National Company Law Appellate Tribunal (“NCLAT”), in the judgment of State Bank of India v. Jyoti Structures Limited, Company Appeal (AT) (Ins) Nos. 388 & 389 of 2026., has set aside the NCLT, Mumbai Bench - I order dated February 16, 2026, which, in contempt proceedings, had directed the lender banks/ appellants to release the rolled?over Bank Guarantee (“BG”) limits in terms of the approved resolution plan and imposed a sentence of one day’s simple imprisonment in civil prison for alleged non?compliance.

The NCLAT held that the exercise of contempt jurisdiction by the NCLT could not be sustained in the absence of proper identification and impleadment of individual contemnors, and in a context where the conduct of the banks was bona fide.

Brief facts

Jyoti Structures Limited (“JSL” / “Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by NCLT, Mumbai Bench–I on July 4, 2017. A resolution plan submitted by Sharad Sanghi (Respondent No. 3) was approved by NCLT on March 27, 2019. The Committee of Creditors (“CoC”) approving the resolution plan included State Bank of India, Bank of India, Canara Bank, ICICI Bank, Indian Bank and Union Bank of India as assenting financial creditors (“Appellants/ Lenders”).

The approved resolution plan contemplated roll?over/ utilization/ issuance of BG and LC limits by the exiting lenders to the extent of the then-current exposure, subject to project-specific appraisal and applicable laws, and stipulated that approval would not be unreasonably withheld. The relevant clause in the plan expressly stated that utilization/ Issuance of Non?Fund Based Facility (“NFB”), in the form of BG/ LC would be based on due consideration of the project by the issuing creditor and subject to applicable regulations, with evaluation based on project details furnished by the borrower.

Pursuant to the plan, a Non?Fund Based Facility Agreement (“NFB Agreement”) was executed between the Appellants (as Non?Fund Based Facility Lenders) and the Corporate Debtor, implementing the approved plan. The NFB Agreement envisaged for the BGs/ LCs be considered based on due consideration of the borrower and the project, subject to applicable laws, and that issuance would not be unreasonably withheld, it also recognised sanction/ renewal letters issued by lenders as part of the “Financing Documents”.

Under the NFB Agreement, the lenders were to issue BGs/ LCs immediately upon the “Closing Date”, which was achieved on November 9, 2021. By then, the proposed shareholders/investors had infused about Rs. 170 crores into JSL in reliance on the approved plan and NFB structure, and the lenders’ obligation to release NFB limits became operational.

The Corporate Debtor and its shareholders alleged that the Appellants failed to release NFB limits as contemplated, and filed applications bearing I.A. Nos. 4959 and 5023 of 2023 (“NFB Applications”) under Section 60(5) of the IBC before NCLT. By order dated August 20, 2024 (“August 20 NCLT Order”), NCLT held that NFB limits “ought to have been released at the first instance” by the lenders and directed release, subject to the Corporate Debtor furnishing requisite information/ documents for review of financial performance.

The Appellants appeal against the August 20 NCLT order was dismissed by NCLAT on December 9, 2024 (“December 9 NCLAT Order”), which confirmed that clauses of the NFB Agreement must be read to give effect to the plan and not render plan clauses otiose, as the Appellants themselves had consciously approved the roll?over of NFB facilities.

In February 2025, the shareholders and then the Corporate Debtor submitted a one?time settlement proposal of Rs. 507 crore (Rupees five hundred seven crore) (“OTS”) as an alternative to release of NFB limits, subject to acceptance by March 31, 2025. However, the OTS was rejected.

As NFB limits were still not released, JSL and its shareholders filed Contempt Applications bearing Nos. 39 and 41 of 2025 (“Contempt Applications”) before NCLT on October 12, 2025. Before final adjudication, Bank of Baroda and IDBI Bank released their BGs/ LCs in October 2025. NCLT, by interim order dated November 25, 2025, directed all eight banks to adhere to the approved plan and ensure issuance of sanction letters in accordance with the plan.

The banks then placed on record their respective sanction letters. By way of the order dated February 16, 2026 (“Impugned Order”), NCLT disposed of the Contempt Applications, directing release of rolled-over BG limits in the manner provided in the resolution plan and “in terms as were applicable to those limits prior to commencement of CIRP” within one month, failing which one day’s simple imprisonment in civil prison was ordered against the Appellants.

