Financial creditor's Section 7 application upheld after corporate debtor's dishonest denial of loan disbursal contradicted own OTS proposals

NCLAT Principal Bench dismissed an appeal challenging admission of Section 7 application filed by financial creditor (assignee from HDFC Bank). Corporate debtor argued no loan disbursal occurred, but tribunal found this plea dishonest given debtor's own OTS proposals acknowledging debt. Evidence including OTS submissions and bank correspondence established debt exceeding Rs. 1 crore and continuous default. Tribunal held adjudicating authority correctly admitted the application as debt existence and default were clearly established through debtor's own admissions.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the financial debt claimed by the Financial Creditor, which is an assignee of HDFC Bank Ltd., exceeds the threshold limit of Rs. 1 crore as required under Section 4 of the Insolvency and Bankruptcy Code (IBC) for admission of a Section 7 application.
• Whether the Corporate Debtor received the disbursement of loans as claimed by the Financial Creditor, or whether the Corporate Debtor's contention that no or lesser disbursal was made is sustainable.
• Whether the statements of accounts and related documents submitted by the Financial Creditor are admissible and reliable evidence of the financial debt and disbursement.
• Whether the One-Time Settlement (OTS) proposals submitted by the promoters and Corporate Debtor constitute acknowledgment of the debt and can be relied upon as evidence of the financial debt.
• The scope of the Adjudicating Authority's inquiry at the admission stage under Section 7 of the Code, particularly regarding disputes on the quantum of debt.
• Whether any procedural irregularities, such as absence of information utility certificates at the time of filing, affect the maintainability of the Section 7 application.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the financial debt exceeds the threshold and is due and payable

Legal Framework and Precedents: Under Section 4 of the IBC, a financial debt must exceed Rs. 1 crore for a Section 7 application to be admitted. The Supreme Court and National Company Law Appellate Tribunal (NCLAT) have held that at the admission stage, the Adjudicating Authority is not required to delve into the exact quantum of the debt but only to verify whether a default has occurred and whether the debt exceeds the threshold.

Court's Interpretation and Reasoning: The Tribunal noted that HDFC Ltd. sanctioned loans aggregating Rs. 170.28 crores to the Corporate Debtor through multiple sanction letters. The Financial Creditor asserted disbursements of Rs. 169.84 crores supported by statements of accounts. The Corporate Debtor disputed the quantum but admitted receipt of Rs. 81.72 crores as per a Chartered Accountant certificate attached to an OTS proposal.

The Tribunal rejected the Corporate Debtor's contention that the statements of accounts were inadmissible under the Bankers' Books Evidence Act, 1891, holding that HDFC Ltd., being an NBFC, falls outside the purview of that Act.

Further, the Tribunal observed that the Corporate Debtor's calculation of the "true principal" amount was flawed because it excluded disbursements made on behalf of the Corporate Debtor to other lenders and fees/expenses recoverable under loan agreements. Hence, the Corporate Debtor's figure was unreliable and rejected.

The Tribunal emphasized that disputes regarding the exact quantum of debt are irrelevant at the admission stage, provided the debt is due and payable and exceeds Rs. 1 crore. The admitted receipt of Rs. 81.72 crores by the Corporate Debtor sufficed to meet the threshold.

Key Evidence and Findings: The Chartered Accountant certificate dated 14.08.2019, OTS proposals submitted by the promoters and Corporate Debtor, and sanction letters for loans were key evidentiary documents. The Tribunal found the OTS proposals, which acknowledged the principal amount and offered payment, as an admission of financial debt.

Application of Law to Facts: Applying the settled principle that the Adjudicating Authority's role at admission is limited to verifying default and threshold debt, the Tribunal held that the admitted receipt of Rs. 81.72 crores by the Corporate Debtor was sufficient to admit the Section 7 application.

Treatment of Competing Arguments: The Corporate Debtor argued no disbursal or lesser disbursal, challenged the reliability of bank statements, and denied acceptance of OTS proposals. The Tribunal rejected these contentions as baseless and dishonest, emphasizing the Corporate Debtor's own admissions in OTS proposals and the documentary evidence.

Conclusion: The financial debt exceeded the statutory threshold, and default was established. The Section 7 application was rightly admitted.

Issue 2: Admissibility and reliability of statements of accounts and other documents

Legal Framework: The Bankers' Books Evidence Act, 1891, governs admissibility of bank records, but NBFCs like HDFC Ltd. are not covered. The IBC does not mandate information utility certificates at the time of filing, though they may be filed subsequently.

Court's Interpretation: The Tribunal held that statements of accounts maintained by HDFC Ltd. are admissible and reliable evidence. The absence of an information utility certificate at the time of filing did not vitiate the application since it was filed later.

