Pranav B Prem

The Mumbai Bench of the National Company Law Tribunal (NCLT), comprising Justice V. G. Bisht (Judicial Member) and Shri Prabhat Kumar (Technical Member), dismissed a Section 7 petition filed by Future Consumer Limited (Financial Creditor) against Aussee Oats India Limited (Corporate Debtor). The Tribunal held that insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 cannot be invoked where the creditor, who alleges default, owes a greater amount to the debtor—especially when the debtor has rightfully adjusted the claim against amounts receivable and such adjustments are reflected in audited financial statements approved by both parties.

Also Read: NCLT Rules, Payment Made Against Specific Invoice Can't Be Adjusted Against Back-Dated Invoices

Background

In February 2019, Future Consumer Limited extended a short-term Inter Corporate Deposit (ICD) loan of ₹2 crore to Aussee Oats India Limited. This was recorded through a Term Sheet and a demand promissory note, with a repayment period of 365 days and an interest rate of 12.5% per annum. The Corporate Debtor repaid ₹1.35 crore in multiple installments, with the final payment of ₹10 lakh made on 31 May 2020. However, the Financial Creditor claimed that a balance of ₹65 lakh remained unpaid, and issued a demand notice in May 2024 for recovery of ₹1,00,12,157/-, including accrued interest.

Upon non-payment of the demanded amount, the Financial Creditor initiated a corporate insolvency resolution process under Section 7 of the IBC. The Corporate Debtor, in response, not only disputed the genuineness of the Term Sheet, alleging it was forged while their director was abroad, but also asserted that the claimed dues had already been adjusted against larger amounts receivable from the Financial Creditor.

Debtor's Defense and Set-Off Claim

The Corporate Debtor claimed that it had valid receivables against the Financial Creditor arising from goods supplied under the brand “Kosh” and unutilized packaging material. It was argued that the outstanding loan was set off against these dues, and this adjustment was reflected in the audited financial statements for FY 2020–21, which were signed by Mr. Shailesh Kedawat—then CFO of the Financial Creditor and a nominee director on the Corporate Debtor’s board. According to Note 23 of the financial statements, ₹7.51 lakh was receivable from the Financial Creditor, and the ICD was not shown as payable.

The Corporate Debtor also highlighted an email exchange from August 2021, where the alleged outstanding ICD loan was denied and a request was made to reconcile ledger accounts. However, the Financial Creditor did not provide the complete ledger or dispute the adjustment made in the financial statements.

Tribunal’s Findings and Analysis

The NCLT acknowledged that ₹2 crore had been disbursed as financial assistance and ₹1.35 crore repaid. However, it held that the remaining amount was validly adjusted by the Corporate Debtor against outstanding receivables from the Financial Creditor. The Tribunal emphasized that the audited financial statements—which showed no dues and were signed by the Financial Creditor’s own CFO—held evidentiary value.

On the Financial Creditor's contention that the repayment obligation under the Term Sheet was "absolute and unconditional," the Tribunal opined that such clauses cannot override the debtor's statutory and equitable right to set-off. It further held that the set-off was disclosed transparently in the corporate debtor’s audited books and was never objected to by the Financial Creditor during the approval process.

The Tribunal observed: “It would be unequitable to seek insolvency of a debtor alleging default in payment of a financial debt when such creditor owes more than the amount claimed to be in default to such debtor…” Additionally, the Tribunal noted that the dispute over the authenticity of the Term Sheet was not critical for deciding the matter, as the receipt of the ₹2 crore itself was undisputed and the question was limited to whether any debt remained outstanding after adjustment.

On Allegations of Malicious Filing

The Corporate Debtor had also filed an application under Section 65 of the IBC, alleging that the insolvency petition was filed with malicious intent. While the Tribunal did not find the filing to be fraudulent or malicious under Section 65, it held that the petition could not be entertained as the debt claimed was not due and payable.

Also Read: NCLAT Rules, No Provision Under IBC Mandating Resolution Professional To Share Valuation Report With Suspended Management Of Corporate Debtor

Verdict

The Tribunal held that no financial debt was outstanding as on the date of the petition and that the Corporate Debtor had rightfully exercised its right to adjust receivables from the Financial Creditor. Since the set-off had already been acknowledged implicitly through audited financial statements signed by a nominee of the Financial Creditor, the petition was found to be unsustainable. Accordingly, the Section 7 application filed by Future Consumer Limited was dismissed. The NCLT Mumbai dismissed the Section 7 petition against Aussee Oats India Limited, holding that insolvency proceedings cannot be maintained when the creditor owes a higher amount to the debtor and the debt has already been adjusted and acknowledged in audited financials.

Appearance

For the Financial Creditor: Mr. Shyam Kapadia, Ld.Counsel

For the Corporate Debtor: Mr. Kunal Kanungo, Ld.Counsel

Cause Title: Future Consumer Limited V. Aussee Oats India Limited

Case No: CP (IB) No. 538 (MB)/ 2024

Coram: Justice V. G. Bisht [Judicial Member], Shri Prabhat Kumar [Technical Member]

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