NCLT Admits Section 7 IBC Plea as Debt Acknowledged and Within Limitation

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  • Last Updated on 3 June, 2025

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JP Financial Services v Avadh Merchants IBC

Case Details: J.P Financial Services (P.) Ltd. v. Avadh Merchants (P.) Ltd.

Judiciary and Counsel Details

  • Labh Singh, Judicial Member & Rekha Kantial Shah, Technical Member
  • Saunak Mitra, Ld. Adv., for the Appellant.
  • Ms Urmila Chakarborty, Ld. Adv., for the Respondent.

Facts of the Case

The Corporate debtor had availed a loan from the financial creditor in 2015, which was secured by mortgaging property. When the Corporate Debtor failed to repay the loan, the Financial Creditor filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Corporate Debtor opposed the application, on the following basis:

(a) The application was time-barred (beyond the limitation period).

(b) The loan itself was invalid as it allegedly violated Section 186 of the Companies Act, 2013.

NCLT Held

The Court has observed that the loan was disbursed on 07.05.2015, the Corporate Debtor acknowledged the loan in its balance sheets for FY 2017–18, 2018–19, 2021–22, and 2022–23.

Based on this acknowledgement, the application filed on 30.03.2024 was within the 3-year limitation period under Section 238A of the IBC. The Corporate Debtor’s counsel even informed the court that settlement talks were ongoing, which further confirmed the existence of the debt. Therefore, the objection that the debt was time-barred was rejected.

Further, regarding the alleged violation of Section 186 the court has observed that as per the Financial Creditor’s 2015 balance sheet, its paid-up capital and reserves amounted to about Rs. 125 crores. The loan was of Rs. 2.5 crore.

Therefore, it was well within the permissible lending limit and did not require a special resolution.

Based on the above observations, the court has allowed the application under Section 7 of the IBC, as it was within limitation and there was no violation of Section 186 of the Companies Act.

List of Cases Referred to

  • Laxmi Pat Surana v. Union Bank of India and Anrs (2021) 8 SCC 481 (para 25).

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied