TaxTMI 
TaxTMI 
2026 (3) TMI 1208
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.... petition filed by the Appellant/Financial Creditor-Subham Capital Private Limited for initiation of Corporate Insolvency Resolution Process ('CIRP' in short) of the Corporate Debtor-Vedic Realty Private Limited. Aggrieved by the Impugned Order, the present appeal has been preferred by the Appellant-Financial Creditor. 2. Coming to the sequence of events of the present case, it is relevant to notice that at the behest of Corporate Debtor, the Appellant, basis an oral understanding, extended financial assistance by way of disbursal of loans aggregating Rs 22.75 Cr between 2011 and 2016 in several tranches. These loan transactions which carried an interest liability were reflected in the books of accounts of both parties and relevant bank account statements and the liability in this regard had also been acknowledged by the Respondent through confirmation letters; loan renewal acknowledgments; demand promissory notes confirming receipt of loan amounts besides issue of post-dated cheques towards repayment of principal and interest. The Respondent-Corporate Debtor defaulted after the last tranche of re-payment made on 07.04.2021, following which the Appellant first issued a recall no....
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....pellant had filed Section 7 petition vide CP(IB) No. 215 of 2022 which they subsequently withdrew following a Settlement Agreement dated 18.11.2022. Submission was pressed that withdrawal of the earlier Section 7 petition pursuant to the settlement dated 18.11.2022 was not a bar on the filing of another fresh Section 7 petition vide CP(IB) No. 146 of 2023 since the default continued even after execution of settlement agreement. It was pressed that the Section 7 applications filed vide CP Nos. 146 of 2023 and 215 of 2022 were not based on identical facts and the cause of action for instituting these petitions were clearly distinct. However, the Adjudicating Authority dismissed this petition erroneously on the misplaced ground that it was not maintainable as the previous Section 7 petition was withdrawn by the Appellant himself and the Adjudicating Authority had not given any liberty to come up afresh if the settlement failed. It was also contended by the Appellant that the breach of settlement clearly gave a new cause of action in their favour to file a Section 7 application and the Adjudicating Authority had misdirected itself by applying the principles of res judicata in the prese....
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....ara 36 of the impugned order which is as extracted below: "IV. Issues that cropped up for the determination by this Adjudicating Authority are as under: A. Whether mere breach of the terms of Settlement constitutes a 'financial debt' based on original debt. B. Whether a petition is dismissed as withdrawn without the leave of the Court qualifies the petitioner to come afresh in respect of the same cause of action. C. Whether an explicit written agreement of loan is a mandatory instrument for the Financial Creditor, being an NBFC, to substantiate the nature of transactions between the lender and borrower." 7. After consideration of the above issues, the Adjudicating Authority at para 66 of the impugned order has summarised the rationale for dismissing the Section 7 petition which is as reproduced below: "66. In terms of the enumerations supra, we would summarize the legal propositions and conclusions as under: a. Upon withdrawal of a petition or a claim without the leave of the Court to institute a fresh one in respect of the subject matter of such petition or such claim as in the previous one, the petitioner is preclud....
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....f 2022 wherein after adverting to Regulation 8(2) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and Rule 3(1)(d) and Rule 4(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which regulates filing of application by the Financial Creditors, it has been held that written financial contract is not a pre- condition or an exclusive requirement for proving existence of debt. It was asserted that this judgement makes it clear that financial debt can be proven from other relevant documents and it is not mandatory for a written financial contract to be the only basis for establishing a financial debt. 11. To answer this question, we need to first notice that the RBI Master Circular clearly precedes the enactment of the IBC and in view of Section 238 of the IBC which contains an overriding provision, the IBC clearly holds supremacy and therefore overrides the RBI Circular. But more importantly, we need to abide by the judicial precedent set by this Tribunal in Desana Impex judgment supra which has comprehensively considered the question as to whether a written financial contract is nece....
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.... having effect by virtue of such law. Notwithstanding non-maintenance of written records, it cannot be concluded that the debt and default cannot be established under the IBC. In any case, as per Section 238 of the Code, provisions of the IBC override other laws. 30. The Appellant also relies upon the judgment of this Tribunal, in 'Narendra Kumar Aggarwal & Anr. Vs Monotrone Leasing Pvt. Ltd. (supra)'. Even though the Adjudicating Authority has concluded that this would not come to the rescue of the Financial Creditor, yet it has been relied by the Appellant. The relevant extracts are as follows: "... 11. Thus, the contention of Financial Creditor is fully authenticated from the Money Receipt and bank transaction statement. The Appellant contends that the transaction may be treated as the 'Inter-Corporate Deposit', but it cannot be treated as the Financial Debt. In case the Inter-Corporate Deposit is made for a certain period, which was to be paid back with interest then such transaction will also fall in the definition of 'Financial Debt'. The interest is the product of instant transaction, which is undoubtedly the time value of money. Thus, such transaction of t....
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....sed in the FY 2017-18 and amount due was shown as Rs. 79,70,250, which clearly was after adding the interest, disbursement has to be held for time value of money. We, thus, are satisfied that all preconditions for establishing financial debt are proved by the Financial Creditor and the order of the Adjudicating Authority rejecting Section 7 application is not sustainable." 32. The Appellant has also relied upon another judgment of this Tribunal in 'Satish Balan (supra). The relevant extracts are: ".... 14. This 'Appellate Tribunal' observe that the Code nowhere prescribes that there should be a written agreement between the parties to prove the loan and its disbursement to be treated as financial debts. It is also observed that if there are acknowledgments by the 'Corporate Debtor' and where the statements of accounts of the 'Corporate Debtor' are in position to proof disbursement of loan and payment of interest, the absence of formal written agreement would not bar the 'Financial Creditor' (the Respondent No. 1 herein) from initiating the CIRP." Herein this Tribunal had clarified that a written agreement is not a condition precedent to proving the existe....