Key Evidence: Statements of accounts, sanction letters, and Chartered Accountant certificate.

Application of Law to Facts: The Tribunal rejected the Corporate Debtor's challenge to the statements of accounts and held that the documents sufficiently evidence the financial debt and default.

Competing Arguments: The Corporate Debtor argued lack of stamp and formalities in statements. The Tribunal rejected these on the ground that the Bankers' Books Evidence Act does not apply to NBFCs and that the documents were otherwise reliable.

Conclusion: The statements and documents were admissible and reliable for the purpose of admission of the application.

Issue 3: Effect of One-Time Settlement (OTS) proposals as acknowledgment of debt

Legal Framework: OTS proposals are considered admissions of liability and acknowledgment of debt under the IBC and related jurisprudence.

Court's Reasoning: The Tribunal noted that the promoters and Corporate Debtor submitted multiple OTS proposals, including one dated 14.08.2019, acknowledging a principal amount of Rs. 81.72 crores plus interest. The OTS proposal dated 10.03.2021 was accepted by HDFC Bank but not honoured.

Key Evidence: OTS proposals, Chartered Accountant certificate, acceptance letter from HDFC Bank dated 17.03.2021.

Application to Facts: The Tribunal held that these OTS proposals constituted clear admissions of debt and disbursal, undermining the Corporate Debtor's denial.

Competing Arguments: The Corporate Debtor denied acceptance of OTS proposals. The Tribunal rejected this as contrary to the documentary record and the Corporate Debtor's own submissions.

Conclusion: OTS proposals were valid admissions of financial debt and disbursal.

Issue 4: Scope of Adjudicating Authority's inquiry at admission stage

Legal Framework: It is well-settled that at the admission stage under Section 7, the Adjudicating Authority is not required to adjudicate disputes on the quantum or existence of debt but only to verify whether a default has occurred and the debt exceeds Rs. 1 crore.

Court's Interpretation: The Tribunal reiterated this principle, holding that disputes on quantum raised by the Corporate Debtor were not relevant at this stage.

Application to Facts: Even the Corporate Debtor's own admission of Rs. 81.72 crores sufficed to meet the threshold and justify admission.

Conclusion: No error was committed by the Adjudicating Authority in admitting the Section 7 application despite disputed quantum.

Issue 5: Procedural compliance regarding information utility certificates and filing delays

Legal Framework: While information utility certificates are desirable, their absence at the time of filing is not fatal if filed subsequently. Delays and adjournments do not affect merits but may affect indulgence.

Court's Reasoning: The Tribunal noted that the information utility certificate was filed subsequently and did not vitiate the application. It also observed that the Appellant delayed arguing the appeal and was not entitled to indulgence.

Conclusion: No procedural infirmity was found to invalidate the Section 7 application or the impugned order.

3. SIGNIFICANT HOLDINGS

"It is well-settled that at the admission stage, all that the Adjudicating Authority is required to see is whether the financial debt exceeds the pecuniary threshold of Rs.1,00,00,000/- (One Crore Rupees) under Section 4 of the Code and whether default has occurred in repayment thereof. Disputes regarding the exact quantum of the financial debt are irrelevant at this stage. It is immaterial that the debt is disputed so long as the debt is due and payable."

"The contention raised by the Corporate Debtor that the statements of accounts are not compliant with the Bankers' Books Evidence Act, 1891 is not sustainable, since HDFCL as an NBFC fell outside the purview of the said Act."

"The working of true principal amount disbursed (as provided by the Corporate Debtor) cannot be treated as correct or reliable and the same is accordingly rejected."

"There being own admission of the appellant which is reflected from the OTS submitted by the Appellant offering to pay the dues, it does not lie in the mouth of the Appellant to say that there was no disbursal to the company."

"No error has been committed by Adjudicating Authority in admitting Section 7 Application."

Core principles established include:

• The Adjudicating Authority's limited scope at admission stage under Section 7 of the IBC.
• Reliability and admissibility of statements of accounts from NBFCs despite non-application of Bankers' Books Evidence Act.
• OTS proposals constitute valid admissions of financial debt.
• Disputes on quantum of debt are not relevant at admission stage.
• Procedural non-compliances such as delayed filing of information utility certificates do not invalidate the application if cured subsequently.

Final determinations on each issue affirm that the financial debt exceeded Rs. 1 crore, default occurred, the Corporate Debtor admitted receipt of loans, and the Section 7 application was rightly admitted by the Adjudicating Authority. The appeal challenging admission was dismissed for lack of merit.

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