Failure To Follow RBI MSME Restructuring Norms Not Fatal To Financial Creditor's Insolvency Plea:NCLT Guwahati

The National Company Law Tribunal (NCLT) at Guwahati recently held that a lender's failure to follow Reserve Bank of India circulars on restructuring stressed MSME accounts does not, by itself, make an insolvency petition under the Insolvency and Bankruptcy Code (IBC) non-maintainable.

In an order dated December 4, 2025, a bench consisting of Judicial Member Rammurti Kushwaha held,

“While the RBI circulars do mandate a structured framework for resolution of MSME distress, the non-compliance with such circulars cannot render a petition under Section 7 non-maintainable per se. Moreover, the IBC is a self-contained code, and where a financial debt and default are established, procedural non-compliance with RBI guidelines does not defeat the statutory remedy.”, it said. 

The ruling came after Eduvanz Financing Pvt Ltd filed a petition against Abutani Mercantile Pvt Ltd, an Assam-based MSME.  Eduvanz had adavanced a Rs 3 crore loan in January 2023, which the borrower was required to repay in full within 91 days.

After Abutani Mercantile defaulted, its account was classified as a non-performing asset in August 2023. Although the debtor later admitted to the liability and made a partial payment of nearly Rs 22 lakh, an outstanding debt of approximately Rs 1.41 crore still remained.

During the insolvency proceedings, the MSME argued that the lender was legally  bound to follow the RBI's restructuring framework for MSMEs before moving for insolvency.

According to the RBI's guidelines, lenders should take a proactive approach when small businesses face financial trouble.Rather than moving straight to recovery, banks are expected to spot signs of stress early on and work directly with the borrower to find a solution.

This typically involves developing a time-bound restructuring plan, such as adjusting repayment schedules or terms, to help the business stay afloat before the account is officially labeled as non-performing or legal action is taken.

It was contended that because the lender ignored these specific guidelines, the petition was not maintainable and should be dismissed.

Rejecting this argument, the tribunal held that while RBI circulars provide a structured mechanism for resolution of MSME account, mere non-compliance with the procedures does not bar insolvency proceedings.

It relied on Supreme Court precedents and reiterated the Insolvency Code is a self-contained code and once the existence of a financial debt and default is established, the authority cannot conduct an inquiry into disputes and must admit the claim.

The tribunal accordingly admitted the petition, declared a moratorium and appointed Kamal Agarwal as the Interim Resolution Professional. It directed the creditor to deposit Rs. 2 lakhs towards initial CIRP costs.

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