph 30 which is as follows:- "30. In light of the foregoing discussion, we are of the considered view and arrive at the irreversible conclusion that the present Section 7 Petition is collusive and malicious in nature as the Financial Creditor, JKITPL, and the Corporate Debtor, M/s Silklon Processors Pvt. Ltd. are related parties and the authorised representative of the Petitioner Company, Mr. Ram Avtar Aggarwal does not have valid Power of Attorney to file the present petition. Further, there is no cogent evidence available for disbursal of the debt amount to the Corporate Debtor by the Financial Creditor and does not fulfill the essential ingredients of a financial debt as defined under Section 5(8) of the Code. Thus, C.P. (IB) No. 309/Chd/J&K/2023 is dismissed and dispose....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Chandigarh Bench passed in Company Petition No. (IB) 309/Chd/J&K/2023 in so far as it imposes penalty of Rs. 25,00,000/- on the Appellant i.e., SILKLON PROCESSORS Private Limited; (iii) Pass any other order or directions as this Hon'ble Appellate Tribunal may deem fit." 3. We have heard Shri Abhijeet Sinha, Learned Senior Counsel for the Appellant, Shri Bishwajit Dubey and Mr. Kunal Godhwani, Learned Counsel for the Corporate Debtor, Shri Aditya Wadhwa, Learned Counsel for the Punjab National Bank. 4. Notices were issued to Sunder Lal Aggarwal, the Respondent in the Appeals. This Tribunal in proceeding dated 27.08.2025 has noted that Sunder Lal Aggarwal has not entered appearance or filed his reply, in event, he does not file reply before next date, he will be set ex-parte. Fresh notices were issued on Sunder Lal Aggarwal by this Tribunal on 18.09.2025. Notices were served on Sunder Lal Aggarwal but neither he appeared nor he filed reply which has been noted in proceeding of this Appeal dated 27.11.2025. 5. Shri Abhijeet Sinha, Learned Senior Counsel for the Appellant challenging the impugned order submits that the Adjudicating Authority committed error in ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Financial Creditor to seek remedy under Section 7 which is independent statutory remedy. Filing of Section 7 application at the time when SARFAESI proceedings were underway cannot be reason to hold that initiation of proceedings were fraudulent or malicious. It is submitted that the auction conducted by the Punjab National Bank has already been set aside by the Punjab & Haryana High Court. It is submitted that applications filed by the Punjab National Bank and Sunder Lal Aggarwal under Section 65, no notices were issued and Financial Creditor was not asked to file any reply to meet the allegation. 6. The finding of the Adjudicating Authority that Mr. Ram Avtar Aggarwal who was authorised by the Board Resolution was not competent to file Section 7 application is wholly erroneous. The mere fact that the Board Resolution was passed on 21.11.2014 cannot be a reason to hold that Section 7 application could not have been filed by Mr. Ram Avtar Aggarwal. 7. Learned Counsel appearing for the Corporate Debtor who has also filed nine appeals, as noted above, challenging the impugned order submits that the Adjudicating Authority exceeded its jurisdiction imposing penalty on Corporate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....b National Bank has yet to obtain any NOC from J&K State Industrial Development Corporation Ltd. which means lacks the authority to auction. It is, however, submitted that initiation of SARFAESI proceeding in no manner can interdict the Financial Creditor to initiate Section 7 proceedings which are independent statutory proceeding which are necessary for resolution of the Corporate Debtor in the facts of the present case. As noted above, Sunder Lal Aggarwal did not appear nor file any reply or oppose the appeals. 10. From the submissions which have been made by Counsel for the parties and materials on the record, following are the issues which arise for consideration:- (I) Whether Section 7 application filed by the Financial Creditor on the strength of Board Resolution dated 21.11.2014 was incompetent and unauthorised and the Adjudicating Authority has rightly rejected the application under Section 7 as unauthorised and incompetent? (II) Whether there was no financial debt in the transaction between the Financial Creditor and the Corporate Debtor within the meaning of Section 5(8) of the IBC? (III) Whether Financial Creditor is related party to the Cor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... How could the Board have visualised the enactment and enforcement of this Code two years advance in 2014? Thus, in the case in