The judgment was delivered by the Principal Bench of NCLAT, New Delhi, in a batch of connected appeals including Company Appeal (AT) (Ins.) Nos. 1015, 812, 813, 815 & 816 of 2025 arising out of orders passed by the National Company Law Tribunal (NCLT), New Delhi Bench-IV. The proceedings originated from Section 7 applications filed by financial creditors including Yes Bank Limited and State Bank of India against KKSPUN India Limited.
The Appellate Tribunal examined whether the Corporate Debtor was denied a fair opportunity of hearing before admission of insolvency proceedings and whether the existence of settlement discussions and proceedings under Sections 230-232 of the Companies Act could justify keeping the insolvency proceedings in abeyance.
Background of the Case
KKSPUN India Limited is engaged in the manufacturing of precast concrete products and execution of infrastructure projects. The company was stated to be registered as a Micro, Small and Medium Enterprise (MSME) and was involved in supplying products to major Engineering, Procurement and Construction (EPC) companies.
The company had availed financial facilities from Yes Bank and State Bank of India. According to the records before the Tribunal, Yes Bank had sanctioned various credit facilities to the Corporate Debtor, but the loan accounts were classified as Non-Performing Assets (NPA) with effect from August 2022 due to defaults in repayment.
Yes Bank subsequently issued a loan recall notice demanding repayment of outstanding dues. Since the dues remained unpaid, the bank initiated proceedings under Section 7 of the Insolvency and Bankruptcy Code before the NCLT. The application was registered as CP (IB) No. 36/ND/2024. Similarly, State Bank of India had also initiated insolvency proceedings against the Corporate Debtor for alleged outstanding financial dues. SBI had provided credit facilities to the company over several years, and the loan account was also classified as NPA after defaults in repayment.
The NCLT, after considering the material placed on record, admitted the Section 7 application filed by Yes Bank and initiated the Corporate Insolvency Resolution Process against KKSPUN India Limited.
Contentions Raised by KKSPUN India Limited
The Corporate Debtor challenged the NCLT order before NCLAT primarily on the ground that it was not provided an effective opportunity of hearing before admission of the insolvency proceedings. The company argued that settlement negotiations with the consortium lenders were actively underway and a Scheme of Compromise and Arrangement under Sections 230-232 of the Companies Act was also pending consideration.
According to KKSPUN India Limited, the admission of CIRP during the pendency of settlement discussions had caused serious prejudice to the company and affected its possibility of revival. The Corporate Debtor submitted that it was a commercially viable entity and continued to execute infrastructure projects. It argued that insolvency proceedings should not have been initiated when efforts were being made to restructure and settle the outstanding liabilities.
The company also relied upon alleged claims and counterclaims pending before other forums, including a substantial counterclaim against the lenders, and argued that these issues should have been considered before admitting the insolvency petition. The Corporate Debtor further argued that the orders closing its right to argue before the NCLT violated principles of natural justice. It contended that the insolvency proceedings were decided without granting adequate opportunity to present its case.
Arguments of Yes Bank and SBI
Opposing the appeal, Yes Bank submitted that the Corporate Debtor had committed a clear financial default and that the requirements under Section 7 of the IBC were fully satisfied. The bank argued that the loan accounts had become NPA and the default was duly recorded through available documentary evidence. According to Yes Bank, the Corporate Debtor had not disputed availing the financial facilities and therefore could not avoid insolvency proceedings by relying upon settlement discussions.
Yes Bank submitted that the scope of enquiry under Section 7 of the IBC is limited to determining the existence of financial debt and occurrence of default. Once these conditions are established, the Adjudicating Authority is required to proceed in accordance with the provisions of the Code. State Bank of India also argued that the pendency of proceedings under Sections 230-232 of the Companies Act cannot create a legal bar against initiation of CIRP.
SBI relied upon judicial precedents to submit that a proposed settlement scheme cannot be used as a mechanism to indefinitely delay insolvency proceedings where financial default has already occurred. The bank further contended that the existence of counterclaims or other proceedings does not affect the maintainability of a Section 7 application because proceedings under Section 7 are based on the existence of financial debt and default.
