Finance
National Company Law Appellate Tribunal Rules Banks Cannot Initiate Insolvency Using Withheld Facility Fees
Originally reported by Taxguru Corporate Law as: Corporate Law | Bank Cannot Trigger CIRP by Withholding Refundable Facility Fee: NCLAT Delhi
5 Nov 2026, 8:55 am IST · Xecute.finance News Desk
The crisp read
The National Company Law Appellate Tribunal (NCLAT) Delhi held that a bank cannot trigger Corporate Insolvency Resolution Proceedings (CIRP) by withholding a refundable facility fee. The ruling restricts financial creditors from manufacturing defaults through retained operational or facility charges.
Xecute Impact Breakdown
For CAs
- NCLAT Delhi ruled that a bank cannot trigger Corporate Insolvency Resolution Proceedings by withholding a refundable facility fee.
- Financial institutions and legal advisors must audit loan documentation practices and ensure compliance with appellate standards regarding valid debt defaults.
- Clean accounting and transparent handling of facility fees prevent protracted litigation and wrongful insolvency filings.
For businesses
- A bank cannot trigger Corporate Insolvency Resolution Proceedings by withholding a refundable facility fee.
- A creditor cannot artificially engineer a default status by withholding amounts that are legally refundable to the borrower.
- Lenders must maintain clear distinctions between operational fees, refundable deposits, and genuine debt defaults.
Deep dive - the full story
The National Company Law Appellate Tribunal (NCLAT) Delhi ruled that a bank cannot trigger Corporate Insolvency Resolution Proceedings (CIRP) by withholding a refundable facility fee. The appellate authority addressed the legality of utilizing retained fees to establish financial default. In financial lending structures, lenders must maintain clear distinctions between operational fees, refundable deposits, and genuine debt defaults.
A creditor cannot artificially engineer a default status by withholding amounts that are legally refundable to the borrower. Financial institutions and legal advisors must audit loan documentation practices and ensure compliance with appellate standards regarding what constitutes a valid default for insolvency filings. Track upcoming NCLAT judgments concerning financial creditor rights and the parameters of debt establishment.
Clean accounting and transparent handling of facility fees prevent protracted litigation and wrongful insolvency filings.
Source: taxguru.in
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