Hinduja Leyland Finance Ltd vs SMO Ferro Alloys Pvt Ltd

This is an Application filed by Hinduja Leyland Finance Limited ("the Financial Creditor"/"the Petitioner") under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("the Code"/"IBC"), read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, seeking initiation of the Corporate Insolvency Resolution Process ("CIRP") against M/s SMO Ferro Alloys Private Limited, now known as M/s SMO Ferro Alloys Limited ("the Corporate Debtor"), in respect of a financial debt and default alleged to aggregate Rs. 117,28,79,394.89/- (Rupees One Hundred Seventeen Crore Twenty-Eight Lakh Seventy-Nine Thousand Three Hundred Ninety-Four and Paise Eighty-Nine only), arising out of eight interconnected Loan Against Property ("LAP") facilities aggregating Rs. 110,00,00,000/- sanctioned and disbursed by the Petitioner on 05.08.2024 to the Corporate Debtor and other members of a common borrowing group, including M/s Owais Metal & Mineral Processing Limited and members of the Sayyed/Saiyyed family.

Upon perusal of Part I of Form 1, it is noted that the application is filed by Hinduja Leyland Finance Limited, a non-banking financial company having its registered office at Bandra Kurla Complex, Mumbai, and that the person authorised to file the application is Mr. Harsh Kumar, Regional Legal Manager of the Petitioner, in whose favour an Authorisation Letter/Board Resolution is annexed as Annexure P/2.

Part II of the application in Form 1 reveals that the Respondent/Corporate Debtor, M/s SMO Ferro Alloys Private Limited (CIN: U10994MP2018PTC047166), is a company incorporated on 29.11.2018, having its registered office at Wahid Nagar, Old Bypass Road, Ratlam, Madhya Pradesh, and having a nominal share capital of Rs. 10,00,00,000/- and paid-up share capital of Rs. 8,95,13,850/-, squarely within the territorial jurisdiction of this Tribunal under Section 60(1) of the Code.

Part III of the application in Form 1 reveals that the Applicant has proposed the name of Mr. Rajesh Lohia (IBBI Registration No. IBBI/IPA-002/IP-N00069/2016-17/10095), AFA Valid till – 31.012.2026, as the Interim Resolution Professional ("IRP"), together with his written communication of consent in Form 2, annexed as Annexure P/20.

Part IV of the application reveals that the amount claimed to be in default by the Petitioner is Rs. 117,28,79,394.89/- as on 25.11.2025, arising out of the eight interconnected LAP facilities referred to above. Upon occurrence of default, the account was classified as a Non-Performing Asset (NPA) on 05.08.2025, following the requisite period of continuing default. The details of the eight loan accounts are tabulated below:

The facts narrated by the Applicant are stated hereinbelow:

The Affidavit-in-Reply was affirmed by Mr. Sayyed Owais Ali, Director of the Corporate Debtor, and raises, in substance, the following submissions:

The Petitioner filed a Rejoinder dated 05.06.2026 to the Affidavit-in-Reply, denying all averments therein save those specifically admitted, and describing the Reply as “a calculated attempt to obstruct legitimate insolvency proceedings” designed to deflect from the fact that the Corporate Debtor and its co-borrowers received Rs. 110 crore from the Petitioner, were declared NPA, and owe Rs. 1,17,28,79,394.89/- as on the date of filing.

The Petitioner has relied on Innoventive Industries for the proposition that once debt and default are shown, the Adjudicating Authority has no discretion to refuse admission, and has submitted that Section 7 proceedings are not recovery proceedings requiring adjudication of every dispute raised by way of defence.

As regards Vidarbha Industries, the Petitioner has submitted that the judgment turned on its own exceptional facts and does not lay down a general proposition that every pending litigation justifies keeping a Section 7 application in abeyance, and has distinguished the present case on the ground that (a) the default exceeds Rs. 117 crore; (b) the default period exceeds 393 days; (c) all statutory steps have been exhausted; and (d) no court has stayed the present proceedings.