hand, a Board Resolution ought to have been passed in favour of the Petitioner authorising him to file the present Section 7 Petition under the Code. Thus, the Power of Attorney relied upon by the Petitioner is obsolete and not valid in the present circumstances. (iv) Furthermore, the Board Resolution passed in the meeting dated 21.11.2014, is already under challenge in the Company Petition filed under Section 241, 242 and 244 of the Companies Act, 2013, which was filed in the year 2022, before the filing of the present petition and pending consideration before this Bench. Hence, it can be safely concluded that present Section 7 Petition is not supported by valid Board Resolution/ authorisation." 12. We need to first notice the resolution passed by the Board of Directors of the Financial Creditor dated 20.11.2014. It is useful to notice the following Agenda Item No.9 and resolution passed therein:- "9. GENERAL POWER OF ATTORNEY ON BEHALF OF COMPANY Mr. Aggarwal submitted that the company should authorized one person for signin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion for filing Section 7 application was rejected. In paragraph 12 of the judgment Hon'ble Supreme Court has noted one of the issues regarding maintainability under Section 7 filed by the Power of Attorney. In paragraph 8, two issues were noticed. The Hon'ble Supreme Court in paragraphs 12, 13 and 14 has laid down following:- "12. The authorisation, in terms of the power of attorney, given by the financial creditor to Mr Praveen Kumar Gupta who has filed the application under Section 7 of the Code has been placed on record. Pursuant to the resolution passed by the Board of Directors of the Bank on 6-12-2008, the power of attorney was executed by the general managers in 2011. By way of the said power of attorney, Mr Praveen Kumar Gupta was appointed by the Bank to act as its constituted attorney with respect to "all the business and affairs of the Bank and to conduct and manage and to assist in the conduct and management of all such businesses and affairs of the Bank, both within and outside India and to do all acts, deeds and things necessary or proper for carrying on the business and affairs of the Bank". Further, Mr Praveen Kumar Gupta has also been authorised t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Section 7 of the Code, merely because the authorisation was granted through a power of attorney. Moreover, NCLAT in Palogix Infrastructure [Palogix Infrastructure (P) Ltd. v. ICICI Bank Ltd., 2017 SCC OnLine NCLAT 266] has held that if the officer was authorised to sanction loans and had done so, the application filed under Section 7 of the Code cannot be rejected on the ground that no separate specific authorisation letter has been issued by the financial creditor in favour of such officer. In such cases, the corporate debtor cannot take the plea that while the officer has power to sanction the loan, such officer has no power to recover the loan amount or to initiate corporate insolvency resolution process, in spite of default in repayment. We approve the view taken by NCLAT in Palogix Infrastructure [Palogix Infrastructure (P) Ltd. v. ICICI Bank Ltd., 2017 SCC OnLine NCLAT 266]" 15. The Hon'ble Supreme Court upheld the view of this Tribunal in "Palogix Infrastructure (P) Ltd. v. ICICI Bank Ltd., 2017 SCC OnLine NCLAT 266" that application under Section 7 on the basis of Power of Attorney holder is maintainable. It is relevant to notice that in the case before the Hon'ble Sup....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Corporate Debtor were to pay to JKITPL, is not in nature financial debt, as it intends towards availing services from JKITPL by the Corporate Debtor, i.e., use of the leased premises and buildings. (iv) While determining, whether a debt falls within the definition of financial debt as defined under Section 5(8) of the Code, mere existence of the debt is not to be ascertained. In addition to the existence of the debt, the intended use of such debt is also to be seen in order to categorise it as a financial debt. In the case of Jaipur Trade Expocentre Pvt. Ltd. v. Metro Jet Airways Training Pvt. Ltd., 2022, ibclaw.in 209 NCLAT, a full-bench of the National Company Law Appellate Tribunal established that dues related to the lease and license of immovable property are classified as 'operational debt' under Section 5(21) of the Insolvency & Bankruptcy Code, 2016." 