CASE UPDATES:

Compliance with the NCLT Rules cannot substitute for the specific obligation imposed by the IBC, and mere filing of a ‘defective’ affidavit in support of an application would not render the very application non est and liable to be rejected on that ground, as it is neither an incurable nor a fundamental defect

The Supreme Court in the case of Livein Aqua Solutions Private Limited vs HDFC Bank Limited [Civil Appeal No. 11766 of 2025] dated November 24, 2025, has held that the financial creditor must be allowed to correct procedural deficiencies in its Section 7 application under the Insolvency and Bankruptcy Code, 2016, directing it to cure the noted defects within seven days before the National Company Law Tribunal resumes proceedings. In the matter arising from a dispute concerning a loan that was later classified as a non-performing asset and the creditor’s attempt to initiate the corporate insolvency resolution process, the Court stated that irregularities such as a flawed affidavit are remediable and cannot form the basis for immediate rejection. 

The dispute concerns a financial creditor’s application under Section 7 of the Insolvency and Bankruptcy Code (IBC) seeking initiation of the corporate insolvency resolution process against a company that had availed a loan facility of ₹5.5 crores. The account was classified as a non-performing asset, following which the creditor filed the statutory Form 1 application before the National Company Law Tribunal (NCLT), accompanied by documents prescribed under the IBC framework. The application was supported by an affidavit that had been executed before the date on which the application itself was verified. 

The Court examined the procedural scheme governing applications under Section 7 of the Insolvency and Bankruptcy Code and the requirements under the National Company Law Tribunal Rules and observed that the scrutiny process undertaken by the NCLT Registry, including the issuance of consolidated notices for several matters, did not satisfy the statutory mandate requiring notice to the applicant itself under the proviso to Section 7(5)(b). Further, compliance with the NCLT Rules cannot substitute for the specific obligation imposed by the IBC.

The Court pointed out that mere filing of a ‘defective’ affidavit in support of an application would not render the very application non est and liable to be rejected on that ground, as it is neither an incurable nor a fundamental defect. The procedure, a handmaiden to justice, should never be made a tool to deny justice or perpetuate injustice, by any oppressive or punitive use. Also, curable defects cannot be treated as grounds for terminating proceedings at the outset unless the statute expressly requires such a consequence. The Court, therefore, observed that the NCLAT ought to have asked the respondent-bank to cure the defective affidavit at least at that stage, instead of ignoring it and directing the NCLT to proceed to hear the company petition on merits and in accordance with law. Thus, the Court directed the respondent bank to cure the defects. 

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Seeking a stay on the Family Court order under the guise of insolvency proceedings under the Presidency Towns Insolvency Act, 1909, would undermine the very purpose of the maintenance order passed by the Family Court and would embolden the debtor to escape liability through insolvency proceedings, which is not permitted. The amount payable for the maintenance of the wife cannot be termed as “debt”.

The Bombay High Court in the case of Mehul Jagdish Trivedi vs Manisha Mehul Trivedi [Insolvency Petition No. 01 of 2025] dated November 20, 2025, has ruled that the husband (debtor) cannot seek a declaration as an “insolvent” under the Presidency Towns Insolvency Act, 1909, just because he has pleaded inability to pay the maintenance amount to his estranged wife, as per the order of the Family Court. The Court therefore refused to grant relief to the debtor-husband, who has sought to take the shield of “insolvency” to protect himself from the sword of the Family Court order that makes him liable to pay maintenance. 

The Court emphasised that, by seeking a stay of the Family Court order under the guise of insolvency proceedings, the petitioner (husband) would undermine the very purpose of the maintenance order passed by the Family Court and would embolden the debtor to escape liability through insolvency proceedings.

The Court also clarified that the Insolvency Act cannot be abused to seek a stay of the Family Court’s order granting maintenance when the petitioner himself has challenged that order in the Criminal Revision Petition. Further, the debtor cannot adopt a modus operandi by taking recourse to the Insolvency Act to modify or frustrate the order passed by the Family Court. Since, under the Insolvency Act, there is a specific provision under Section 9(2) for dealing with insolvency proceedings based on a decree or order for payment of money, the petitioner cannot take shelter of Section 9(1)(f) of the Insolvency Act, and cannot bypass the provisions of sub-section (2) of Section 9 for declaring himself as an insolvent. 

