NCLT Ahmedabad: Insolvency Petition Cannot Be Rejected On Mere Allegations of Malice
Sangeetha Prathap
The National Company Law Tribunal (NCLT), Ahmedabad Bench has held that an insolvency application cannot be rejected merely on the basis of allegations of malice or fraudulent intent unless such allegations are substantiated through clear, convincing and legally admissible evidence. The Bench comprising Judicial Member Shammi Khan and Technical Member Sanjeev Sharma admitted Turnrest Resources Pvt. Ltd. into the Corporate Insolvency Resolution Process (CIRP), holding that the financial creditor had successfully established debt and default, while the Corporate Debtor failed to prove mala fides on the part of the bank.
The proceedings emanated from a Section 7 application filed by HDFC Bank Ltd. on 11 July 2025 seeking initiation of CIRP against Turnrest Resources for a default of ₹30.5 crore. The Bank produced sanction letters, supplemental agreements, disbursement schedules and an acknowledgment of debt dated 1 October 2023 in support of its claim. A demand notice under Section 13(2) of the SARFAESI Act had been issued on 12 December 2024, after persistent failure to service dues.
To resist admission, Turnrest Resources moved an interlocutory application under Section 65 of the Insolvency and Bankruptcy Code, alleging that the initiation of insolvency proceedings was malicious, fraudulent and for purposes other than debt resolution. It contended that HDFC Bank concealed material facts, acted with ulterior intent, and pursued parallel recovery actions despite ongoing settlement discussions. The Corporate Debtor also pointed to a release agreement dated 11 September 2024, under which certain guarantors were discharged on payment of ₹41 crore, contending that the Bank acted unfairly, lacked transparency and deliberately withheld information.
The Tribunal rejected these allegations, noting that Section 65 cannot be invoked on the basis of conjectures or commercial disagreements, and that specific evidence demonstrating fraud, collusion or bad faith was indispensable before an application could be dismissed for alleged mala fides. The Bench emphasised that “invocation of Section 65 requires cogent evidence of fraud or mala fides, not mere allegations or inferences drawn from commercial decisions.” It further held that the email communications relied upon by the Corporate Debtor did not establish any wrongful intent on the part of HDFC Bank.
Regarding the release of guarantors, the Bench observed that a contract of guarantee is independent and co-extensive, and commercial settlements with guarantors do not affect the financial creditor’s right to proceed against the principal borrower in case of default. The Tribunal noted that the settlement with guarantors reduced the liability of the Corporate Debtor and could not be construed as evidence of malice. It also remarked that the debtor’s arguments relating to the guarantors’ net worth and the prudence of the settlement were irrelevant because settlement terms are commercial in nature and not subject to adjudicating authority’s scrutiny, absent illegality or bad faith.
Finding debt and default clearly established on the basis of the loan documentation and records filed with the Information Utility, and holding that the allegations of malicious initiation of CIRP were unsupported by evidence, the Tribunal proceeded to admit Turnrest Resources Pvt. Ltd. into insolvency. A moratorium under Section 14 of the IBC was imposed, and Rajendra Devidas Puranik was appointed as the Interim Resolution Professional. HDFC Bank was directed to deposit ₹5 lakh with the IRP toward initial CIRP costs. Accordingly, the interlocutory application under Section 65 filed by the Corporate Debtor was dismissed, and the insolvency petition filed by HDFC Bank was admitted.
Appearance
For Applicant: Advocates Jay Kansara, Vinisha Jain
For Responden: Advocates Arjun Sheth, Rajiv Chawla
Cause Title: HDFC Bank Limited vs Turnrest Resources Pvt Ltd
Case No: CP(IB)/269(AHM)/2025 with IA/1078(AHM)2025
Coram: Judicial Member Shammi Khan, Technical Member Sanjeev Sharma