On the linkage pleaded between the loan and the Rajasthan mining block, the Petitioner has denied that the Sanction Letter dated 03.07.2024 makes repayment contingent on the mining venture, and has pointed out that the facility was sanctioned for “Loan Against Property (LAP) for working capital requirement for providing Bank Guarantee Limit against auction payment”, This was a commercial, arm's-length transaction whose “Special Conditions” do not suspend or excuse the EMI obligations; the end-use of the funds, once disbursed against end-use certificates furnished by the Corporate Debtor, is a matter of the borrower's own commercial choice and does not affect its independent obligation to repay.

The Sanction Letter dated 03/07/2024 contains the contractual terms binding on the parties. The 'Special Conditions' referenced by the Corporate Debtor do not, and cannot, be interpreted to mean that the Financial Creditor's right to recover its loan is contingent upon the success or failure of the mining block allocation. Such an interpretation is commercially absurd and legally untenable. No such condition suspending repayment Hinduja Leyland Finance Ltd. The repayment was structured through monthly EMIs commencing from 05- 08-2024, and this obligation is absolute and unconditional.

The fact that Rs. 110 Crores was paid by Mr. Sayyad Owais Ali to the State Government of Rajasthan for the mining block allocation is a matter between Mr. Owais Ali and the State Government. The Financial Creditor extended a loan to the Corporate Debtor and its co-borrowers, which was secured by registered equitable mortgages over immovable properties. The end-use of loan proceeds does not, in any manner, affect or diminish the Corporate Debtor's obligation to repay the loan as per the agreed EMI schedule. The Corporate Debtor chose to use the loan funds for this purpose after giving end-use certificates; it cannot now use its own investment decision as a defense to avoid repayment.

The Petitioner has denied that it is in any manner connected with, or bound by the outcome of, the disputes between Mr. Sayyed Owais Ali and the State Government of Rajasthan, to which it is not a party, and has submitted that the interim order dated 23.09.2025 relates only to the mining block allocation and does not stay or otherwise affect the present proceedings.

It is firmly denied that the sum of Rs. 100 Crores 'presently remains tied to the outcome of the proceedings' before the High Court of Rajasthan in any manner that makes the default 'purely temporary.' The default commenced in October 2024. The NPA classification occurred on 05-08-2025 after 90+ days of non-payment. The SARFAESI Section 13(2) notice was issued on 18-08-2025. The 60-day statutory recovery period expired on 17-10-2025 without any payment. The outcome of litigation before the High Court of Rajasthan is speculative, future, and uncertain. A speculative future recovery cannot constitute a defense to present, actual, and crystallized insolvency proceedings.

The Petitioner has submitted that the Corporate Debtor's claim to be a “viable and operational entity” with positive net worth is irrelevant to admission under Section 7, which requires proof only of debt and default and not of commercial insolvency, relying again on Innoventive Industries (supra); and has added that if the Corporate Debtor indeed possesses the net worth claimed, its failure to service admittedly modest monthly instalments (aggregating approximately Rs. 1.84 crore across all eight accounts) is itself indicative of a wilful, rather than incapacitated, default.

The Corporate Debtor knowingly and voluntarily undertook borrowing obligations. It executed binding loan agreements, provided security by way of registered mortgages, and issued end-use certificates. Having consumed the loan amount, it cannot now, post-default, characterize its own inability to repay as an 'external circumstance.' The Corporate Debtor's own decisions borrowing Rs. 110 Crores, deploying it for mining block acquisition, and failing to create alternative sources of repayment are entirely within its own sphere of responsibility.

On the objection founded on Section 180(1)(c) of the Companies Act, 2013, the Petitioner has submitted that the objection is an afterthought; that the Corporate Debtor's own Board Resolution, submitted prior to disbursement (Annexure P/6), expressly authorised the borrowing; that the Corporate Debtor accepted and deployed the entire sanctioned amount and is estopped from now disowning the transaction; and that whether an additional Special Resolution was internally required is a matter of the Corporate Debtor's own governance, in respect of which a lender acting bona fide on the documents furnished to it, including a Final Credit Appraisal Memo dated 19.06.2024 (Annexure P/8), cannot be penalised — invoking the doctrine of indoor management and Section 166 of the Indian Contract Act, 1872.

