Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member), has held that a Corporate Debtor’s willingness to enter into a One-Time Settlement (OTS) with its financial creditor amounts to an admission of debt and default under the Insolvency and Bankruptcy Code, 2016 (IBC). The Tribunal observed that the Corporate Debtor’s own submissions before the Adjudicating Authority regarding the proposed OTS “clearly indicate its acknowledgment of debt and default,” and therefore, the order admitting insolvency under Section 7 of the IBC did not warrant interference.

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Background

The appeal was filed by Rajratan Babulal Agarwal, suspended director of Shri Tradco Deesan Pvt. Ltd., challenging the order dated 15.02.2023 passed by the NCLT, Mumbai Bench (Court-V), admitting State Bank of India’s (SBI) application under Section 7 of the IBC and initiating the Corporate Insolvency Resolution Process (CIRP) against the company.

SBI had sanctioned credit facilities to the Corporate Debtor totaling over ₹105.62 crore through term loans and cash credit facilities. After repeated irregularities and defaults, the account was classified as Non-Performing Asset (NPA) on 26.08.2019. A loan recall notice was issued on 15.07.2021, demanding dues of ₹143.45 crore. SBI subsequently filed the Section 7 application, supported by statements of account, a certificate from NeSL, and a balance confirmation letter issued by the Corporate Debtor itself on 30.04.2020, confirming an outstanding of ₹97.28 crore.

Appellant’s Submissions

The Appellant argued that the NCLT had erred in admitting the insolvency application without sufficient evidence of default. It was contended that the NeSL report is not conclusive proof, and that bank statements contained discrepancies and manual alterations, making them unreliable. It was further claimed that crucial records of the Corporate Debtor were stolen during an earlier CIRP, making it impossible to verify the statement of accounts. The Appellant also pointed to alleged receivables of ₹277 crore and asserted that the existence of receivables disproved default.

Respondent’s Submissions

Appearing for SBI, Senior Advocate Sanjiv Sen argued that the Corporate Debtor had repeatedly defaulted on its repayment obligations and had been classified as NPA in August 2019. The bank produced detailed statements of account from 01.01.2019, reflecting the outstanding dues and defaults.He further submitted that during the appeal, the Corporate Debtor had itself stated its intention to enter into a One-Time Settlement (OTS) with SBI, thereby acknowledging the outstanding dues. The OTS proposal, however, was later rejected by the bank, following which the NCLAT vacated its interim order.

Tribunal’s Observations

The NCLAT noted that the statement of accounts and supporting documents clearly established the existence of debt and default. The Tribunal emphasized that the Corporate Debtor’s own letter dated 30.04.2020, confirming balances aggregating to ₹97.28 crore, was an unambiguous admission of liability. Rejecting the argument that missing records absolved the Corporate Debtor, the Bench observed that bank-maintained statements and NeSL data were sufficient to confirm default. The Tribunal also found no material evidence to support the claim of large receivables.

Importantly, the Bench highlighted that the Appellant’s own statement before the NCLAT, expressing its intent to enter into an OTS to liquidate the debt, amounted to a clear acknowledgment of indebtedness. “The Appellant’s endeavour to enter into settlement and try to liquidate the debt itself indicates that the Appellant understood that the Corporate Debtor was in debt and default. The statement regarding OTS is a clear indication of the existence of debt and default.” The Tribunal added that the pendency of a counterclaim before the DRT did not affect proceedings under Section 7 of the IBC, since insolvency proceedings are distinct statutory remedies available to financial creditors.

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Decision

The NCLAT found no error in the NCLT’s decision admitting the Section 7 application and held that SBI had sufficiently established debt and default exceeding ₹100 crore. Accordingly, the appeal was dismissed, and the Tribunal directed that the CIRP period shall exclude the interim stay period from 28.02.2023 to 01.09.2023, when the OTS discussions were ongoing. The NCLAT reaffirmed that a Corporate Debtor’s willingness to settle debts through an OTS proposal is itself indicative of debt and default, and such acknowledgment can be relied upon to uphold insolvency admission under Section 7 of the IBC.

Appearance

For Appellant: Mr. Abhijeet Sinha and Mr. Krishnendu Datta, Sr. Advocates with Mr. Anish Agarwal, Mr. Tejas Agarwal, Mr. Harshit Chaudhary, Mr. Harsh Gurbani, Mr. Pratik Chakma, Mr. Abhinav Maurya and Ms. Natasha Bagga, Advocates.

For Respondents: Mr. Sanjiv Sen, Sr. Advocate with Ms. Anjali Singh, Mr. Prahalad Balaji and Ms. Ricky Sampat, Advocates for R-1. Mr. Animesh Khandelwal, Advocate for R-2.

Cause Title: Rajratan Babulal Agarwal Versus State Bank of India & Anr.

Case No: Company Appeal (AT) (Insolvency) No. 244 of 2023

Coram: Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member)