17. Adjudicating Authority further noticed that in the balance sheet of the Corporate Debtor the debt is shown as unsecured loan. In para C (v), following was held:- "(v) Further, in the Petition filed under Section 7 of the Code, the Financial Creditor has not appended any cogent evidence of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Second Party has agreed to provide the Unsecured Loan of Rs. 3,55,00,000/-to party of the first part; 2. That the Party of the First Part has also agreed to pay the Unsecured Loan Amount along with the Interest @13% P.a.; 3. That the Party of the First Part will pay the Interest Amount w.e.f. 01.01.2018 yearly and the Principle Amount will be paid into three years starting from 01.01.2020 into equal 36 monthly installments. The holiday period for payment is provided upto 31.12.2019. The party of the second part is providing the exceptional holiday period and the repayment into three years from January 2020. 4. That the party of the first part will pay the penal Interest @2% P.a. quarterly on the default amount of Interest and principle amount due." 20. The above Loan Agreement clearly has two parts Rs. 3,20,00,000/-cost of land that was in lieu of allotment of 20 Kanals land to the Corporate Debtor by the Financial Creditor. We have already noticed that 200 Kanals road allotted by J&K State Industrial Development Corporation Ltd. of premium lease rent to the Financial Creditor and Financial Creditor thus has allotted 20 Kanals land to the Corporate Deb....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "5. Definitions. - (24) "related party", in relation to a corporate debtor, means- (a) a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor; (b) a key managerial personnel of the corporate debtor or a relative of a key managerial personnel of the corporate debtor; (c) a limited liability partnership or a partnership firm in which a director, partner, or manager of the corporate debtor or his relative is a partner; (d) a private company in which a director, partner or manager of the corporate debtor is a director and holds along with his relatives, more than two per cent. of its share capital; (e) a public company in which a director, partner or manager of the corporate debtor is a director and holds along with relatives, more than two per cent. of its paid- up share capital; (f) anybody corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor; (g) any limited liability partnership or a partnership firm whose partner....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the JKITPL 3. M/s Green Textorium Pvt. Ltd. Its directors Mahesh Kumar Sharma and Rajesh Kumar Sharma are employees of the JKITPL. Vijay Aggarwal is the M/s J and K Textorium Pvt. Ltd to the Intervener Bank and is the son of Sunder Lal Aggarwal, i.e., one of the directors in the JKITPL. 4. M/s J and K Synthetic Pvt. Ltd. Its directors Mahesh Kumar Sharma and Rajesh Kumar Sharma are employees of the JKITPL. 5. M/s Silkion Synthetic Pvt. Ltd. Its directors Mahesh Kumar Sharma and Rajesh Kumar Sharma are employees of the JKITPL. 6. M/s Toplon Industries Pvt. Ltd. Its directors are Kush Aggarwal and Onkar Singh. Kush Aggarwal is the son of Sh. Ram Avtar Aggarwal, director of the JKITPL and the JKITPL had also given his guarantee in the loan account. In addition to the above, Jyotsna Aggarwal, Disha Aggarwal and Anuradha Aggarwal had given their personal guarantees. Jyotsna Aggarwal is the wife of Ram Avtar Aggarwal and Disha Aggarwal is the daughter of Ram Avtar Aggarwal i.e. director in the JKITPL. 7. M/s Jyotsna Industries Pvt. Ltd Its directors are Sajan Marriya and Jyotsna Aggarwal, wife of Ram Avtar Aggarwal, i.e. director in the JKI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is relative is a partner; Not Applicable (d) a private company in which a director, partner or manager of the corporate is a director and holds along with his relatives, more than two per cent. of its share capital; None of the director, partner or manager of the debtor Corporate Debtor is a director in JKITP (e) a public company in which a director, partner or manager of the corporate debtor is a director and holds along with relatives, more than two per cent. of its paid-up share capital; Not Applicable (f) anybody corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor; Board of directors, managing director or manager of JKITP do not act on the advice, directions or instructions of a director, partner or manager of the Corporate Debtor (g) any limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor; Not Applicable (h) any pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is no elaboration in the impugned order as to Corporate Debtor under which clause of Section 5(24) is covered and can be held to be related party. However, for argument sake, if it is accepted that Corporate Debtor was