2026 (1) TMI 660 - AT - IBC

Existence of debt from alleged oral loan determines Section 7 CIRP admission - debt found via records, appeal dismissed

Dominant issue: whether admission of CIRP under Section 7 I&B Code was maintainable where the debtor alleged the loan arose from an oral agreement and ... CIRP proceedings - initiation of proceedings under Section 7 - long-term advances - concept of an “oral agreement” - essential requirement to establish default and existence of debt - HELD THAT:- Owing to the fact that, in accordance with Section 7 of the I&B Code, the factum of debt stands established by the supporting documents, the argument that the loan is non-existent on the grounds of an oral agreement, is not acceptable owing to the own admissions made by the Appellant, and the recordings in the Impugned Order, by virtue of which the proceedings under Section 7 of the I&B Code, was commenced by admission of the application filed under Section 7 of the I&B Code. The entries made in the balance sheet, as well as, the reflection of the interest which had accrued on the basis of the agreement as referred to in Para 2 of the Impugned Order and as shown in the TDS Form-16 A, show the existence of loan transaction and liability payable. Hence, admission of debt made under Section 7 of I&B Code, is absolutely sustainable in view of the findings recorded in the Impugned Order and the exception attempted to be carved out since remains un-established would stand ‘denied’. The Impugned Order admitting the Appellant to CIRP proceedings, under Section 7 of the I&B Code, does not suffer from any error, and it doesn’t call for any interference. Accordingly, the same is ‘dismissed’. Issues: Whether admission of a Section 7 application under the Insolvency and Bankruptcy Code, 2016, based on an alleged oral agreement for financial assistance of Rs. 2,05,00,000/-, is sustainable where supporting documents (balance sheet entries, TDS/Form 16A, acknowledgments and Form D) and evidence of disbursement are available and default is alleged.Analysis: The issue required examination of whether the essentials of Section 7(3) were satisfied by establishing the existence of a financial debt and default. Documentary material before the Adjudicating Authority included balance sheet entries reflecting long-term advances, Form 16A showing TDS on interest, acknowledgments of receipt dated 24.09.2020 signed by a director, and Form D recording date of default as 30.09.2022. The pleaded admissions recorded by the Corporate Debtor conceded disbursal in ten tranches and payment of interest. The presence of entries in statutory and accounting records and proof of disbursement collectively supported the existence of a financial transaction and subsequent default, notwithstanding that the foundational agreement was described as oral.Conclusion: The Section 7 application was correctly admitted because the documents and admissions established a financial debt and default; the defence that the loan arose from an oral agreement does not defeat admission where corroborating documentary evidence and acknowledgments exist. The appeal against the admission was dismissed.