NCLAT reverses dismissal of Section 7 IBC petition, finds prima facie evidence sufficient for admission

NCLAT allowed appeal challenging dismissal of Section 7 IBC petition. Original tribunal erred in dismissing petition for lack of evidence of due debt and default. NCLAT held that adjudicating authority need only ensure debt and default exist based on record produced. Balance sheets and legal demand notice provided prima facie evidence of debt and default. Following Innoventive Industries precedent, petition should be admitted unless incomplete, with opportunity to rectify defects within seven days. Matter remanded to NCLT for further proceedings per law.

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Issues:
Appeal against dismissal of petition under Section 7 of IBC due to lack of evidence of loan default, debt, and settlement failure.

Analysis:
The judgment pertains to an appeal filed against the dismissal of a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016. The grounds for dismissal included the absence of evidence showing the loan given to the Corporate Debtor was due and payable, lack of record of default or demand letter, and failure of settlement between the parties, deemed an abuse of the legal process. The Tribunal considered the arguments presented by the counsels and reviewed the financial records, specifically the Balance Sheets of the years 2019-20 and 2020-21, which indicated a significant loan given by the appellant to the Corporate Debtor. The Tribunal referenced previous judgments to establish that such loans, even if unsecured, can be classified as financial debts under the Code, emphasizing the obligation of the Corporate Debtor to repay such debts.

The Tribunal cited the case of Shailesh Sangani V Joel Cardoso, which highlighted the commercial nature of loans given by stakeholders to address financial crises within a company. Additionally, the judgment in Rajesh Gupta V Dinesh Jain clarified that unsecured loans constitute financial debt under the Code, especially when there is a clear liability on the Corporate Debtor to repay the borrowed amount. The Tribunal also referred to the decision in Innoventive Industries Ltd V ICICI Bank, emphasizing that the Adjudicating Authority must verify evidence of default produced by the financial creditor to establish the debt's due nature, regardless of any dispute raised by the debtor.

Moreover, the Tribunal examined a notice sent by the appellant to the respondent, demanding payment of the debt within a specified period, which remained unpaid. This non-payment further substantiated the existence of both the debt and default. The judgment in Jayanthi G Ravi V Chemizol Additives reiterated that loans are taken for the borrower's benefit, with an immediate obligation to repay upon receipt. The Tribunal concluded that once satisfied with the due and unpaid nature of the debt, the application should be admitted unless incomplete, in which case the applicant must rectify the defects within a stipulated timeframe.

In light of the evidence presented and the legal precedents cited, the Tribunal allowed the appeal, set aside the previous order, and remanded the matter to the National Company Law Tribunal (NCLT) for further proceedings in accordance with the law. The judgment emphasized the Adjudicating Authority's role in ensuring the existence of debt and default based on the records before it, ultimately facilitating the admission of the petition under Section 7 of the Code against the Corporate Debtor.

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