CIRP initiation under Section 7 upheld where documentary entries and TDS evidence establish debt despite alleged oral agreement

Initiation of insolvency resolution where debt is recorded in supporting documents was affirmed: documentary entries in the balance sheet, reflection of accrued interest and TDS evidence establish existence of loan and liability, thereby sustaining admission of debt and commencement of insolvency proceedings. An alleged oral agreement denying the loan was found insufficient to negate debt in light of admissions and documentary proof, so the attempt to characterize the liability as non-existent was rejected. The impugned admission to corporate insolvency resolution procedure was therefore sustained and the challenge to that commencement was dismissed.

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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.

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