2025 (1) TMI 684 - AT - IBC

NCLAT upholds Section 7 petition against corporate debtor for loan default with sufficient evidence of financial debt

NCLAT dismissed appeal challenging Section 7 petition filed by financial creditor against corporate debtor for loan default. Corporate debtor failed to ... Maintainability of petition filed u/s 7 of IBC - default in payment of its financial debts - financial debt or not - HELD THAT:- It is evident that no party raised the issue of the pendency of this Section 7 Appeal in the other case before the coordinate Bench. The petition u/s 7 of IBC, 2016 had been filed by Respondent No.1 against Corporate Debtor for default in payment of its financial debts, which fell due on 16.03.2020, when Corporate Debtor despite demand, failed to repay the loan amount along with interest accrued therein. Audited Financial Statement of the Corporate Debtor, duly signed by all its directors including Appellants for the financial year commencing from 2012-2013 up till 2016-2017 are on record, which clearly reflects the loan amount given by Respondent No.1 into the account of Corporate Debtor. In the present case, Financial Creditor had placed material i.e disbursement details, bank account statement indicating disbursement, ledger statement, audited balance sheet of the Corporate Debtor since the Financial Year 2012-2013 to 2016-2017 and 26AS, which confirms that Financial Creditor had provided Loan to the Corporate Debtor and the Corporate Debtor acknowledged the same financial debt and committed default in repayment of the financial debt. Further Financial Creditor / Respondent No.1 gets support from the case of Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal & Anr [2021 (4) TMI 753 - SUPREME COURT], wherein the Hon'ble Apex Court has held that entries in balance sheets will amount to acknowledgement of debt under Section 18 of the Limitation Act, 1963 for the purposes of filing of an Application under Section 7 of the Insolvency and Bankruptcy Code, 2016. Conclusion - The transaction was a financial debt, the Corporate Debtor defaulted on repayment. The debt and default has been established. There are no infirmity in the orders of the Adjudicating Authority - appeal dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the transaction between the Financial Creditor and the Corporate Debtor constitutes a 'financial debt' under Section 5(8) of the Insolvency and Bankruptcy Code (IBC).Whether the Corporate Debtor defaulted in repaying the financial debt to the Financial Creditor, thereby justifying the initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC.Whether the procedural aspects and previous rulings by the Adjudicating Authority, Appellate Tribunal, and the Supreme Court were appropriately considered and adhered to in dismissing the appeal.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Nature of the Transaction as Financial DebtRelevant Legal Framework and Precedents: Section 5(8) of the IBC defines 'financial debt' as a debt along with interest, if any, which is disbursed against the consideration for the time value of money. The case of Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal & Anr was cited, where the Supreme Court held that entries in balance sheets can amount to acknowledgment of debt under Section 18 of the Limitation Act, 1963.Court's Interpretation and Reasoning: The court found that the transaction between the Financial Creditor and the Corporate Debtor was indeed a financial debt. This was supported by the audited financial statements of the Corporate Debtor, which reflected the loan amount and interest as financial costs.Key Evidence and Findings: The audited balance sheets from 2012-2017, signed by the directors of the Corporate Debtor, acknowledged the loan and interest. The financial creditor's ledger and bank statements further corroborated the existence of the financial debt.Application of Law to Facts: The court applied the definition of financial debt under the IBC and found that the transaction had the characteristics of a financial debt, including the time value of money and interest components.Treatment of Competing Arguments: The appellants argued that the transaction was an investment, not a loan. However, the court dismissed this argument, emphasizing the documented acknowledgment of debt in financial statements and the absence of any substantial evidence to support the investment claim.Conclusions: The court concluded that the transaction was a financial debt under the IBC.Issue 2: Default in RepaymentRelevant Legal Framework and Precedents: Section 7 of the IBC allows a financial creditor to initiate CIRP in case of a default in repayment of financial debt.Court's Interpretation and Reasoning: The court noted that the Corporate Debtor had defaulted on the repayment of the financial debt, as evidenced by the demand notice and the lack of repayment even after the due date.Key Evidence and Findings: The demand notice dated 16.03.2020 and the subsequent non-repayment by the Corporate Debtor were critical in establishing the default.Application of Law to Facts: The court applied Section 7 of the IBC, finding that the conditions for initiating CIRP were satisfied due to the established default.Treatment of Competing Arguments: The appellants contended that there was no default, as the transaction was an investment. The court rejected this, citing the documented financial debt and the absence of any repayment.Conclusions: The court concluded that there was a default in repayment, justifying the initiation of CIRP.Issue 3: Procedural Aspects and Previous RulingsRelevant Legal Framework and Precedents: The procedural history included appeals to the NCLAT and the Supreme Court, which upheld the initial rulings.Court's Interpretation and Reasoning: The court found that the procedural rights of the Corporate Debtor to file replies were closed following due process, and previous appeals had been dismissed at various judicial levels.Key Evidence and Findings: The court noted the consistent dismissal of appeals by higher courts, which affirmed the procedural correctness of the initial rulings.Application of Law to Facts: The court applied the principles of res judicata and procedural finality, emphasizing that the issues had been conclusively settled by higher courts.Treatment of Competing Arguments: The appellants argued procedural unfairness, but the court dismissed these claims, citing the thorough consideration by previous judicial bodies.Conclusions: The court concluded that the procedural aspects were correctly handled, and the appeal was procedurally barred.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'The financial creditor proved that financial debt was given to the corporate debtor and the corporate debtor has defaulted in repayment of said financial debt.'Core Principles Established: The acknowledgment of debt in financial statements constitutes acknowledgment under the Limitation Act. A financial debt under the IBC includes any debt disbursed against the consideration for the time value of money.Final Determinations on Each Issue: The court determined that the transaction was a financial debt, the Corporate Debtor defaulted on repayment, and all procedural aspects were correctly followed, leading to the dismissal of the appeal.