NCLAT Sets Aside Contempt Order Against SBI-Led Lender Consortium in Jyoti Structures Resolution Plan Dispute

May 26, 2026 : The National Company Law Appellate Tribunal (NCLAT) has set aside a National Company Law Tribunal (NCLT) order that had threatened senior lender banks with civil imprisonment for allegedly failing to release rolled-over bank guarantee and letter of credit facilities to infrastructure company Jyoti Structures Limited under its approved insolvency resolution plan. The appellate tribunal held that contempt proceedings carrying penal consequences cannot be sustained unless proper procedural safeguards are followed, including identification of specific contemnors and issuance of clear show-cause notices.

The dispute arose from the corporate insolvency resolution process (CIRP) of Jyoti Structures Limited, which was admitted into insolvency proceedings in July 2017. A resolution plan submitted by investor Sharad Sanghi was approved by the NCLT in March 2019. The plan, which received approval from the Committee of Creditors (CoC), including State Bank of India, Bank of India, Canara Bank, ICICI Bank, Indian Bank and Union Bank of India, contemplated the roll-over and issuance of non-fund-based facilities such as bank guarantees (BGs) and letters of credit (LCs) necessary for the company’s engineering, procurement and construction (EPC) business.

According to the resolution plan and the subsequent Non-Fund Based Facility Agreement, the lenders were expected to make these facilities available after the “Closing Date,” which was achieved on November 9, 2021, following an infusion of ₹170 crore by the incoming investors. However, disputes emerged when the lenders did not release the facilities, prompting Jyoti Structures and its shareholders to seek directions from the NCLT.

In August 2024, the NCLT directed the lenders to release the non-fund-based limits, holding that such facilities ought to have been made available at the first instance under the approved resolution plan. The order was subsequently upheld by the NCLAT in December 2024. The appellate tribunal had then observed that preventing the company from obtaining bank guarantees would effectively stop it from undertaking projects and generating revenue, thereby undermining the very objective of the resolution plan.

Despite those directions, the lenders issued fresh sanction letters containing conditions that Jyoti Structures and its shareholders claimed were inconsistent with the approved plan and the NFB Agreement. Alleging deliberate non-compliance with judicial directions, the company and its shareholders initiated contempt proceedings before the NCLT.

The NCLT, by its order dated February 16, 2026, concluded that the banks were in contempt and directed them to release the rolled-over bank guarantee limits within one month. The tribunal further warned that failure to comply would result in one day of simple imprisonment in civil prison. The NCLT noted that while the banks appeared motivated by concerns regarding public funds and regulatory compliance, their actions nevertheless amounted to contempt of court.

Challenging this order, the banks approached the NCLAT under Section 61 of the Insolvency and Bankruptcy Code, 2016. Appearing for the lenders, Solicitor General Tushar Mehta argued that the contempt proceedings were fundamentally flawed because no individual officers had been identified as contemnors. He contended that contempt jurisdiction, particularly when imprisonment is contemplated, requires strict adherence to procedural safeguards, including issuance of a show-cause notice, framing of specific charges and affording an opportunity to defend.

The lenders further maintained that they had acted bona fide by issuing sanction letters and that the underlying orders were capable of multiple interpretations. They argued that neither the approved resolution plan nor the NFB Agreement prohibited issuance of sanction letters or imposition of reasonable banking conditions. According to the banks, their actions were guided by standard banking norms, RBI regulations and concerns relating to risk management and protection of public money.

On the other hand, Jyoti Structures and its shareholders argued that the lenders were attempting to evade obligations that they had themselves approved as members of the CoC. They contended that the investors had infused substantial funds under the plan and that the continued failure to release BGs and LCs jeopardised both the company’s revival and the investments already made. They also alleged that the fresh sanction letters were a calculated attempt to introduce new conditions and effectively rewrite the approved resolution framework.

After examining the rival submissions, the NCLAT focused primarily on the procedural legality of the contempt proceedings. The appellate tribunal observed that contempt powers are extraordinary and must be exercised with great caution, especially where imprisonment is involved. The tribunal emphasised that mere non-compliance with a court order is not sufficient to constitute civil contempt. There must be clear evidence of deliberate and wilful disobedience.

The NCLAT held that the NCLT had failed to follow the mandatory two-stage process applicable in contempt cases. According to the appellate tribunal, the adjudicating authority neither recorded a prima facie satisfaction that contempt had been committed nor issued specific show-cause notices identifying the alleged contemnors and the precise charges against them before imposing punishment.

Highlighting the importance of due process, the tribunal observed: “The court must serve a formal, personal notice of show-cause on the person charged with contempt which notice must be accompanied by the precise and explicit charges framed against him so that he knows exactly what he is required to defend.” It further noted that “mere disobedience is not enough to hold a person guilty of civil contempt unless it is accompanied with an element of deliberate and wilful intent to defy the orders of the court.”

The appellate tribunal also found fault with the NCLT’s decision to impose imprisonment without identifying specific individuals responsible for the alleged non-compliance. Referring to settled Supreme Court jurisprudence, the NCLAT stressed that unnamed individuals cannot be subjected to penal consequences through contempt jurisdiction.

Consequently, the NCLAT allowed the appeals and set aside the contempt order. However, it did not completely close the door on future contempt proceedings. The tribunal granted liberty to Jyoti Structures and its shareholders to send fresh written requests to each bank seeking release of the non-fund-based facilities. The banks have been directed to provide categorical responses within one month and disclose the names of the officers responsible for handling such requests. If the company remains dissatisfied, it may revive the contempt proceedings before the NCLT by specifically identifying the concerned officers and making fresh pleadings.

The ruling is significant for insolvency jurisprudence and banking litigation because it reinforces the principle that contempt proceedings, especially those involving imprisonment, must comply strictly with procedural safeguards and principles of natural justice. At the same time, the NCLAT has left unresolved the substantive dispute concerning release of the non-fund-based facilities, meaning the battle between Jyoti Structures and its lenders may continue before the NCLT.

Case Title: State Bank of India & Ors. v. Jyoti Structures Limited & Ors.