The Court referred to the provision of Section 14(1)(a) read with Section 9(1)(f) of the Insolvency Act that entitles a person to present an insolvency petition by treating the same as an act of insolvency, which is only for the purpose of defining eligibility to file the petition and not for an automatic order by the Court to be declared as an insolvent. The Court clarified that Section 14(1)(a) only lays down the qualifying amount for filing the insolvency petition by a debtor, and merely because the debts are more than Rs. 500, it does not mean that automatically on a petition being filed, the Court has no option but to declare the petitioner as an insolvent. 

As far as the issue of whether the order/decree of a Civil Court passed against the husband for maintenance of his wife is a “debt” or not, the Court referred to the decision in the case of Hemavathiamma vs. Kumaravela Mudalia [AIR 1968 Mysore 111], where the then Mysore High Court had concluded that the amount payable for the maintenance of wife cannot be termed as a debt but it is a moral duty and, therefore, an order of declaring the husband therein as an insolvent cannot be passed under the Provincial Insolvency Act. 

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Any transfer of assets after commencement of the Corporate Insolvency Resolution Process is illegal and in violation of the moratorium under Section 14 of the IBC, even if the transfer is supported by a No Objection Certificate issued by a secured creditor 

The Allahabad NCLT in the case of Paramjeet Singh Bhatia (RP) Vs. Sirajuddin Qureshi and Ors. [IA No.549/2024 IN CP No (IB) 04/ALD/2019], has held that any transfer of assets after commencement of the Corporate Insolvency Resolution Process (CIRP) is illegal and in violation of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, even if the transfer is supported by a No Objection Certificate issued by a secured creditor. The Tribunal clarified that such acts cannot be characterised as mere procedural consequences and amount to unlawful alienation of assets during CIRP.

Rejecting the defence that transfer registration was a procedural outcome of loan closure, the Tribunal observed that the moratorium under Section 14 barred any asset alienation by the suspended board after commencement of CIRP. The change in registration in favour of a third party, even if following issuance of a lender’s NOC, constitutes alienation of assets in violation of Section 14. Further, finding the absence of accounting entries and non-disclosure to the RP, the Tribunal held that it was concealment and diversion of assets by the suspended management.

Banks are not legally entitled to make deductions from the share and dividend accounts during the Corporate Insolvency Resolution Process, as such deductions amounted to an unlawful recovery, which is prohibited under the Insolvency and Bankruptcy Code

The Ahmedabad NCLT in the case of Swastik Ceracon Ltd. vs Mehsana Urban Co-Operative Bank Ltd [IA/370(AHM)2025 In CP(IB) 175 of 2018], has held that Mehsana Urban Co-operative Bank was not legally entitled to make deductions from the share and dividend accounts of Swastik Ceracon Limited during the Corporate Insolvency Resolution Process (CIRP), and that such deductions amounted to an unlawful recovery during a period when any recovery action is prohibited under the Insolvency and Bankruptcy Code. The Tribunal ruled that these deductions were void and directed the bank to return Rs. 56 lacs with 10% interest per annum from the respective adjustment dates.

The Tribunal rejected the bank’s argument on lack of jurisdiction and held that Section 60(5)(c) of the Code entitled the NCLT to adjudicate disputes arising out of the implementation of an approved Resolution Plan. It further held that insolvency set-off can operate only if it is disclosed expressly and recognised during CIRP, and not if asserted unilaterally at a later stage. The Tribunal noted that adjustments carried out by the bank during and after CIRP directly conflicted with the moratorium, depleted the value of the corporate debtor, and undermined the distribution framework under the Code. It emphasised that dividend and share amounts could not be appropriated because shares were protected assets during resolution, and the bank had not disclosed its alleged right.