Submissions made by the Appellants (Lenders)

Contempt Applications were defective as they did not identify or implead any individual bank officer as an alleged contemnor. Contempt being quasi?criminal, punishment could not be imposed on unnamed persons, nor on institutions in the abstract, without specifying who had wilfully disobeyed court directions.

The NCLT, imposed punishment without first recording a prima facie case of contempt, without issuing show?cause notice specifying the gist of the charge, and without affording an adequate opportunity to defend, contrary to settled principles governing contempt jurisdiction under Section 425 of the Companies Act, 2013 and Section 12 of the Contempt of Courts Act, 1971.

There was no wilful disobedience. The main contentions raised in the Contempt Applications were that the August 20 NCLT Order and the December 9 NCLAT Order required unconditional release of NFB limits without any sanction letters. The Appellants termed this misconceived, pointing out that NCLT itself, in its interim order dated November 25, 2025, directed the banks to issue sanction letters in accordance with the plan, thus issuing such letters could not simultaneously amount to contempt.

The Impugned Order itself recognised that issuance of sanction letters for rolling over exposure was not, per se, disobedience, so long as limits were made available in accordance with the approved plan, and even treated many conditions as bona fide, not amounting to wilful disobedience. Appellants relied on the Supreme Court’s decision in Dinesh Kumar Gupta v. United India Insurance Company Limited, (2010) 12 SCC 770., regarding bona fide interpretation negating contempt.

The resolution plan itself provided that utilisation/ issuance of BG/ LC limits would be based on due consideration of the project by the issuing creditor, subject to applicable laws and regulations, with issuance not to be unreasonably withheld. Therefore, it was wrong for the Respondents to insist that no fresh sanction letters could be issued or that NFB limits had to be granted unconditionally.

The NFB Agreement, explicitly allowed banks to consider the borrower and the project, subject to applicable laws, and to appoint lenders’ independent engineers, while recognising sanction/ renewal letters as Financing Documents. Conditions flowing from these provisions and standard banking practice, they argued, could not be equated with non?compliance or contempt of the earlier judicial orders.

Once the Appellants had issued sanction letters consistent with the resolution plan and NFB Agreement, they had discharged their obligation. The burden then lay on the Respondents to accept and comply with those terms, refusal to accept the sanction letters meant that NFB limits could not be released, and the banks could not be accused of contempt for that refusal by the borrower.

The Appellants also placed reliance on RBI circulars and internal risk/ compliance norms as part of the background to certain conditions, arguing that adherence to regulatory standards was implicit in the plan itself. They emphasised that this regulatory compliance rationale had already been considered in the December 9 NCLAT Order, and that the present was not a fraud?prevention situation within the RBI “fraud” circular relied upon earlier.

Submissions by the Respondents (Corporate Debtor and shareholders)

Corporate Debtor, as an EPC company, was heavily dependent on BGs/LCs. The resolution plan’s executive summary and operative clauses expressly envisaged roll?over of existing BG/LC limits to the extent of then?current exposure, and the shareholders/investors had already infused substantial capital [about Rs. 170 crore (Rupees one hundred seventy crore), and overall exposure cited around Rs. 732 crore (Rupees seven hundred thirty-two crore)] in reliance on this structure. Non?release of NFB limits jeopardised the revival of Corporate Debtor and the investments made.

Once the resolution plan was approved by NCLT, it became statutorily binding on all stakeholders, including the Appellants. The NFB Agreement were to supersede all earlier arrangements, and the plan’s commitment to roll?over NFB limits meant that lenders had already sanctioned such limits, issuing fresh sanction letters could not be used as a device to reopen or dilute those obligations.

Wilful and repeated non?compliance with August 20 NCLT Order and December 9 NCLAT Order:

i. Despite clear directions in the August 20 NCLT Order and its affirmation by NCLAT vide the December 9 NCLAT Order, to release NFB limits at the first instance, the Appellants systematically delayed and resisted disbursement. This repeated failure, despite multiple opportunities and directions including the interim order of November 25, 2025, was characterized as willful defiance rather than mere interpretative divergence.

ii. Sanction letters actually issued were not innocent or harmless, but a “strategised and calculated design” to repudiate the lenders’ commitments and obstruct release of NFB limits, by imposing terms inconsistent with the plan/ NFB Agreement and by introducing new preconditions such as dependence on other lenders’ sanctions or consortium arrangements not contemplated by the plan.