NCLAT’s Findings on Natural Justice
While examining the allegation of denial of hearing, NCLAT observed that the Corporate Debtor had been provided several opportunities during the proceedings before the NCLT. The Tribunal noted that the Corporate Debtor had filed replies, applications and written submissions and was actively participating in the proceedings. The Appellate Tribunal observed that principles of natural justice require a fair opportunity of hearing, but they do not mean that proceedings should continue indefinitely when sufficient opportunities have already been granted to a party.
NCLAT noted that the closure of the right to argue was not an immediate action but followed multiple opportunities provided by the Adjudicating Authority. The Tribunal held that merely because further adjournment was not granted, it cannot be concluded that there was violation of principles of natural justice. NCLAT further observed that the NCLT had considered the pleadings, documents, replies and written submissions filed by the parties before passing the order.
Accordingly, the Tribunal rejected the argument that the Corporate Debtor was denied an opportunity to present its defence.
Settlement Discussions Cannot Override IBC Proceedings
One of the important issues considered by NCLAT was whether ongoing settlement talks and a proposed Scheme under Sections 230-232 of the Companies Act could prevent admission of a Section 7 application. The Appellate Tribunal held that once financial debt and default are established, the Adjudicating Authority is required to consider the insolvency application in accordance with the provisions of the IBC.
The Tribunal observed that accepting the argument of the Corporate Debtor would effectively allow insolvency proceedings to remain pending indefinitely on the basis of negotiations that may or may not succeed. NCLAT held that settlement discussions cannot defeat the statutory rights available to financial creditors under the Insolvency and Bankruptcy Code.
The Tribunal also examined the scope of Section 7 proceedings and reiterated that the Adjudicating Authority primarily has to determine whether financial debt exists and whether default has occurred. Once these requirements are fulfilled, insolvency proceedings cannot be postponed merely because the Corporate Debtor is pursuing alternative settlement mechanisms.
Counterclaim Against Banks Not a Defence to Section 7 Proceedings
The Corporate Debtor had argued that it had substantial claims against the lenders and that these claims should have been considered before initiation of CIRP. Rejecting this argument, NCLAT observed that the existence of a counterclaim does not extinguish the financial debt owed by the Corporate Debtor.
The Tribunal held that proceedings under Section 7 of the IBC are different from recovery proceedings and the only relevant consideration is whether the financial debt exists and whether default has occurred. A counterclaim or separate dispute cannot prevent admission of a Section 7 application once the statutory requirements under the Code are satisfied.
Importance of the Judgment
The judgment reinforces the principle that insolvency proceedings under the IBC cannot be indefinitely delayed merely because a Corporate Debtor is negotiating settlement with lenders. The decision also highlights that while revival and resolution remain the objectives of the Insolvency and Bankruptcy Code, such objectives must operate within the statutory framework of the Code.
The ruling provides clarity that:
- Settlement negotiations do not automatically suspend Section 7 proceedings.
- A proposed Scheme under Sections 230-232 of the Companies Act cannot override IBC proceedings.
- Counterclaims against financial creditors do not negate established financial default.
- Adequate opportunity of hearing depends upon facts and circumstances, and repeated opportunities granted by the Adjudicating Authority satisfy principles of natural justice.
Conclusion
The NCLAT dismissed the challenge raised by KKSPUN India Limited and upheld the admission of CIRP proceedings initiated against the Corporate Debtor. The judgment strengthens the position that the Insolvency and Bankruptcy Code provides a time-bound mechanism for resolution of insolvency and cannot be stalled indefinitely due to ongoing negotiations or proposed settlements.
The ruling is significant for financial creditors as well as corporate debtors because it clarifies the balance between settlement efforts and statutory insolvency proceedings. Once debt and default are established, the insolvency process cannot be postponed merely on the expectation of a possible settlement in future.
(Source: NCLAT Principal Bench, New Delhi judgment dated 17 July 2026 in Company Appeal (AT) (Ins.) Nos. 1015, 812, 813, 815 & 816 of 2025)