Financial creditors fail to prove debt in Section 7 application due to unsigned facility agreement

The NCLAT dismissed an appeal challenging the rejection of a Section 7 application under IBC. The Adjudicating Authority correctly found that the Facility Agreement was undated and unsigned by the respondent, constituting inadequate evidence of debt. The email sharing the agreement was merely a draft seeking comments. Although appellants claimed financial debt was disclosed in provisional balance sheets, the Authority noted that appellants had sold their shareholding through a Share Purchase Agreement for a lumpsum settlement of Rs.10.62 crore. The Authority properly concluded that financial creditors failed to prove crystallized debt and default beyond doubt, warranting dismissal of the Section 7 application.

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Issues Involved:
1. Whether there was a debt and default in the context of IBC warranting the admission of the Section 7 application.
2. Whether the Financial Facility Agreements (FFAs) were valid and executed.
3. Whether the balance sheet dated 03.03.2022 reflected the financial debt.
4. Whether the waiver clause (Clause 6.5) in the Share Purchase Agreement (SPA) discharged the debt claims of the Appellants.
5. Whether the cheques issued by the Corporate Debtor were valid and enforceable.
6. Whether the Section 7 application was filed with mala-fide intent.

Summary:
1. Debt and Default:
The primary issue was whether there was a debt and default deserving the admission of the Section 7 application filed by the Appellants. The Appellants argued that the Corporate Debtor acknowledged the debt through various agreements and failed to repay the loans, leading to default.

2. Validity of FFAs:
The Appellants contended that the Corporate Debtor had acknowledged its liability through the FFAs. However, the Respondent argued that no documentary evidence was provided to show that FFAs were executed. The Adjudicating Authority noted that the FFAs were undated and not signed by the Respondent, thus discounting them as credible evidence.

3. Balance Sheet Reflection:
The Appellants claimed that the financial debt was disclosed in the provisional balance sheet dated 03.03.2022. The Respondent countered that the balance sheet dated 04.03.2022, acknowledged by the Appellants, showed no amount due, indicating that the debt was not crystallized.

4. Waiver Clause in SPA:
The Respondent argued that Clause 6.5 of the SPA discharged all claims and rights of the Appellants against the Corporate Debtor. The Tribunal agreed, stating that the Appellants had waived their rights and claims, and the debt claims stood discharged.

5. Validity of Cheques:
The Appellants argued that cheques for Rs. 1.66 crore were issued but not counter-signed, leading to default. The Respondent stated that the cheques were signed by an unauthorized person (one of the Appellants) and were therefore invalid. The Adjudicating Authority found the cheques to be forged instruments.

6. Mala-fide Intent:
The Respondent claimed that the Section 7 application was filed with mala-fide intent, supported by several police complaints against the Appellants. The Tribunal noted that the Appellants failed to prove the existence of any crystallized debt and default.

Conclusion:
The Tribunal upheld the Adjudicating Authority's decision to dismiss the Section 7 application, stating that the Appellants failed to prove the existence of a crystallized debt and default. The appeal was dismissed with no order as to costs.

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