New Delhi, August 8, 2024
In Neon Laboratories Ltd. v. Mayank Shah & Anr., Comp. App. (AT) (Ins) No. 1622 of 2023 & I.A. Nos. 5860, 5861 and 5862 of 2023, the National Company Law Appellate Tribunal (NCLAT) dismissed an appeal filed by Neon Laboratories Ltd. and upheld the imposition of a ₹5 lakh penalty for filing a premature insolvency petition. The appeal arose from an order of the National Company Law Tribunal (NCLT), Mumbai Bench, dated 21 November 2023, which had rejected Neon’s insolvency petition under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) and found that it was filed in collusion with the corporate debtor to obstruct pending arbitration proceedings before the Bombay High Court.[1]
A. Background-
The dispute stemmed from a personal guarantee deed executed on 27 July 2011 between Neon Laboratories Ltd. (lender), Satra Properties (India) Ltd. (borrower), and Mr. Praful Nanji Satra (personal guarantor). Clause 3 of the deed obligated the guarantor to discharge the liability within 60 days from the date of receipt of a demand notice served by Neon.[2] Following default on repayment of approximately ₹3.03 crore, comprising ₹1.75 crore as principal and ₹1.28 crore as interest, Neon issued a demand notice dated 1 November 2021 invoking the personal guarantee.[3]
Meanwhile, Respondent No. 1, Mayank Shah, had filed Arbitration Petition No. 304 of 2021 before the Bombay High Court under Section 9 of the Arbitration and Conciliation Act, 1996, seeking deposit of ₹131 crore. The arbitration petition was fully heard on 30 November 2021 and was listed for orders on 3 December 2021. However, before the High Court could pronounce its order, Neon filed a petition under Section 95 of the IBC on 1 December 2021. This triggered the interim moratorium under Section 96, which led to adjournment of the arbitration proceedings sine die.[4]
B. Legal Dispute –
The first issue concerned the prematurity of the petition filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 (“IBC”). Clause 3 of the personal guarantee deed dated 27 July 2011 expressly provided the guarantor with a sixty-day window from the date of the demand notice to discharge the liability. Neon, however, filed its petition only thirty days after issuing the demand notice, without allowing the contractually agreed period to elapse. This raised the question of whether the petition was defective, since it was filed in breach of the guarantee deed, notwithstanding Section 95(4)(b) of the IBC, which permits filing after fourteen days of default.
The second issue related to the allegation of collusion between Neon and the guarantor. The respondents argued that the insolvency petition was deliberately timed to invoke the automatic moratorium under Section 96 of the IBC, with the object of obstructing arbitration proceedings then pending before the Bombay High Court. The fact that the petition was filed on 1 December 2021, just two days before the High Court was scheduled to deliver its orders, was treated as evidence of mala fides and misuse of the insolvency process.
C. NCLT Findings –
By its order dated 21 November 2023, the National Company Law Tribunal, Mumbai Bench, found that Neon’s petition was both premature and collusive. On the first issue, it held that Clause 3 of the guarantee deed was binding, and by filing the application within thirty days instead of waiting for sixty, Neon had violated the contractual arrangement.³ On the second issue, the tribunal relied on the suspicious timing of the petition, noting that it had been filed two days before the Bombay High Court was expected to rule in the arbitration matter. This timing, together with Neon’s conduct in prior Committee of Creditors meetings, persuaded the tribunal that the filing was collusive and intended to misuse the moratorium provisions of Section 96. [5] Consequently, the NCLT dismissed the petition as non-maintainable and imposed a penalty of ₹5 lakh on Neon, directing that the sum be deposited into the Bharatkosh account within fifteen days.[6]
D. NCLAT Upholds NCLT Decision –
On appeal, Neon contended that Section 95(4)(b) of the IBC allowed an application to be filed after fourteen days from the date of notice, and that the sixty-day contractual clause could not override statutory provisions. It further argued that the allegation of collusion lacked evidentiary basis.[7]
The National Company Law Appellate Tribunal (NCLAT), however, rejected these submissions and affirmed the NCLT’s findings. It held that contractual obligations contained in a personal guarantee remain binding where they do not conflict with statutory provisions, and in this case the sixty-day repayment clause was neither inconsistent with nor repugnant to the IBC. Hence, the petition was correctly found to be premature.
The appellate tribunal also agreed with the finding of collusion, emphasising that the timing of the filing—just before the Bombay High Court was to pass orders—demonstrated an attempt to misuse the statutory moratorium. In doing so, it distinguished the precedents relied on by Neon, including K.V. Jayaprakash v. State Bank of India and Ratnagiri Gas and Power Pvt. Ltd. v. RDS Projects Ltd[8] ., holding them inapplicable to the present facts. Accordingly, the NCLAT dismissed the appeal as untenable and upheld the penalty of ₹5 lakh imposed by the NCLT.[9]
E. Conclusion-
The decision in Neon Laboratories Ltd. v. Mayank Shah & Anr. underscores that the IBC cannot be invoked prematurely or collusively as a tool to stall parallel proceedings. It clarifies that statutory provisions must be read harmoniously with contractual terms, and valid stipulations—such as a sixty-day repayment clause—cannot be circumvented. By sustaining the penalty against Neon, the NCLAT has reinforced the principle that the insolvency framework is meant to resolve genuine financial distress and not to serve as an instrument of litigation strategy.[10]
[1]Neon Laboratories Ltd. v. Mayank Shah & Anr., Comp. App. (AT) (Ins) No. 1622 of 2023 & I.A. Nos. 5860,
5861, 5862 of 2023, NCLAT (New Delhi), judgment dated Aug. 8, 2024.
[2]Ibid., Clause 3 of the Personal Guarantee Deed (27 July 2011).
[3]Ibid., ¶8.
[4]Ibid., ¶5–6.
[5]Ibid., ¶¶ 10–12.
[6]Ibid., ¶ 8.
[7]Ibid., ¶ 9.
[8]Ibid., ¶ 10; see also K.V. Jayaprakash v. State Bank of India & Anr., Comp. App. (AT) (Ins) No. 362 of 2022
(NCLAT Sept. 30, 2022); Ratnagiri Gas & Power Pvt. Ltd. v. RDS Projects Ltd., (2013) 1 SCC 524.
[9]Neon Laboratories Ltd. v. Mayank Shah & Anr., Comp. App. (AT) (Ins) No. 1622 of 2023, ¶ 13
[10] Ibid., ¶¶ 13–15.