On the issue of the retained fixed deposit amount, however, the Tribunal differentiated margin money kept against pre-CIRP invoked bank guarantees from share and dividend balances. It held that such margin money is not a protected asset and therefore does not transfer to the Successful Resolution Applicant under the insolvency framework. Accordingly, the bank could retain the margin money amount, but could not justify the deductions made from the share and dividend accounts.

The non-refund of a contractual security deposit, which is provided only as collateral to secure performance obligations, does not constitute “operational debt” under Section 5(21) of the IBC and cannot be used to trigger the Corporate Insolvency Resolution Process under Section 9 of the IBC

The New Delhi NCLT in the case of Unique Tobacco Company vs. Pelican Tobacco (India) Pvt Ltd [C.P. (IB) NO.: 860/ND/2024], has held that the non-refund of a contractual security deposit, which is provided only as collateral to secure performance obligations, does not constitute “operational debt” under Section 5(21) of the Insolvency and Bankruptcy Code, 2016 (IBC). Consequently, such a claim cannot be used to trigger the Corporate Insolvency Resolution Process (CIRP) under Section 9 of the IBC. 

The Tribunal examined the terms of the Manufacturing Agreement, which expressly defined the Rs. 31 lakh payment as a “fixed security amount” meant for ensuring delivery performance and not as an advance for the supply of goods. It is observed that a claim qualifies as operational debt only when the liability sought to be enforced has a direct nexus with the supply of goods or services. Thus, the security amount had “no direct or indirect connection” with any supply transaction and therefore did not fall within the definition of operational debt under Section 5(21) of the IBC. 

The advance amounts paid under a Memorandum of Understanding for land acquisition and development in Noida cannot be classified as “financial debt” under the Insolvency and Bankruptcy Code, 2016 

The New Delhi NCLAT in the case of Airwill JKM Infrastructure Pvt Ltd vs Cadillac Infotech Pvt Ltd [Company Appeal (AT) (Insolvency) No. 1187 of 2025], has held that advance amounts paid under a Memorandum of Understanding (MoU) for land acquisition and development in Noida cannot be classified as “financial debt” under the Insolvency and Bankruptcy Code, 2016. The tribunal declared that the money was paid as part of a collaborative land development arrangement and not as a loan or financial assistance.

The Tribunal observed that the transaction underlying the MoU was meant for joint development of land rather than for lending, and the developer had paid advances to enable the landowner to acquire the adjoining plot for amalgamation with four existing plots already owned by Cadillac Infotech in Noida. The Tribunal therefore held that the amounts paid by the developer were intended to facilitate the subsequent development of an IT project on the combined land parcel.

In determining the nature of the transaction, the NCLAT reiterated that the “real nature of the transaction” must prevail over the label attached by the parties. Referring to the clauses of the MoU, the Tribunal stated that the amount provided by the developer “was towards the project of development in which ultimately the owner and developer have to receive their percentage of share in the entire saleable built-up area and share in the covered and open parking space”. It further noted that the developer was required to exclusively bear the costs of development and obtain permissions, approvals and sanctions to construct the IT project.

Thus, holding that the advances were not disbursed “against consideration for the time value of money,” the NCLAT concluded that the transaction could not be characterised as a financial debt, as the real nature of the transaction is more akin to a joint venture or development agreement rather than a pure financial lending arrangement. 

Committee of Creditors (CoC) is not prohibited from conducting a second challenge process in a Corporate Insolvency Resolution Process (CIRP), even after declaring a highest bidder in the first round. The Highest Bidder cannot insist that the CoC should accept its plan.

The NCLAT New Delhi, in the case of Anuj Goyal v/s Amit Chandrakant Shah, RP of Frost International Ltd. [Company Appeal (AT) (Insolvency) No. 766 of 2025], has reinforced the commercial wisdom of the Committee of Creditors (CoC), and held that the CoC is not prohibited from conducting a second challenge process in a Corporate Insolvency Resolution Process (CIRP), even after declaring a highest bidder in the first round. The Tribunal observed that there is no specific statutory prescription under the IBC or its regulations that restricts the number of challenge rounds a CoC may conduct. The process, including the challenge mechanism, is guided by the CoC’s objective of maximising value and subject to procedural fairness.

