# In the matter of Auto Friction Components India Private Limited CP(IB)/-54-KOB-2019

> NCLT judgment dated 2020-03-18. Citation: TCN-2020-NCLT-01459. The case involves an application filed by The Kerala State Industrial Development Corporation…

- **Court:** NCLT
- **Order date:** 18 Mar 2020
- **Citation:** TCN-2020-NCLT-01459
- **Category:** IBC
- **Source page:** https://caseease.in/cases/ibc/nclt-chandigarh/auto-friction-components-india-private-limited-cpib-54-kob-2019-0e5d5945

## Summary

### Background

The case involves an application filed by The Kerala State Industrial Development Corporation Limited (Financial Creditor) against Auto Friction Components India Private Limited (Corporate Debtor) under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP). The Financial Creditor had initially filed a Company Petition before the High Court of Kerala for winding up of the Corporate Debtor due to its inability to pay its debts. This petition was later transferred to NCLT, Chennai, and subsequently to NCLT, Kochi, after the enactment of the IBC. The Corporate Debtor had defaulted on a term loan granted by the Financial Creditor in 1990. Despite various recovery efforts, including revenue recovery

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## Facts

The Kerala State Industrial Development Corporation Limited (KSIDC) granted a term loan of ₹40,80,000 to Auto Friction Components India Private Limited on 09.04.1990. The loan was to be repaid in 12 half-yearly installments with 14% interest per annum, with the entire amount due by 15.04.1998. The Corporate Debtor defaulted on the repayment. As security, the Corporate Debtor mortgaged immovable assets and provided a deed of hypothecation for movables. The Directors also provided personal guarantees. KSIDC initiated recovery proceedings, including revenue recovery actions through the District Collector, Thiruvananthapuram, starting 15.06.1993. They attached movables and immovables, but an auction on 22.02.2000 failed due to lack of bidders. A writ petition filed by a

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## Issues and analysis

### Issue 1: Whether the application filed by the Financial Creditor under Section 7 of the Insolvency and …

**Ratio:** Section 7 of the Insolvency and Bankruptcy Code, 2016 allows a financial creditor to

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**Reasoning:** The NCLT observed that the Financial Creditor had followed the prescribed procedure under

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**Interpretation:** Section 7 provides a mechanism for financial creditors to recover their dues

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**Application:** The Financial Creditor, KSIDC, filed an application under Section 7,

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## Parties

- **Judges:** Ashok Kumar…; Veera Brahma Rao…
- **Appellants:** The Kerala State…
- **Respondents:** Auto Friction…
- **Advocates:** Pranoy Ha…

## Timeline

- **1961-07-21 — Incorporation of…**: The Kerala State Industrial Development Corporation Limited was incorporated as a…
- **1990-04-09 — Loan Agre…**: The Financial Creditor granted a term loan…

## Legal provisions

- [Insolvency and Bankruptcy Code, 2016, Section 7 — Initiation of corporate insolvency resolution…](https://caseease.in/legal-provisions/insolvency-and-bankruptcy-code-2016/section-7)

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