NCLT Delhi Rules, Absence Of Formal Written Agreement Does Not Preclude Establishment Of Financial Debt
Pranav B Prem
The New Delhi Bench-VI of the National Company Law Tribunal, consisting of Shri Mahendra Khandelwal (Judicial Member) and Shri Atul Chaturvedi (Technical Member), has reaffirmed that a financial debt under Section 5(8) of the Insolvency and Bankruptcy Code, 2016, can be proved through documentary evidence even in the absence of a formal written agreement. The Tribunal ruled that materials such as audited financial statements, tax documents including Form 26AS, TDS deductions, ledger entries, and express acknowledgments of liability are sufficient to establish a financial debt for the purpose of initiating Corporate Insolvency Resolution Process (CIRP).
The decision was rendered in Fashion Suitings Private Limited v. Shriya Overseas Private Limited [C.P. (IB) No. 689/ND/2023], where the Financial Creditor had advanced an unsecured loan of ₹1.5 crores to the Corporate Debtor on 22.03.2016 via cheque. The loan was repayable on demand and carried an agreed interest rate of 15% per annum, compounded quarterly. From 18.05.2016 till 31.03.2019, the Corporate Debtor made regular interest payments and deducted TDS on those payments. These facts were corroborated by entries in the Financial Creditor's Form 26AS and ledger accounts.
Additionally, the audited balance sheet of the Corporate Debtor for FY 2017–18 recorded the loan amount under the head “Long-Term Borrowings,” and the subsequent financial year reflected an increased outstanding balance of ₹1.81 crores including accrued interest. On 01.04.2021, the Director of the Corporate Debtor, Mrs. Ruby Mehra, issued a letter acknowledging the principal sum along with interest and promised repayment by 30.09.2021. The letter was issued on the letterhead of Triumph Motors, a trading name of the Corporate Debtor. Along with this, a confirmation of accounts for the period between 01.08.2015 and 31.03.2021 was also submitted, affirming both the principal and accrued interest.
The Financial Creditor submitted that the Corporate Debtor never disputed the liability and had not made any repayment since the agreed date of 30.09.2021. As per the petition, the default occurred on 01.10.2021, and the application was filed on 21.09.2023, well within the three-year limitation period as prescribed under Article 137 of the Limitation Act, 1963. The petitioner relied on Regulation 8(2)(a) of the IBBI (CIRP) Regulations, 2016 to establish that documentary evidence such as balance sheets and tax filings can substantiate a financial debt even in the absence of a contract.
In reply, the Corporate Debtor argued that there was no formal loan agreement in place and no structured terms were agreed upon for the repayment or interest. It also claimed that the financial operations of the company had been affected after the death of its director Mr. Rajan Mehra in 2018. The respondent further contended that the loan did not qualify as a financial debt under the Code as there was no clear evidence of consideration for the time value of money.
Rejecting these arguments, the Tribunal held that the disbursement of ₹1.5 crores through banking channels and the consistent payment of interest until 2019 confirmed the consideration for the time value of money. The Tribunal pointed out that even in the absence of a formal agreement, the entries in the Corporate Debtor’s balance sheets and the written acknowledgment dated April 2021 were sufficient to establish the existence of debt and its default.
The Tribunal heavily relied on judicial precedents to support its findings. In Satish Balan v. Neeta Navin Nagda [(2023 SCC OnLine NCLAT 1999)], the NCLAT had observed that the Code does not require a formal written agreement for a financial debt, provided acknowledgments of debt and evidence of disbursement and interest payments exist. In Jaiprakash Agarwal v. Alka Prakash Agarwal [2024 SCC OnLine NCLAT 761]and Agarwal Polysacks v. K.K. Agro Foods [(CA(AT)(Ins) No.1126 of 2022)], the NCLAT upheld that entries in Form 26AS, interest deductions, and financial statements are valid proof of financial debt. The Tribunal also cited the Supreme Court’s judgment in Global Credit Capital Ltd. v. Sach Marketing Pvt. Ltd [(2024) 9 SCC 482], where it was held that if the loan amount is recorded in the debtor's financial statements as a long-term liability, it signifies a commercial borrowing and thus a financial debt.
The Tribunal further examined the issue of limitation in detail. It found that the last interest payment was made on 31.03.2019 and that the April 2021 acknowledgment letter extended the limitation period under Section 18 of the Limitation Act. Thus, the petition filed in September 2023 was held to be within limitation. The Adjudicating Authority concluded that the Financial Creditor had discharged its burden of establishing the existence of financial debt and default based on a thorough set of admissible documents.
Upon satisfying itself that the Financial Creditor had proven the existence of a financial debt and default on part of the Corporate Debtor, the Tribunal admitted the petition under Section 7 of the IBC and ordered initiation of CIRP against Shriya Overseas Private Limited for a default amounting to ₹2,70,33,417. Mr. Sourabh Malpani was appointed as the Interim Resolution Professional. A moratorium was also declared under Section 14 of the Code, thereby prohibiting any suits, proceedings, or enforcement actions against the Corporate Debtor during the insolvency process. The Tribunal directed all concerned to comply with the procedural formalities including public announcement, communication to the Registrar of Companies, and cooperation with the IRP.
Appearance
Counsel for Petitioner: Adv. NPS Chawla, Adv. Sujoy Datta, Adv. Vibhor Kapoor, Adv. Shubham Raghuwanshi
Counsel for Respondent: Adv. Kartik Malhotra
Cause Title: Fashion Suitings Private Limited V. Shriya Overseas Private Limited
Case No: C.P. (IB) No. 689/ND/2023
Coram: Shri Mahendra Khandelwal [Hon’ble Member (Judicial)], Shri Atul Chaturvedi [Hon’ble Member (Technical)]
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