NCLT Delhi Rules, Interest-Free Debt Must Involve Time Value Of Money To Qualify As Financial Debt
Pranav B Prem
The National Company Law Tribunal (NCLT), New Delhi Bench-VI, comprising Shri Mahendra Khandelwal (Judicial Member) and Shri Atul Chaturvedi (Technical Member), dismissed a petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, filed by Mr. Sunil Chopra against CAPL Hotels and Spa Pvt. Ltd. The Tribunal held that an interest-free loan must involve consideration for the time value of money to qualify as a financial debt under the Code.
Background
The petitioner, Mr. Sunil Chopra, claimed to have advanced an unsecured, interest-free loan of ₹6.73 crore to CAPL Hotels and Spa Pvt. Ltd. between 2007 and 2009. According to the petitioner, the loan was extended in his personal capacity and was repayable on demand. The corporate debtor had consistently reflected this amount as an “unsecured loan” in its audited financial statements, including the financial year ending 31.03.2021. A loan recall notice was issued in July 2022, and upon non-repayment, a second notice followed in 2023.
In response, the corporate debtor contended that the application was barred by limitation, as the disbursal occurred nearly 17 years ago and the demand was made only in 2022. The corporate debtor further submitted that there was no loan agreement, no documentation regarding interest or repayment terms, and no board resolution authorizing such a transaction. It was also pointed out that the petitioner was a promoter, director, and key managerial personnel of the company during the relevant period, and the entries in the books were made under his control.
The corporate debtor claimed that the alleged amount was a promoter's contribution or quasi-equity, not a financial debt. The petitioner had exited the company in 2019 after transferring his shares and allegedly receiving a settlement of ₹4.19 crore. The respondent also emphasized that the petitioner had failed to furnish share transfer and loan-related documentation, rendering them unable to adjust or write off the entries in their records.
Petitioner's Stand
The petitioner asserted that the amount advanced was a loan repayable on demand and thus qualified as financial debt under Section 5(8) of the Code. He relied on the consistent classification of the amount as an “unsecured loan” in the corporate debtor's audited financials. It was argued that this acknowledgment extended the limitation period under Section 18 of the Limitation Act. The petitioner maintained that absence of a formal agreement did not negate the existence of a financial debt and referred to the Supreme Court's ruling in Orator Marketing (P) Ltd. v. Samtex Desinz (P) Ltd [(2021) SCC OnLine SC 513] where it was held that interest-free loans can qualify as financial debt if disbursed for business purposes.
He further denied that the loan was quasi-equity and maintained that no resolution or agreement existed to that effect. The financial statements continued to acknowledge the loan even after his exit. The petitioner also disputed the allegation of document withholding and stated that all records and disbursements were duly reflected.
Tribunal's Findings
The Tribunal noted that under Section 5(8) of the Code, a financial debt requires disbursal against the consideration for the time value of money. While the Supreme Court in Orator Marketing recognized that interest-free loans can constitute financial debt, the Tribunal emphasized that the lender must still establish that the disbursal involved a consideration of time value of money.
In the present case, the Tribunal found no reliable evidence to establish such consideration. The loan was granted without interest, and there was no supporting agreement, repayment terms, or commercial understanding reflecting the accrual of any economic return. The Tribunal observed that in the absence of these essential elements, the disbursal lacked the commercial character necessary to constitute a financial debt.
The Tribunal further held that the communication cited by the petitioner, particularly the email dated 05.08.2022, did not amount to an unequivocal acknowledgment of debt. The Tribunal described it as vague and insufficient to revive a time-barred claim. It also took note of the fact that the petitioner was in a position of control over the corporate debtor when the relevant accounting entries were made, and thus the entries could not be treated as independent acknowledgments.
It was also observed that the loan qualified as a related party transaction, considering the petitioner’s significant control over the affairs of the corporate debtor during the period of disbursal. The absence of a board resolution authorizing such borrowing further weakened the petitioner’s case.
The Tribunal noted that the petitioner had not filed a valid Form D with the Information Utility (NeSL), and the submitted Form C was insufficient to establish a record of default. Citing Invent Asset Securitization and Reconstruction Pvt. Ltd. v. Girnar Fibres Ltd [Civil Appeal No. 3033 of 2022], the Tribunal reiterated that the IBC is not intended as a recovery mechanism.
The Tribunal held that the petitioner failed to establish the twin requirements of “financial debt” and “default” as defined under Sections 5(8) and 3(12) of the Code. It concluded that the application under Section 7 did not merit admission, as the disbursal lacked the elements necessary to constitute a financial debt and no default had been properly demonstrated. Accordingly, the petition filed by Mr. Sunil Chopra was dismissed.
Appearance
Counsel for Petitioner: Adv. NPS Chawla, Adv. Sujoy Datta, Adv. Vibhor Kapoor, Adv. Shubham Raghuwanshi
Counsel for Respondent: Adv. Kartik Malhotra
Cause Title: Sunil Chopra V. CAPL Hotels & SPA Private Limited
Case No: Company Petition IB/251/ND/2023
Coram: Shri Mahendra Khandelwal [Hon’ble Member (Judicial)], Shri Atul Chaturvedi [Hon’ble Member (Technical)]
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