Kerala High Court Expunges NCLT Observations and Rs. 1 Lakh Cost Imposed on Union Bank of India in IBC Withdrawal Case

Background and Context

The Kerala High Court, in WP(C) No. 25401 of 2026, decided on 24th July 2026, intervened in proceedings arising from an insolvency matter before the National Company Law Tribunal, Kochi Bench. The dispute centred not on the merits of the underlying insolvency resolution process, but on whether the NCLT was justified in imposing exemplary costs of Rs. 1 lakh and making strong adverse remarks against Union Bank of India — a nationalized bank — when it filed a procedurally defective withdrawal application.

The case, Union Bank of India Vs Air Travel Enterprises India Limited, offers a significant perspective on the boundaries of adjudicatory authority when courts deal with procedural lapses, particularly those committed by institutional creditors operating within the framework of the Insolvency and Bankruptcy Code, 2016 (IBC 2016).

Factual Matrix

Union Bank of India had extended credit facilities to a company. Upon the company's default in repaying its dues, the bank initiated proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the corporate guarantor. This is a standard route available to financial creditors seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against defaulting parties.

Subsequently, the dispute between the bank and the corporate debtor/guarantor was resolved. The outstanding liabilities were settled through an OTS (One Time Settlement), a fact that was not disputed before any forum at any stage.

Following this settlement, Union Bank of India moved the NCLT, Kochi Bench, seeking withdrawal of the insolvency petition. The withdrawal application was filed as Ext.P3 and was numbered I.A. (IBC)/313/KOB/2026.

Errors Identified by NCLT in the Withdrawal Application

When the withdrawal application came up for hearing before the NCLT, Kochi Bench, the Tribunal identified the following deficiencies:

  1. Incorrect Cause Title — The application contained errors in the cause title itself, which is a basic formal requirement in legal proceedings.
  2. Wrong Party Shown as Respondent — A person who was not a party to the proceedings was incorrectly included as a respondent in the application, and this person was consequently compelled to appear before the Tribunal.
  3. Incorrect Statutory Provision Invoked — The withdrawal application was filed invoking the general powers of the NCLT under Rule 11 of the National Company Law Tribunal Rules, 2016, whereas it ought to have been filed specifically under Section 12A of the Insolvency and Bankruptcy Code, 2016, which governs the withdrawal of insolvency applications.
  4. Non-Compliance with CoC Requirement — The proposal to withdraw the petition had not been placed before the Committee of Creditors (CoC) as mandated under the provisions of the IBC before seeking withdrawal.

On the basis of these defects, the NCLT rejected the withdrawal application vide its order dated 21.07.2026 (Ext.P4). Beyond the rejection, however, the Tribunal went further and made pointed observations regarding the manner in which the application had been drafted and presented.