The Clauses of the RFRP cited by the appellant were interpreted by the Tribunal to relate only to the freezing of financials for a particular challenge round and did not limit the CoC’s authority to conduct further processes. Thus, there was no procedural irregularity in allowing a second challenge round. Further, the Tribunal observed that being declared the highest bidder does not confer any legal or enforceable right on a resolution applicant to insist that the CoC accept its plan. The CoC is well within its powers to conduct additional negotiations or challenge rounds. Further, finding that the Resolution Professional had already sent an invitation to the appellant for participation, the Tribunal concluded that the appellant was not prejudiced and had an equal opportunity to participate.

For personal guarantors, the date of default is the date on which the guarantee is invoked rather than the date on which the borrower’s loan account is classified as a Non-Performing Asset (NPA)

The NCLT Mumbai, in the case of Bhavna Ravi Matta [C.P. (IB) No. 1043/MB/2022] dated October 29, 2025, has held that for personal guarantors, the date of default is the date on which the guarantee is invoked rather than the date on which the borrower’s loan account is classified as a Non-Performing Asset (NPA). The Tribunal observed that for personal guarantors, the invocation of the guarantee is the operative trigger for determining limitation, and the SARFAESI demand notice, which called upon the applicant to clear the dues within the prescribed statutory period, clearly signified the invocation of the guarantee. 

The Tribunal observed that proceedings under Section 94 of the Insolvency and Bankruptcy Code, 2016, operate as an independent statutory mechanism, and the pendency of SARFAESI proceedings cannot legally inhibit a personal guarantor from initiating insolvency proceedings. The Tribunal held that there was nothing on record to suggest that any amount had been paid by the borrower or the guarantor after the issuance of the SARFAESI notice and therefore accepted the computation of debt and default as furnished.

REGULATORY UPDATES:

RBI issues Trade Relief measures for safeguarding exporters

The Reserve Bank of India (RBI) vide its Press Release dated November 14, 2025, has notified the RBI (Trade Relief Measures) Directions, 2025, to cushion exporters against global headwinds and disruptions in international trade. This set of measures aims to ease debt burdens, extend repayment timelines, and provide greater flexibility in export operations, thereby ensuring the continuity of viable businesses in India’s export sector. These Directions will come into effect from the date of notification itself. 

These Trade Relief Measures shall apply to Commercial Banks, Primary (Urban) Co-operative Banks, State Co-operative Banks and Central Co-operative Banks, Non-Banking Financial Companies (including Housing Finance Companies), All-India Financial Institutions, and Credit Information Companies (‘CICs’) (only for credit history safeguard requirement). 

Under the Foreign Exchange Management (Export of Goods and Services) (Second Amendment) Regulations, 2025, the RBI has introduced relaxations, where the exporters now have 15 months (instead of 9 months) to realise and repatriate the full value of goods, software, or services exported from India. Further, exporters receiving advance payments can ship goods within 3 years (up from 1 year), or as per contractual agreement, whichever is later. 

The exporters have been granted a moratorium on term loan instalments and interest on working capital loans due between September 01, 2025 and December 31, 2025. Lenders are allowed to reassess working capital limits or reduce margins during this period to ease liquidity pressure. Interest accrues on a simple basis (no compounding), with accrued interest converted into a funded interest term loan repayable by September 30, 2026. 

The maximum repayment period for pre-shipment and post-shipment export credit has been extended to 450 days for credit disbursed up to March 31, 2026. Exporters who availed packing credit before August 31, 2025, but could not dispatch goods, may liquidate such facilities through other legitimate sources, including domestic sales or substitution with proceeds from another export order. 

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IBBI enhances compliance & reporting requirements for Resolution Professionals 

The Insolvency and Bankruptcy Board of India (IBBI) vide its Notification F. No. IBBI/2025-26/GN/REG131, dated November 20, 2025, has issued the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) (Second Amendment) Regulations, 2025, effective from November 20, 2025. These amendments enhance compliance and reporting requirements for resolution professionals managing insolvency processes of personal guarantors to corporate debtors.

