Karnataka High Court stays insolvency order against State-owned Cauvery Neeravari Nigam

The Karnataka High Court on Monday stayed the initiation of corporate insolvency resolution proceedings (CIRP) against Cauvery Neeravari Nigam Limited (CNNL), a Karnataka government-owned irrigation company [Cauvery Neeravari Nigam Vs Union of India].

The stay order was passed by Justice Suraj Govindaraj in a writ petition challenging a December 10 order of the National Company Law Tribunal (NCLT) which had admitted CNNL into insolvency on a petition filed by SPML Infra Ltd under Section 9 of the IBC.

“I am of the considered opinion that the NCLT could not have admitted the petitioner to corporate insolvency proceedings. In that view of the matter, the operation of the order dated December 10, 2025 passed by the NCLT in C.P.(IB) No. 39 of 2022, as well as all further proceedings pursuant to the public announcement dated December 13, 2025, are stayed till the next date of hearing,” the Court said.

The insolvency plea arose from SPML Infra’s claim relating to extra item rate list (EIRL) works executed for the Nanjapura Lift Irrigation Scheme pursuant to a contract awarded in 1999. The additional works were completed by 2009 and the final bill was submitted in 2013.

SPML claimed that although CNNL repeatedly acknowledged the dues over the years while seeking internal approvals, payment was never released. The operational creditor claimed ₹9.36 crore, including interest.

CNNL opposed the petition, arguing that the debt was disputed and that related issues were pending before an arbitrator appointed in 2004.

Rejecting this defence, the NCLT comprising Member (Judicial) Sunil Kumar Aggarwal and Member (Technical) Radhakrishna Sreepada examined CNNL’s correspondence between 2009 and 2019 and held that its officials had consistently acknowledged the liability.

The tribunal relied, inter alia, on a 2012 order of CNNL’s Chief Engineer directing expedited approval of ₹404.55 lakh that had remained pending for over three years.

CNNL challenged the admission order before the Karnataka High Court, contending that insolvency proceedings could not be initiated against a state-owned entity performing sovereign functions, particularly when earlier decisions had held such petitions to be not maintainable.

The High Court observed that the issue went to the root of jurisdiction.

The Court noted that CNNL is a government-funded company implementing over 100 irrigation projects across Karnataka.

Hence, it said that the matter requires consideration and stayed the NCLT’s admission order and all consequential proceedings including the public announcement until further hearing.

Advocate General Sashi Kiran Shetty appeared for CNNL