NCLAT: Amounts Reflected as ‘Other Advances’ in Balance Sheet Cannot Be Treated as Financial Debt Under IBC
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that monetary amounts reflected in a company’s balance sheet under the head “Other Advances” cannot be treated as financial debt under the Insolvency and Bankruptcy Code, 2016, especially when such sums were advanced many years earlier without any demand for repayment. The ruling was delivered on 10 December 2025 by a Bench comprising Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra, which dismissed two connected appeals filed by Surender Modi and Primex Estates Pvt. Ltd. The appellants had claimed that the money advanced to Vibrant Buildwell Pvt. Ltd. in 2007 constituted financial debt, entitling them to be recognised as financial creditors in the company’s Corporate Insolvency Resolution Process (CIRP).
Vibrant Buildwell was admitted into CIRP on 22 February 2022, and the Resolution Professional invited claims two days later. Surender Modi submitted a claim of ₹1.09 crore on the basis of a purported 2007 loan agreement, while Primex Estates claimed ₹9.43 crore, comprising ₹30.95 lakh allegedly advanced in 2007 along with more than ₹9 crore in interest. Both claims were rejected by the Resolution Professional, who noted that the amounts had consistently been reflected in the company’s balance sheets for the period 2016–2017 under the heading “Other Advances” rather than under “Borrowings”, indicating that these sums were not treated as loans by the corporate debtor.
The appellants argued that the categorisation in the balance sheet did not conclusively determine the nature of the transaction and relied on alleged loan agreements to assert that the sums constituted financial debt. They also contended that the delay in seeking repayment was protected by the Supreme Court’s COVID-19 extension of limitation, and that the entries listed under “Other Long-Term Liabilities” substantiated their claim. They asserted that the Resolution Professional had improperly ignored documentary evidence and that their claims warranted admission.
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The Resolution Professional and the Successful Resolution Applicant strongly disputed these arguments. They submitted that the alleged loan agreements were unreliable, inconsistent, inadequately stamped, and unsupported by board resolutions. They also pointed out that the agreements were executed between two brothers who were erstwhile directors of the company, thereby raising concerns about the genuineness of the claim. Most significantly, they emphasised that no demand for repayment had been made for nearly fifteen years, and that the corporate debtor had never treated the amounts as borrowings in its financial statements. They argued that the absence of repayment action over such an extended period cast serious doubts on whether the transactions were loans at all.
The NCLAT agreed that limitation was not a bar owing to the Supreme Court's order extending timelines during the pandemic. However, it held that the claims failed on their merits. The tribunal considered the manner in which the company recorded the amounts to be decisive. It observed that if the sums had appeared under the head “Long-Term Borrowings”, then the nature of the transaction would have been clear. Instead, the entries appeared under “Other Advances”, a sub-category of “Other Long-Term Liabilities”, indicating that they were treated as advances and not borrowings. The tribunal held that such categorisation clearly demonstrated that the amounts did not partake the character of financial debt. It further noted that the unexplained silence of fifteen years before claiming repayment created additional doubt regarding the bona fides of the alleged loan transactions.
Concluding that no genuine borrowing had taken place and that the claims lacked credibility, the NCLAT upheld the Resolution Professional’s rejection of the claims and dismissed both appeals. It reiterated that to qualify as financial debt under Section 5(8) of the IBC, a transaction must involve disbursal against the consideration for the time value of money, a condition not satisfied in the present case. The tribunal therefore affirmed that entries under “Other Advances” in a balance sheet do not constitute financial debt and cannot be used to claim creditor status in insolvency proceedings.
Appearance
For Appellant: Advocates Anirban Bhattacharya and Rajeev Choudhary
For Respondent: Senior Advocate Abhijeet Sinha with Advocates Sumant Batra, Abhishek Parmar, Sarthak Bhandari, and Riya Kaur Arora for RP; Senior Advocate Krishnendu Dutta with Advocates Saurabh Kalia, Ateendra Saumya Singh, and Anand Mishra for SRA.
Cause Title: Surender Modi v. Ashish Singh with Primex Estate Private Limited v. Ashish Singh & Ors.
Case No: Company Appeal (AT) (Insolvency) No. 1734 of 2025 with Company Appeal (AT) (Insolvency) No. 1735 of 2025
Coram: Chairperson Justice Ashok Bhushan, Technical Member Barun Mitra