As regards the objection founded on the pending suit before the Commercial Court, Indore, the Petitioner has submitted that the suit is a “defensive, counter-litigation tactic”, that the mortgages were duly executed and registered, and that the mere filing of a suit challenging security documents does not affect the validity of the underlying debt, which arises independently from the loan agreements.

On the objection founded on the absence of a record of default from an Information Utility, the Petitioner has submitted that Regulation 20(1A) of the IBBI (Information Utilities) Regulations, 2017, is procedural and not a mandatory precondition to admission, and that the CESARI Report (Annexure P/14), the account statements (Annexure P/13), the SARFAESI notice (Annexure P/15), and the loan agreements (Annexure P/4) are more than sufficient to establish debt and default.

On the discrepancy in dates pointed out by the Corporate Debtor, the Petitioner has reiterated that the default commenced in October 2024, that the accounts were classified NPA after ninety days of continuing default, that the Section 13(2) notice was issued on 18.08.2025, and that the sixty-day statutory period expired on 17.10.2025 without payment — a timeline the Petitioner describes as “clear and consistent” — and has submitted that the objection regarding the precise computation of the outstanding amount, unaccompanied by any alternative computation or demonstrated arithmetical error, is “vague, general, and unsupported”.

The Petitioner has accordingly prayed that the Affidavit-in-Reply be rejected in its entirety and that the Application under Section 7 be admitted, with initiation of CIRP, declaration of moratorium under Section 14, and appointment of an Interim Resolution Professional.

We have heard learned counsel for the Petitioner and learned counsel for the Corporate Debtor at length, and perused the Application, the Affidavit-in-Reply, the Rejoinder, the Written Submissions, and the documents annexed thereto. The following issues arise for our consideration, and we deal with them in turn.

as a co-borrower, and whether a default has occurred in respect thereof exceeding the threshold prescribed under Section 4 of the Code?

The existence of financial debt within the meaning of Section 5(8) of the Code is borne out from the loan applications, Sanction Letter dated 03.07.2024, Board Resolution of the Corporate Debtor, Loan Agreements, RTGS disbursement records, registered Deed of Mortgage dated 24.10.2024, CERSAI registration and the account statements placed on record. The Corporate Debtor does not dispute the existence of the loan facilities or its participation as a borrower or co-borrower. Rather, its own case is that the loan facilities formed part of an interconnected arrangement and that the funds were utilised towards payment relating to the mining block in favour of its co-borrower, Mr. Sayyed Owais Ali. The said stand itself acknowledges the underlying borrowing arrangement and utilisation of the financial facilities.

The material placed on record establishes that the loan facilities were sanctioned and disbursed pursuant to the contractual arrangements under which the Corporate Debtor stood as a co-borrower. The objection raised by the Corporate Debtor regarding the purpose for which the funds were utilised, or the circumstances which allegedly resulted in the default, does not negate the character of the underlying liability as a financial debt. Likewise, the plea that the default arose on account of circumstances relating to the mining block does not dispute the subsistence of the repayment obligation arising under the loan documents.

As regards default, the account statements and other contemporaneous documents placed on record demonstrate non-payment of the amounts falling due under the loan facilities. The Corporate Debtor has not denied the underlying repayment obligation but has sought to explain the non-payment by reference to the circumstances surrounding the mining block. Such explanation may constitute a defence as to the circumstances leading to default, but does not, by itself, efface the occurrence of default within the meaning of Section 3(12) of the Code.

The financial debt and the default being established from the contractual documents, disbursement records and statement of accounts, and the Corporate Debtor having admittedly participated in the borrowing arrangement as a borrower and a co-borrower, we hold that the existence of financial debt and occurrence of default stand established for the purposes of the present proceedings.

pleadings affects the maintainability or admission of the Section 7 Application?

The Corporate Debtor has specifically raised an objection regarding the alleged inconsistency in the dates of default and NPA classification appearing in the Application. It is therefore necessary to examine whether the discrepancy in the dates affects the existence of default or the maintainability of the proceedings.

As noted above, the date of occurrence of default and the subsequent date of classification of the account as NPA are required to be considered in the context of the Section 13(2) notice dated 18.08.2025 and the Statement of Account forming part of the record.