related party to the Financial Creditor that cannot be any reason to prohibit Financial Creditor to file a Section 7 application even against a related party. When financial debt is proved and from the records it is proved that the financial debt has not been paid, we have already noticed that in reply to the recall notice the Corporate Debtor- Silklon Processors Pvt. Ltd. has given post dated cheques which cheques came to be dishonoured and complaint under Section 138 has been filed by the Financial Creditor against the Corporate Debtor for dishonour of the cheque. We, thus, are of the view that no satisfactory finding has been returned by the Adjudicating Authority in the impugned order as to relation that how the Corporate Debtor and Financial Creditor are related and are covered in which sub-clause of Section 5(24). We thus, are of the view that the findings of the Adjudicating that the Corporate Debtor the Financial Creditor are related party cannot be upheld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been fraudulently initiated with malicious intent. 28. Now coming to the application filed by Punjab National Bank being IA No.260 of 2024. The pleadings in IA filed by the Punjab National Bank is that the Punjab National Bank has also extended financial facilities to nine units and on default being committed by the Corporate Debtor proceeding under SARFAESI Act has been initiated. Punjab National Bank who was also a Financial Creditor to the Corporate Debtor was free to initiate proceeding under SARFAESI Act to recover its dues. The submission which has been pressed by the Counsel for the Punjab National Bank that timing of filing of the application under Section 7 clearly indicate malicious initiation. It is submitted that the Punjab National Bank has auction the assets of the Corporate Debtor. The application was filed on very next day. The proceeding under SARFAESI Act by the Bank against the assets of the Corporate Debtor are independent proceeding and in no manner can be said to interdict the proceeding under Section 7. We have already noticed the background facts of the case which indicate that entire project was conceptualised under the scheme floated by Ministry of Ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re incorrect observation that petition is collusive and malicious cannot be upheld. The conclusion in paragraph 30 by the Adjudicating Authority were based on their earlier conclusion that (i) there was no financial debt (ii) Financial Creditor and Corporate Debtor are related party which finding we have not been approved. We are of the view that the conclusion recorded in paragraph 30 becomes unsustainable and dismissal of Section 7 application also is unsustainable. Issue No.(V) 30. Coming to Issue No.(V) under which the penalty has been imposed by the Corporate Debtor. Learned Counsel for the Corporate Debtor has relied on the judgment of this Tribunal in "Rakesh Arora & Anr. vs. Acute Daily Media Pvt. Ltd. & Ors -Company Appeal (AT) (Ins.) No.1606 of 2024" which appeal was filed by the Promoter of the Corporate Debtor challenging the penalty imposed under Section 65. This Tribunal while interpreting Section 65 has held that penalty under Section 65 relates to person who has initiated the insolvency resolution process. In paragraphs 8, 9 and 10 of the judgment, following has been laid down:- "8. "Initiation date" has been defined in Section 5(11). From the definit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y can be imposed on any person other than one who has fraudulently or maliciously initiated the proceedings. It is well settled that penal statute are to be strictly construed. We may refer to the judgment of the Hon'ble Supreme Court in "(2013) 8 SCC 71- Aparna A. Shah vs. Sheth Developers Pvt. Ltd. & Anr." where in reference to Section 138 of the NIA Act, the Hon'ble Supreme Court has occasion to consider the construction of penal provision. In paragraphs 15 & 16, following was laid down:- "15. In S.K. Alagh v. State of U.P. ((2008) 5 SCC 662: (2008) 2 SCC (Cri) 686) this Court held: (SCC p. 667, para 19) "19.... If and when a statute contemplates creation of such a legal fiction, it provides specifically therefor. In absence of any provision laid down under the statute, a Director of a company or an employee cannot be held to be vicariously liable for any offence committed by the company itself. (See Sabitha Ramamurthy v. R.B.S. Channabasavaradhya [(2006) 10 SCC 581: (2007) 1 SCC (Cri) 621].)" 16. In Sham Sunder v. State of Haryana [(1989) 4 SCC 630: 1989 SCC (Cri) 783], this Court held as under: (SCC p. 632, para 9) "9.... The penal p....