Authority: National Company Law Tribunal (NCLT), Kochi Bench

Order Date: 06.07.2026

Case Overview

The petition was filed jointly by eight financial creditors under Section 7 of the Insolvency and Bankruptcy Code, 2016, against M/s. NCS Autocars Private Limited (Corporate Debtor). The creditors sought initiation of the Corporate Insolvency Resolution Process (CIRP) for an alleged default in repaying a financial debt.

The petitioners consisted of M/s. SC Shah Corporation (a partnership), M/s. SC Shah Exports (a proprietorship), M/s Kamlesh Kumar A Jain and Sons (an HUF), and five individuals: Mr. Suresh Kumar B Jain, Mr. S. Prakash Chand, Mrs. Tushi Bafna, Ms. Prernah S Jain, and Mrs. Khyati Tated.

The claim was based on two loan tranches disbursed in 2023, totaling Rs. 4,00,00,000 (Four Crores).

  • Loan-1: Dated 29.09.2023 for Rs. 2,00,00,000.
  • Loan-2: Dated 11.12.2023 for Rs. 2,00,00,000.

These loans were supported by demand promissory notes executed by the Corporate Debtor, agreeing to repay the amounts with interest within five months. The creditors claimed that after accounting for part-payments aggregating Rs. 1,45,00,000, a total of Rs. 3,82,08,988 remained outstanding as of the petition filing date, comprising Rs. 2,55,00,000 in principal and Rs. 1,27,08,988 in interest.

Legal notices were issued on 21.05.2024 and 23.12.2025 but were either refused or returned unclaimed. The Corporate Debtor was proceeded against ex parte on 22.04.2026 for failing to appear despite service of notice.

The Adjudicating Authority, while acknowledging that the technical requirements of debt and default above the threshold of Rs. 1 Crore were met, conducted a deep scrutiny of the transaction's nature. It relied on the Supreme Court's judgment in Anjani Technoplast Ltd. v. Shubh Gautam to emphasize that the IBC is not a recovery mechanism.

Key findings from the analysis included:

1. The petitioners had issued a large number of post-dated cheques from the Corporate Debtor (ranging from 7 to 27 cheques per creditor) but presented only a few for encashment and did not initiate proceedings under the Negotiable Instruments Act for the dishonored ones.

2. There was no written loan agreement beyond the demand promissory notes, and no evidence was provided to show the authorization of the person who signed them on behalf of the Corporate Debtor.

3. Significant amounts were deducted as 'advance interest' at the time of loan disbursement. For a Rs. 4 Crore promissory note, only Rs. 3.52 Crore was actually disbursed after a Rs. 48 Lakh deduction.

4. The interest rates, though stated as 'per annum' in the printed promissory note form, were handwritten as 'PM' (per month) in almost all cases, leading to exorbitant effective interest rates. The tribunal calculated an example effective rate of 84.41% p.a. based on the structure of advance deduction and weekly repayments.

5. The petitioners had filed multiple similar petitions under Sections 7 and 9 of the IBC against various corporate entities in different NCLT benches (Chennai, Amaravati, Hyderabad), all based on demand promissory notes and often proposing the same Interim Resolution Professional, Mr. K J Vinod.

6. No material was presented to demonstrate that the Corporate Debtor was commercially insolvent or in financial distress, indicating the proceedings were recovery-oriented.

7. The petitioners were not registered or licensed under any money-lending act or by the RBI.

The tribunal concluded that the cumulative circumstances revealed a "shylockian system" of lending designed to earn exorbitant returns and misuse the IBC as a coercive recovery tool, which constitutes an abuse of the process of law.

Final Outcome

The petition CP(IBC)/07/KOB/2026 was dismissed. The dismissal does not preclude the petitioners from pursuing other remedies for recovery available to them in law before the appropriate forum. A copy of the order was directed to be sent to the IBBI for research and analysis.

Topics: Insolvency Petition, Debt Recovery, Lending Practices