However, the discrepancy between the aforesaid dates, by itself, does not displace the underlying and continuing default reflected from the account records. The relevant consideration under Section 7 is whether a financial debt exists and whether a default has occurred. Once the occurrence of default is otherwise established from the contemporaneous financial records, a discrepancy in the description of the date of NPA classification, particularly where it does not alter the fact of non-payment, cannot by itself render the Application non-maintainable.

We therefore find that the inconsistency in the dates of default/NPA classification calls for appropriate reconciliation of the record but does not, in the facts of the present case, negate the existence of financial debt or the occurrence of default, nor does it constitute a ground by itself for declining admission of the Section 7 Application. In any event, irrespective of which of the aforesaid dates is taken as the operative date of default, the present Application falls within the prescribed period of limitation, and the discrepancy in the dates of default/NPA classification does not render the Application time-barred.

Section 7(3)(a) of the Code requires a financial creditor to furnish, along with the application, a “record of the default recorded with the information utility or such other record or evidence of default as may be specified.” An Information Utility record is one mode of proof, not the only one. Here, default is independently evidenced by the loan documentation, the disbursement trail, the SARFAESI notices, and most significantly the Corporate Debtor's own admission in its Reply. It is a settled proposition, as also mentioned by the applicant, that a sworn pleading which admits receipt of loan money, deployment of the money, and present inability to repay is itself irrefutable evidence of default. Facts admitted need not be formally proved over again.

We are accordingly unable to accept the submission that the absence of an Information Utility record renders the Application incomplete or non-est.

The main defence of the Corporate Debtor is based on the pendency of Writ Petition No. 18335 of 2025, relating to the revocation of an auction certificate for allocation of a mining block, and the interim order dated 23.09.2025 passed therein. Having considered the record, we do not find any connection between the said proceedings and the debt or default involved in the present case. To begin with, the Petitioner is not a party to the said writ petition. The dispute in those proceedings is between the individual co-borrower, Mr. Sayyad Owais Ali, and the State Government of Rajasthan, in respect of a separate transaction.

More importantly, the interim order dated 23.09.2025, relied upon by the Corporate Debtor and filed as Annexure R/4, is confined to the issue of revocation of the auction certificate. The order does not deal with the loan facilities granted by the Petitioner, the default committed by the Corporate Debtor, or its obligation to repay the amounts due to the Petitioner. Thus, there is nothing in the said order, either by way of an interim observation or otherwise, which affects the Petitioner's claim against the Corporate Debtor. The debt and default in question are therefore independent of the writ proceedings and cannot be made dependent upon the eventual outcome of those proceedings.

In this context, we find substance in the submission made by the Petitioner in its Rejoinder that it had not financed any speculative joint venture with the State Government of Rajasthan and, therefore, cannot be expected to bear the consequences of a dispute arising out of a separate transaction or to wait indefinitely for its outcome. The mere pendency of the said writ petition, particularly when the Petitioner is not a party thereto and its debt is not the subject matter of those proceedings, cannot defeat or postpone the Petitioner's right to proceed under the Code. The provisions of the Code, having regard to the overriding effect given to them under Section 238, operate independently of such proceedings unless there is a specific order or finding which directly affects the debt or default in question.

The Corporate Debtor's reliance on the suit pending before the Commercial Court, Indore, challenging the validity of certain mortgage/security documents, stands on no firmer footing. Section 7 is concerned with the existence of financial debt and default; the enforceability of security is a distinct and severable question that does not bear on whether the underlying debt is owed. Even assuming the security documents are eventually held unenforceable in whole or in part, the loan agreements and the obligation to repay would survive independently. No order of stay has, in any event, been shown to have been passed by the Commercial Court in relation to the present proceedings.

valid defence to admission under Section 7 of the Code ?

The Corporate Debtor contends that it lacked the corporate capacity to borrow, or to stand as co-borrower/guarantor for, a sum of the magnitude in question, in the absence of a Special Resolution under Section 180(1)(c) of the Companies Act, 2013, and that any liability beyond its paid-up capital and free reserves is accordingly ultra vires and unenforceable.