The IBBI has inserted Regulation 23, which mandates the filing of specified Forms along with enclosures on the Board’s electronic platform within stipulated timelines. Forms must be accurate and complete, and any delay in filing, including corrections or updates, will attract a fee of Rs. 500 per Form per month. Resolution professionals are also liable for actions under the Code for failure to submit forms, inaccurate or incomplete information, or delayed filing, including potential refusal to issue or renew their Authorisation for Assignment. 

The amendment strengthens procedural accountability, ensures timely reporting, and provides IBBI with enforcement powers to maintain the integrity of personal guarantor insolvency processes.

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IBBI issues new framework for appointing Insolvency Professionals, effective January 2026 

The Insolvency and Bankruptcy Board of India (IBBI) has issued a new set of guidelines aimed at streamlining and accelerating the appointment process for Insolvency Professionals (IPs), which will come into force from January 1, 2026. These guidelines mark a significant administrative overhaul intended to reduce delays in assigning Resolution Professionals, Liquidators, and Bankruptcy Trustees in insolvency cases across the country.

According to the guidelines, only professionals with a completely clean regulatory record and a valid Authorisation for Assignment (AFA) throughout the entire empanelment period will be eligible for inclusion. This means that Insolvency Professionals who have any pending disciplinary proceedings before the IBBI or their respective Insolvency Professional Agencies (IPAs), or those convicted by any court within the last three years, will not be considered for empanelment. The Board has clarified that the purpose of this requirement is to ensure that only credible and compliant professionals remain eligible for appointments.

To be included in the panel, every Insolvency Professional must file an Expression of Interest (EOI), which, under the new guidelines, will be treated as an unconditional consent to accept any assignment issued by the Adjudicating Authority. Once empanelled, an IP is expected to honour assignments without refusal. The guidelines specifically state that refusal to act as an Interim Resolution Professional (IRP), Resolution Professional (RP), Liquidator or Bankruptcy Trustee (BT) without sufficient justification will result in removal from the panel for a period of six months. This measure is intended to curb unnecessary refusals that often contribute to delays in commencing insolvency proceedings.

The IBBI will prepare the panel by ranking eligible Insolvency Professionals based on the volume of insolvency assignments they are already handling. Professionals with fewer ongoing assignments will be placed higher on the panel to ensure a fair distribution of workload. In circumstances where two or more professionals achieve the same score under this mechanism, seniority based on their registration date with the Board will determine their order of preference.

The empanelment will be organised on a zone-wise and bench-wise basis. The allocation will be made according to the registered office of the Insolvency Professional, ensuring alignment with the relevant NCLT or DRT benches. Insolvency Professional Entities, however, will be eligible for appointments from any bench in the country. This distinction recognises the wider operational capacity of professional entities compared to individual professionals.

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RBI Initiates UPI–TIPS Integration to Boost India–Eurozone Cross-Border Payments

The Reserve Bank of India (RBI) vide its Press Release dated November 21, 2025, has announced interlinking of the Unified Payments Interface (UPI) system with fast payment systems of other jurisdictions to promote cross-border payments. These initiatives are aligned with the G20 Roadmap for enhancing cross-border payments, focusing on cheaper, more efficient, transparent, and accessible remittances.

The RBI and NPCI International Payments Limited (NIPL) have been engaging with the European Central Bank on the initiative to connect UPI with the TARGET Instant Payment Settlement (TIPS), the instant payment system operated by the Eurosystem. Following constructive and sustained engagement, both sides have agreed to start the realisation phase for the UPI-TIPS link.

The proposed UPI-TIPS interlinkage aims to facilitate cross-border remittances between India and the European Union, and is expected to benefit users in both jurisdictions. The RBI and NIPL will continue to collaborate closely with the European Central Bank to operationalise the UPI-TIPS link, including technical integration, risk management and settlement arrangements.

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