Appellants’ obligation to release/disburse NFB limits was several and separate, not contingent on other lenders’ participation, and that BG and LC facilities could be interchanged up to limits in Schedule I. Therefore, making release subject to consortium structure or availability of limits from other banks was said to be contrary to both the NFB Agreement and the earlier judicial orders.

Reliance on RBI circulars and internal banking procedures was a pretext, as neither the plan nor the NFB Agreement envisaged regulatory non?compliance, and the December 9 NCLAT Order had already dealt with fraud?prevention circulars, holding them inapplicable to the scenario of plan?mandated NFB release under judicial supervision. The lenders did not specify any concrete regulatory bar that actually prevented them from issuing BGs/ LCs.

The directions passed by the NCLT and NCLAT were clear and unambiguous, that the lenders had been given multiple opportunities but persisted in non?compliance, and that, applying Supreme Court authorities such as Maninderjit Singh Bitta v. Union of India, (2012) 1 SCC 273., this amounted to wilful and deliberate disobedience justifying contempt punishment.

NCLAT’s analysis and conclusion

NCLAT held that contempt powers must be exercised in conformity with principles reflected in Supreme Court judgements that there must be a clear articulation of the charge, identification of the person(s) alleged to have committed contempt, and an opportunity of hearing, with the charge supported by clear and reliable evidence.

NCLAT emphasized that the correct course is first to decide whether a prima facie case of wilful disobedience exists and, only thereafter, to issue show?cause notices specifying allegations, rather than directly imposing punishment. NCLT, in the present case, was found to have imposed punishment without following this staged process.

The NCLAT accepted the relevance of the Supreme Court’s observation in Dinesh Kumar Gupta that civil contempt will not lie where the order leaves scope for reasonable or rational interpretation and where a party acts under bona fide misapprehension without intent to defeat or defy the order.

NCLAT examined the August 20 NCLT Order and the December 9 NCLAT Order, especially the findings that:

i. The resolution plan contemplated project?specific appraisal for BG/ LC issuance but did not permit reassessment of the borrower (company?level due diligence) as a condition precedent to release of rolled?over NFB limits.

ii. The Appellants were, however, permitted to incorporate standard conditions consistent with the plan and NFB Agreement, including project appraisal, valuation of securities, rating?related conditions (so long as these did not lead to a disguised company?level reassessment in conflict with the plan), and certain general covenants.

The NCLAT noted that the Impugned Order itself accepted that issuance of fresh sanction letters for rolling over existing exposure “cannot be considered” disobedience, provided the limits were made available in accordance with the plan, and that several conditions in those letters were found bona fide and not amounting to wilful disobedience.

NCLAT reiterated that:

i. Appellants could not insist on consortium?based preconditions where the earlier NFB facilities had not been availed in consortium form, as such a stipulation would contradict the plan and NFB Agreement.

ii. Any conditions or conduct that effectively re?opened or undermined the approved resolution plan’s commitment to roll?over NFB limits would be inconsistent with the binding effect of the resolution plan under the IBC framework.

NCLAT concluded that the NCLT’s exercise of contempt power in the Impugned Order cannot be sustained. NCLAT allowed the appeals and set aside the Impugned Order, while issuing the following directions:

i. The Respondents were at liberty to send written communications to Appellants separately, seeking release/disbursal of NFB limits in terms of the August 20 NCLT Order and December 9 NCLAT Order.

ii. Each Appellant so approached is to send a categorical response in accordance with those earlier orders.

iii. If, after this process, the Respondents still believed there is non?compliance, they were at liberty to revive their contempt applications before NCLT by filing fresh pleadings that specifically name the relevant officers of each Appellant as alleged contemnors. NCLT is to consider any such future contempt application in accordance with law, uninfluenced by the present NCLAT observations.

Please find attached a copy of the Judgment, here.

This update has been contributed by Udit Mendiratta (Partner) and Shivkrit Rai (Principal Associate).

Argus Knowledge Centre is now on WhatsApp! Send us a message on +91 8433523504 to receive updates from our Knowledge Centre.