TaxTMI 
TaxTMI 
2026 (7) TMI 768
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....cess (CIRP) against Ascendancy Financial Services Pvt. Ltd. (Corporate Debtor). The Adjudicating Authority held that the interest component could not be added to the claim of the Financial Creditor merely on the basis of Tax Deducted at Source (TDS) deductions and consequently concluded that the amount of default fell below the statutory threshold prescribed under Section 4 of the Code. Aggrieved by the dismissal of its Section 7 application despite the acknowledgment by the Corporate Debtor of the entire outstanding financial debt, including the interest component; the Appellant has preferred the present appeal challenging the legality and correctness of the Impugned Judgment. Brief Facts of the Case 2. The brief facts of the case relevant to this appeal are given below: i. The Appellant, Wild Dreams Trading Company Pvt. Ltd., had been extending financial assistance to the Respondent, Ascendancy Financial Services Pvt. Ltd., in the form of Inter Corporate Deposits (ICDs) over several years. Between 22.07.2016 and 18.07.2024, the Appellant advanced an aggregate sum of Rs. 2,32,00,000/- to the Respondent under an oral and mutually agreed arrangement whereby each ICD w....
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....g, while interest amounting to Rs. 45,44,700/- (net of TDS) up to 30.09.2024 had accrued on the unpaid financial assistance. The Appellant further alleged that although the Respondent had not remitted the interest to the Appellant, it had consistently deducted and deposited TDS on the interest component with the statutory authorities, which according to the Appellant constituted an acknowledgment of its liability to pay the agreed interest. v. Following the continued non-payment, the Appellant addressed a Demand Letter dated 13.09.2024 calling upon the Respondent to repay a total outstanding amount of Rs. 1,07,08,010/-, comprising Rs. 62,00,000/- towards the principal and Rs. 45,08,010/- towards accrued interest up to August 2024, within ten days. The demand letter was delivered by hand and was duly received by the Respondent on the very same day. vi. In response to the said demand, the Respondent, by its letter dated 19.09.2024, informed the Appellant that it was in the process of arranging funds for repayment of Rs. 1,07,08,010/- and sought an extension of two weeks to clear the dues. According to the Appellant, this communication constituted an express acknowle....
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....the correctness of the Impugned Order dated 03.02.2026 passed by the Adjudicating Authority, and determine whether the ingredients necessary for admission of an application under Section 7 of the Code were satisfied on the basis of the material available on record. 4. The present Appeal arises from the dismissal of the Application filed by the Appellant under Section 7 of the Code seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. The Adjudicating Authority rejected the Application primarily on the ground that the principal outstanding amount was only Rs. 62,00,000/- and that the interest component claimed by the Financial Creditor could not be added merely on the basis of TDS deductions. On such reasoning, the Adjudicating Authority concluded that the default amount did not cross the minimum threshold prescribed under Section 4 of the IBC and consequently dismissed the Section 7 Application. 5. The submission advanced by Learned Counsel for the Appellant is that the Adjudicating Authority has proceeded on an incorrect appreciation of the factual and legal position. It is contended that the Appellant had advanced various Inter Corporat....
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....rangement between the parties, such interest cannot be artificially separated while determining the amount of financial debt. The legislative intent behind Section 5(8) is to include the complete financial obligation arising from a transaction involving time value of money and not merely the original principal amount advanced. 10. In the present case, the material placed on record indicates that the Corporate Debtor had received financial assistance from the Appellant in the form of ICDs. The nature of the transaction as financial assistance has not been disputed. The record further reflects that the ICDs were not gratuitous advances, but were accompanied by an understanding regarding payment of interest. The Appellant's case is supported not merely by unilateral calculations of interest, but also by the conduct of the Corporate Debtor, including deduction of TDS on the interest component and its subsequent correspondence acknowledging the outstanding liability. 11. At this stage, it becomes necessary to consider the correspondence exchanged between the parties prior to initiation of proceedings under Section 7 of the Code. The Financial Creditor issued a Demand Letter dated ....
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....same is extracted below: 16. The aforesaid calculation indicates that apart from the outstanding principal amount of Rs. 62,00,000/-, an interest component of Rs. 45,08,010/- had accrued, thereby taking the total outstanding financial debt to Rs. 1,07,08,010/-. The said material, when considered along with the subsequent acknowledgment by the Corporate Debtor, demonstrates that the claim was not based merely upon TDS deductions but upon the overall financial arrangement between the parties. 17. The present case was not one where the Financial Creditor relied only upon TDS entries to create an interest liability. The TDS deductions were only one circumstance forming part of the overall chain of evidence. The acknowledgment dated 19.09.2024, the admitted receipt of ICD amounts, the previous repayment conduct of the Corporate Debtor, and the absence of any contemporaneous denial of interest liability were all relevant factors which ought to have been considered cumulatively. The Adjudicating Authority was required to examine the entire transaction and could not isolate one piece of evidence while disregarding other relevant documents. 18. It is true that there was no written ....
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....ilable on record and proceeded on a narrow consideration that interest was claimed only on the basis of TDS deductions. The acknowledgment of liability by the Corporate Debtor and the admitted financial transactions between the parties clearly established that the outstanding financial debt exceeded the threshold prescribed under Section 4 of the IBC. 22. We accordingly hold that the Impugned Order dated 03.02.2026 passed by the Adjudicating Authority cannot be sustained. The Appellant had successfully established the existence of financial debt and default exceeding the statutory threshold required under Section 7 of the IBC. Accordingly, the Appeal is allowed, with the further direction that the Corporate Debtor/ Respondent is allowed 15 days' time from the date of issue of this order for making full payment of outstanding debt along with interest due. In case the Respondent fails to make the payment, the Adjudicating Authority would admit the Section 7 petition and issue appropriate orders initiating CIRP Proceedings against the Respondent after a period of 15 days from the date of this order. Pending IA's, if any, are closed. No order as to costs. ============= Document ....