Relief Secured for Corporate Debtor: NCLAT Sets Aside CIRP After Finding Defective Adjustment by Lender

In the domain of Insolvency litigation, the accurate computation and adjustment of loan facilities play a crucial role in determining the existence of financial default. This case revolves around the Term Loan Agreements entered into between Tourism Finance Corporation of India Limited (TFCI) and Genesis Infratech Private Limited, and how a miscalculation in the adjustment of loan repayments led to the admission of a CIRP Petition under Section 7 of the IB Code, which was subsequently set aside by the Hon’ble NCLAT. The case highlights how technical and financial nuances, when properly presented before the adjudicating authority, can overturn significant insolvency proceedings.

Facts of the Case:

M/s Genesis Infratech Private Limited (“Genesis”) had availed three separate term loan facilities from Tourism Finance Corporation of India Limited (“TFCI”) through duly executed Term Loan Agreements dated 09.03.2020, 25.08.2020, and 18.06.2021. The respective amounts sanctioned under these agreements were ₹15 Crores, ₹2.28 Crores, and ₹2.28 Crores. These facilities, while distinct in terms of documentation, were interconnected in the manner of servicing and repayment. Subsequently, TFCI raised an allegation of default of ₹ 1.07 and issued a recall notice for a cumulative outstanding of approximately ₹13 Crores.

Genesis contested the recall by submitting that the alleged default amount was based on an incorrect and incomplete adjustment of repayments. It was specifically pointed out that a prepayment of ₹5 Crores had already been made by the Genesis, but the said amount was adjusted only against one facility, rather than being equitably spread across all three facilities. Further, this incorrect adjustment inflated the overdue liability, thereby making it appear as if the borrower had defaulted on an amount exceeding ₹1 Crore, the threshold for initiating insolvency under Section 7 of the Insolvency and Bankruptcy Code (“IBC”). Despite these submissions, the Adjudicating Authority admitted the Section 7 application filed by TFCI on 30.01.2025 [1].

While the Petition under Section 7 was pending and the order was reserved, TFCI simultaneously invoked its powers under the SARFAESI Act and issued an e-auction notice dated 17.12.2024 for the sale of mortgaged property belonging to Genesis. The proposed sale was challenged on multiple grounds, including that the property was grossly undervalued and that the declaration of the account as Non-Performing Asset (NPA) was itself erroneous and premature. In view of the urgency created by the auction proceedings, Genesis also approached Hon’ble High Court of Delhi for wrongful declaration of the Account as NPA [2] and the Debt Recovery Tribunal under Section 17 of the SARFAESI Act, seeking a stay on the auction [3].

In the meantime, Genesis filed an appeal before the Hon’ble NCLAT [4], challenging the admission of the CIRP on the ground that no actual default above the statutory limit had occurred, once correct adjustments were factored in. The borrower submitted a detailed statement of account and a supporting affidavit, demonstrating how the repayment history was misrepresented due to the lender’s unilateral and incorrect application of funds. The Hon’ble NCLAT carefully reviewed the affidavit and financial evidence submitted by Genesis, and concluded that the threshold default of ₹1 Crore was indeed not met, had the ₹5 Crore prepayment been accurately allocated across all three loans [5].

Acknowledging the flaw in TFCI’s claim and the material omission in accounting treatment, the NCLAT allowed the appeal, set aside the CIRP, and held that such a technical misrepresentation could not be the basis for admission under Section 7 of the IBC. The judgment reinforces the critical importance of accurate financial reconciliation, proper adjustment of repayments, and fair creditor conduct in insolvency proceedings. It also demonstrates how procedural vigilance and timely legal action can help prevent misuse of statutory remedies by financial creditors and protect the legitimate interests of borrowers.

Conclusion: 

The NCLAT’s decision in this matter serves as a significant reminder that insolvency proceedings cannot be sustained on the basis of flawed accounting or unilateral adjustments by lenders. By setting aside the CIRP against M/s Genesis Infratech Private Limited, the Tribunal has reaffirmed that the statutory threshold for default under the IBC must be established through precise and equitable financial computation. This judgment underscores the necessity for lenders to exercise due diligence in loan adjustment practices, while also empowering borrowers to challenge erroneous claims with well-documented financial evidence. Ultimately, it reinforces the principle that insolvency is a remedy of last resort, to be invoked only when default is genuine, quantified correctly, and free from technical or procedural infirmities.

Reference:

1. Order dated 30.01.2025 passed in CP (IB) No. 165 of 2024 titled as Tourism Finance Corporation of India Ltd and Genesis Infratech Private Limited;

2. W.P.(C) - 520/2025 titled as Genesis Infratech Private Limited vs Tourism Finance Corporation of India Ltd

3. SA/22/2025 titled as Genesis Infratech Private Limited vs Tourism Finance Corporation of India Ltd

4. Company Appeal (At) (Ins) No. 437 of 2025 titled as Genesis Infratech Private Limited vs Tourism Finance Corporation of India Ltd and Anrs.

5. Order dated 29.07.2025 passed in Company Appeal (At) (Ins) No. 437 of 2025 titled as Genesis Infratech Private Limited vs Tourism Finance Corporation of India Ltd and Anrs.

Team Diaz Legal