Pendency of SARFAESI cannot be a bar to Insolvency Proceedings

The Bengaluru Bench of the NCLT admitted a Section 9 insolvency application filed by an operational creditor against Devkiran Paper Mills Private Limited after finding clear evidence of operational debt, default and absence of any pre-existing dispute. 

The Tribunal rejected the corporate debtor’s defence based on ongoing settlement discussions, financial stress and pendency of SARFAESI proceedings, holding that such factors do not defeat an otherwise valid insolvency application under the Insolvency and Bankruptcy Code, 2016. Consequently, CIRP was initiated and moratorium was imposed.