We are unable to accept this contention, for more than one reason. First, it is not disputed that the Corporate Debtor's own Board Resolution, furnished to the Petitioner prior to disbursement and annexed to the Application as Annexure P/6, expressly authorised the borrowing; the Corporate Debtor, having furnished that resolution, accepted disbursement of the entire sanctioned sum, executed the Loan Agreements and security documents, and furnished end-use certificates, cannot now be heard to impeach the very resolution on the strength of which it obtained the facility. Second, whether an additional Special Resolution was internally required, over and above the Board Resolution furnished, is a matter of the Corporate Debtor's own internal governance and compliance; a lender who, as here, has conducted a documented credit appraisal (Final Credit Appraisal Memo dated 19.06.2024, Annexure P/8) and has advanced funds in good faith on the strength of a Board Resolution furnished by the borrower is entitled to rely on the doctrine of indoor management, and cannot be penalised for an internal irregularity. The Corporate Debtor, having accepted and acted upon the borrowing, cannot at this stage rely upon an alleged internal irregularity to defeat the Petitioner’s claim under Section 7.

Accordingly, the objection founded on Section 180(1)(c) does not constitute a valid defence to admission of the Section 7 Application.

In view of the foregoing discussion, we are satisfied that the present Application is complete in all respects; that a financial debt is owed by the Corporate Debtor to the Petitioner; that default has occurred in a sum far exceeding the threshold prescribed under Section 4 of the Code; that no disciplinary proceeding is shown to be pending against the proposed Interim Resolution Professional; and that none of the objections raised by the Corporate Debtor constitutes a valid ground to defer or decline admission, whether under the law as it stood prior to 26.05.2026 or under the amended Section 7(5) of the Code as it presently stands.

Accordingly, CP(IB)/11(MP)/2026 is admitted.

The Corporate Insolvency Resolution Process is initiated against M/s SMO Ferro Alloys Private Limited, now known as M/s SMO Ferro Alloys Limited (CIN: U10994MP2018PTC047166), with immediate effect.

Moratorium is declared under Section 14 of the Code, prohibiting: (a) institution or continuation of suits/proceedings against the Corporate Debtor, including execution of judgments/decrees; (b) transferring, encumbering, alienating or disposing of any asset or legal right/beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest, including under the SARFAESI Act, 2002; and (d) recovery of property occupied by or in possession of the Corporate Debtor, in terms of Section 14(1)(a) to (d) of the Code. The moratorium shall not apply to transactions notified under Section 14(3), and shall remain in effect from the date of this order until completion of CIRP, subject to Section 14(4).

Mr. Rajesh Lohia (IBBI Registration No. IBBI/IPA-002/IP-N00069/2016-17/10095), AFA Valid till 31.12.2026, having furnished his written consent in Form 2 (Annexure P/20) and having disclosed no pending disciplinary proceedings against him, stands appointed, in terms of Section 16(2) of the Code, as the Interim Resolution Professional. He shall take charge of the management of the Corporate Debtor forthwith and exercise all powers contemplated under Sections 17 to 20 of the Code.

We direct the Petitioner to deposit a sum of Rs. 1,00,000/-(Rupees One Lakh only) with the Interim Resolution Professional to meet the immediate expenses of performing his functions, in accordance with Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The needful shall be done within one week of receipt of a copy of this order.

The Interim Resolution Professional shall make a public announcement forthwith under Section 15 read with Regulation 6 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, calling for submission of claims, and shall proceed to constitute the Committee of Creditors in accordance with law.

The Interim Resolution Professional shall perform all functions contemplated under, inter alia, Sections 15, 17, 18, 19, 20 and 21 of the Code, and shall conduct the process with due diligence and strictly in accordance with the Code, the Rules, and the Regulations framed thereunder. All personnel connected with the Corporate Debtor, its promoters, and any other person associated with its management are under a legal obligation, under Section 19 of the Code, to extend every assistance and cooperation to the Interim Resolution Professional as may be required for managing the day-to-day affairs of the Corporate Debtor.

A copy of this order be communicated to the Petitioner, the Corporate Debtor, and the Interim Resolution Professional. The Registry shall further forward a copy to the Registrar of Companies, Madhya Pradesh, and to the Insolvency and Bankruptcy Board of India, for their records.

Hence, CP(IB)/11(MP)/2026 stands allowed.