NCLAT New Delhi: Written Contract Not Mandatory To Prove Financial Debt; Documentary Evidence Under Regulation 8(2) Sufficient
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Rakesh Kumar Jain (Judicial Member), Justice Mohd. Faiz Alam Khan (Judicial Member), and Mr. Naresh Salecha (Technical Member), has held that the existence of a legally enforceable debt can be proved through any documentary evidence specified under Regulation 8(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, and that a written financial contract is not a precondition for establishing the same.
Background
The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), challenging the order dated June 21, 2024, passed by the National Company Law Tribunal (NCLT), Kolkata Bench, which had admitted an application under Section 7 of the IBC filed by the financial creditor. The appellant contended that the NCLT had exceeded its jurisdiction by examining issues other than limitation, even though it was directed by the NCLAT in a prior round to limit its consideration to that aspect. It was further argued that the Adjudicating Authority ignored the fact that no written financial contract had been produced to establish a financial debt and that there was no evidence of loan advancement between the parties.
The financial creditor, however, maintained that there was no illegality in the impugned order, as the corporate debtor had admitted receipt of the amount, and TDS deductions on interest payments were reflected in its financial statements. It was submitted that the corporate debtor’s own records confirmed that the transaction was in the nature of a loan and not an advance for the supply of goods.
Tribunal’s Observations
The NCLAT noted that the corporate debtor had received ₹50 lakh from the respondent, purportedly as an advance for material supply. However, it observed that interest at the rate of 9% per annum had been paid by the corporate debtor, and TDS had been deducted on the same till 2015–2016. The deduction of TDS and its reflection in the corporate debtor’s books of accounts, the Bench held, clearly established that the transaction was in the nature of a financial debt and not a mere trade advance.
The Tribunal rejected the corporate debtor’s plea that the payment was for defective fabric supply, observing that no material was ever supplied, nor was any communication produced to substantiate that claim. The Bench noted: “The appellant’s plea that the payment was towards the supply of defective fabric is untenable since no supply was made nor any correspondence regarding the alleged defect exists. The payment of interest and deduction of TDS thereon demonstrate that the amount advanced was a financial debt.” The Bench further emphasized that Regulation 8(2) of the CIRP Regulations does not mandate the production of a written financial contract in every case. The Regulation allows for proof of claim through “any one or more” of the following documents — records in information utilities, financial statements, TDS certificates, bank statements, or any other relevant evidence of debt and default.
Interpreting the provision, the NCLAT held: “Regulation 8(2) of the CIRP Regulations does not require that all documents listed therein must be produced to prove the existence of debt. The use of the word ‘or’ signifies that any one or more of the documents mentioned may suffice to establish a financial debt. Therefore, the absence of a written financial contract does not negate the existence of a legally payable financial debt.” The Bench referred to its earlier decision in Agarwal Polysacks Limited v. K.K. Agro Foods and Storage Limited (2023), wherein it was held that a financial debt can be proved through relevant supporting documents and that a written contract is not the sole mode of proving such debt.
It observed that in the present case, multiple pieces of evidence — including the corporate debtor’s acknowledgment in its balance sheet, TDS deduction certificates, demand notice, and matching loan and interest figures in both the demand notices — sufficiently established the existence of a financial debt.
The Appellate Tribunal upheld the findings of the Adjudicating Authority and reiterated that a financial debt can be proved by any of the evidentiary modes listed in Regulation 8(2). The absence of a written agreement does not defeat a claim if other documentary records clearly establish the debt and default. Accordingly, the appeal was dismissed, affirming the order of the NCLT admitting the application under Section 7 of the IBC.
Appearance
For Appellant: Mr. Krishnendu Datta, Sr. Advocate along with Mr. Ritesh Agrawal & Ms. Priyanshi Sharma.
For Respondent: Mr. Sunil Choraria, for R-1/RP. Ms. Pooja Agrawal, for R-2.
Cause Title: Bijendra Prasad Mishra Versus M/s HS Mercantile Pvt. Ltd. and Ors.
Case No: Company Appeal (AT) (Insolvency) No. 2364 of 2024
Coram: Justice Rakesh Kumar Jain (Judicial Member), Justice Mohd. Faiz Alam Khan (Judicial Member), Mr. Naresh Salecha (Technical Member)