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....disbursement to the Respondent has been shown from FY 2013-14 till July 2016. For the same period, it is also an uncontroverted fact that the Respondent had issued loan receipts besides Demand Promissory Notes as well as confirmation letters acknowledging receipt of loan. In addition, the Respondent has issued several letters of acknowledgement of loan renewal for the period 2013-2017 which also reflects accrual of interest. There are also signed confirmation of accounts issued by the Respondent from the FY 2013-14 to FY 2017-18. Besides unequivocal admission and acknowledgement of financial debt by the Respondent, the TDS deduction made on interest components as well as issue of post-dated dishonoured cheques are also a clear proof of disbursement of loan with interest. Thus, when we apply the ratio of the Desana Impex judgment supra to the present factual matrix, the Adjudicating Authority is found to have grossly erred in holding that as there was no written agreement or financial contract between the Corporate Debtor and the present Appellant- NBFC/Financial Creditor, there was no foundational basis for claiming that the Corporate Debtor owed a financial debt to the Appellant i....
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..... It is the counter case of the Respondent that the Appellant had not exercised their right under Clause 10 of the Settlement Agreement which gave them the right to revive the original company petition. To invoke this clause, the Appellant should have filed the Settlement Agreement before the Adjudicating Authority while seeking withdrawal of the original company petition but the same was not done. When the settlement between them was neither filed nor brought on record before the Adjudicating Authority, the right and liberty to revive the Section 7 company petition was not established. The Respondent in support of their contention has relied on the judgment of the Hon'ble Supreme Court in Sarguja Transport Service Vs State Transport Appellate Tribunal, M.P, Gwalior 1986 SCC Online SC 233. Reliance was also placed on the judgment of the Hon'ble Supreme Court in HPCL Bio-Fuels Ltd. Vs Shahaji Bhanudas Bhad 2024 SCC Online SC 3190 and in Satheesh V.K. Vs Federal Bank Ltd. 2025 SCC Online SC 2046 which held that unconditional withdrawal of the first petition under the same article would not be maintainable at the instance of a party who withdraws the petition without leave to challeng....
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....eedings not on the ground of res judicata but as a public policy to avoid multiplicity of litigation and to discourage the litigants from indulging in bench-hunting tactics. The applicability of the ratio of these judgements is therefore not contextually relevant in the present factual matrix arising out of IBC proceedings. 18. We next come to a set of judgments of this Tribunal which have been relied upon by the Appellant to buttress their standpoint. The first judgement banked upon by the Appellant is that of this Tribunal in Shraddha Enterprises supra which is as reproduced below: "12. Thus, in our considered opinion, the Ld. Tribunal has committed a patent error in dismissing the application of the appellant because if this procedure is allowed to be adopted then the unscrupulous Corporate Debtor like the respondent may keep on cheating the gullible operational creditors who would believe them that they would make their payment in installments and thus entered into the settlement. We strongly condemn the act and conduct of the respondent in this case because such type of cases are increasing day by day specially in the matter of operational creditors, where the corp....
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....cation in the first petition not only to bring on record the settlement but also to withdraw the first petition being sanguine of the fact that CD would keep its words and shall honour all the post-dated cheques in time but they were not aware of the intention of the CD as it had not made payment beyond Rs. 1,10,00,000 and were still in the arrears of more than Rs. 3 Cr. The Financial Creditor then filed the second petition of the reduced debt about which the default is not in question, therefore, the Adjudicating Authority has rightly admitted the application. 20. At this stage, we would like to observe that if this kind of tricks, played by the CD with the FC are allowed and the plea raised by the Appellant is accepted that the second petition on the ground of settlement agreement is not maintainable then it would give a premium to the unscrupulous CD to get the petition filed under Section 7 withdrawn on the basis of the settlement which was not to be ultimately followed. Definitely, this kind of attitude and act on the part of the CD is not appreciated." When we look at the above two judgements relied upon by the Appellant, we find force in the contention of the App....
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.... Section 7 petition, all the proceedings taken therein stood wiped out. When there was no adjudication by the Adjudicating Authority in CP(IB) No. 215 of 2022 as the same was withdrawn, the reliance on principles of res judicata by the Adjudicating Authority in respect of CP(IB) No. 146 of 2023 lacked legal foundation. The parties were thus left in the same position which they had occupied as if no such Section 7 petition had been instituted in the first instance. The fresh petition under Section 7 of IBC was not barred as the principles of res judicata were inapplicable. The breach of settlement clearly gave rise to a new cause of action in favour of the Appellant to file a Section 7 application and the Adjudicating Authority had misdirected itself by applying the principles of res judicata in the present case. 22. We are guided by the well settled legal precepts laid down by the landmark judgement of the Hon'ble Supreme Court in Innoventive Industries Ltd. Vs ICICI Bank (2018) 1 SCC 407 wherein the incidence of financial debt and default has been lucidly explained by observing as below: "27. The scheme of the Code is to ensure that when a default takes place, in the s....
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.... authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5, where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, a....