Limitation exclusion and proof of financial debt in insolvency claims: unsupported loan documents can justify rejection on merits.

Claims submitted within the Supreme Court's excluded limitation period were treated as timely, so no condonation of delay was required for admission. However, the Resolution Professional and Adjudicating Authority were entitled to verify the supporting material and reject the claims on merits where the alleged loan documents showed serious inconsistencies, defective stamping, weak authorisation, and no reliable contemporaneous demand or repayment record. The corporate debtor's balance sheets also reflected the sums as other advances rather than borrowings, with no interest provision or corroborating tax evidence. On that basis, the claims were not established as genuine financial debt and the rejection was sustained.

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Issues: (i) Whether the claims were barred by limitation or were saved by the Supreme Court's exclusion of limitation period; (ii) Whether the Resolution Professional and the Adjudicating Authority were justified in rejecting the claims on the basis that the alleged loan agreements were unreliable and the amounts did not constitute financial debt.

Issue (i): Whether the claims were barred by limitation or were saved by the Supreme Court's exclusion of limitation period.

Analysis: The claims were invited on 24.02.2022, which fell within the period covered by the Supreme Court's exclusion order extending limitation for matters where limitation would have expired between 15.03.2020 and 28.02.2022. On that basis, the claimants were entitled to the benefit of the extended limitation window and were not required to seek condonation of delay as a precondition for admission of their claims.

Conclusion: The claims were not barred by limitation and the rejection on the ground of delay was not sustainable.

Issue (ii): Whether the Resolution Professional and the Adjudicating Authority were justified in rejecting the claims on the basis that the alleged loan agreements were unreliable and the amounts did not constitute financial debt.

Analysis: The statutory framework requires the RP to verify claims and call for supporting material. The alleged loan documents suffered from serious inconsistencies, including defective stamping, absence of reliable authorization, discrepancies in dates and execution details, and lack of contemporaneous demand or repayment correspondence for many years. The corporate debtor's audited balance sheets reflected the amounts under 'Other Advances' or similar heads, not as borrowings, and did not disclose interest provision or supporting tax evidence. In these circumstances, the authorities were justified in examining the supporting material and in concluding that the claims were not supported by cogent proof of a genuine financial debt.

Conclusion: The rejection of the claims on merits was upheld and the amounts were held not to be established as financial debt.

Final Conclusion: The appeals failed because the claims were not proved as genuine financial debts and the impugned orders rejecting the claims were sustained.

Ratio Decidendi: In insolvency proceedings, a claimed debt may be rejected where the supporting documents and corporate records do not reliably establish a genuine financial debt, and the RP and Adjudicating Authority are entitled to verify the authenticity and tenability of the claim on the basis of the materials produced.

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