Authority: National Company Law Tribunal, Ahmedabad Bench (Court-II)

Order Date: 15/07/2026

Case Overview

This proceeding involved an application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 by Mangaldas Finance, a sole proprietorship of Asit Surendrabhai Shah (Financial Creditor), seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Milano Papers Private Limited (Corporate Debtor). The Financial Creditor claimed a default amount of ₹9,56,94,059/-, comprising ₹9,33,01,452/- in principal and ₹23,92,607/- in interest, with the date of default stated as 07.11.2025.

The Financial Creditor asserted that it had sanctioned four term loans aggregating ₹16,70,00,000/- to the Corporate Debtor on 03.10.2024 at 15% interest per annum with a 24-month tenure. These funds were specifically disbursed to Yes Bank Limited on behalf of the Corporate Debtor to repay its existing loan obligations: ₹8,00,00,000/- on 03.10.2024 and ₹4,00,00,000/-, ₹3,65,00,000/-, and ₹1,05,00,000/- on 04.10.2024. The facilities were secured by a mortgage deed dated 19.12.2024. The Corporate Debtor made repayments until 08.10.2025 but defaulted from 07.11.2025. A demand notice was issued on 28.11.2025, to which the Corporate Debtor replied on 01.12.2025, admitting receipt but citing financial crunch and seeking a 30-day extension, which was not honored.

The Corporate Debtor contested the petition, arguing it was incomplete and non-compliant with relevant rules. It claimed the Financial Creditor's license under the Gujarat Money Lenders Act, 2011 restricted its lending area and that accepted irregular payments had novated the original repayment terms. It further argued that no 'debt' or 'default' as defined under the IBC existed.

The Tribunal examined the maintainability of the petition, particularly whether the applicant qualified as a financial creditor. The Financial Creditor submitted its money lending registration certificate valid from 20.02.2024 to 19.02.2029 and cited judicial precedents including Innoventive Industries Ltd. vs ICICI Bank Ltd. and Catalyst Trusteeship Ltd. vs Ecstasy Realty Pvt. Ltd.

Key Observations and Reasoning

The Tribunal made several critical observations leading to its decision:

  • The applicant is registered under the Gujarat Money Lenders Act, 2011, a state-regulated activity. However, the nature of the loan—arranged specifically to repay the Corporate Debtor's existing loan to Yes Bank—was deemed not to constitute the typical activity of a money lender. Consequently, the loan did not qualify as a 'financial debt' under Sections 5(7) & (8) of the IBC, and the applicant could not be considered a 'financial creditor'.
  • The transfer of funds from the applicant's loan account (at Social Cooperative Bank) directly to Yes Bank's account on behalf of the Corporate Debtor was construed not as a loan disbursement to the Corporate Debtor but as an arrangement for debt repayment, which falls outside the purview of money lending as defined.
  • Section 39 of the Gujarat Money Lenders Act regulates recovery modes and sets certain prohibitions. The Tribunal concluded the applicant was ineligible to file an application under Section 7 of the IBC, 2016, as the Code's CIRP process is distinct from recovery actions.
  • The petition was found to have inconsistencies, including the date of sanction not aligning with the credit to Yes Bank, an unclear date of default, and an overall appearance of being collusive.

Final Outcome

The application (C.P. (IB) No. 38 of 2026) was rejected and disposed of. The Tribunal directed the Applicant, Mangaldas Finance, to pay costs of ₹1,00,000/- (One Lakh Rupees) to the Prime Minister's National Relief Fund. The Corporate Insolvency Resolution Process was not initiated against Milano Papers Private Limited.

Topics: Insolvency Petition, Money Lending Regulations