Written Contract Not Sole Proof for Financial Debt Under IBBI Regulations; Relevant Document Suffice | NCLAT

Case Details: Agarwal Polysacks Ltd. v. K. K. Agro Foods and Storage Ltd. - [2023] 155 taxmann.com 358 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Justice Ashok Bhushan, Chairperson & Barun Mitra, Technical Member
  • Manish Paliwal & Ms Megha Yadav, Advs. for the Appellant.
  • Abhijeet Sinha & Aman Lodha, Advs., for the Respondent.

Facts of the Case

In the instant case, the appellant (i.e. financial creditor) granted an unsecured term loan to the respondent (i.e. the corporate debtor) by way of RTGS and, it was agreed between the parties that repayment of the unsecured term loan would be made on demand.

On default in making repayment, the appellant filed an application under section 7 of the IBC against the corporate debtor. The Adjudicating Authority (NCLT) by the impugned order held that the financial creditor failed to show the nature of the transaction between the parties and, therefore, an application filed by the financial creditor was dismissed.

The NCLAT observed that since payment of interest had been shown from the corporate debtor in Form 26AS and Form No. 26AS entries corroborated to claim of financial debt, and said the document was a piece of evidence to prove that it was a financial debt.

NCLAT Held

The NCLAT held that since NCLT itself had given the finding that disbursement was with interest and repayment was on demand, two essential conditions of financial debt were present with regard to the time value of money.

The NCLAT, further held that the pre-condition for establishing financial debt was proved by the appellant and, therefore, the order passed by the NCLT rejecting the section 7 application holding that the appellant failed to show the nature of the transaction was to be set aside.

Therefore, the financial debt can be proved from other relevant documents and it is not mandatory as per regulation 8(2) that a written financial contract can be the only basis for proving financial debt.

List of Cases Reviewed

• • Agarwal Polysacks Ltd. v. K. K. Agro Foods and Storage Ltd. [2023] 155 taxmann.com 357 (NCLAT – New Delhi) (para 33) reversed [See Annex].
  • Prayag Polytech (P.) Ltd. v. Bon Lon Petrochem LLP [2022] 138 taxmann.com 183 (NCLAT – New Delhi) (para 18) distinguished.

List of Cases Referred to

• • Prayag Polytech (P.) Ltd. v. Gem Batteries (P.) Ltd. [Company Appeal (AT) (Ins.) No. 713 of 2019, dated 24-9-2019] (para 3)
  • Jagdambey International v. Visa Powertech (P.) Ltd. [Company Appeal (AT) (Ins.) No. 468 of 2019, dated 2-12-2019] (para 3)
  • IFCI Ltd. v. Sutanu Sinha [Company Appeal (AT) (Ch.) (Ins.) No. 108 of 2023, dated 5-6-2023] (para 3)
  • Pawan Kumar v. Utsav Securities (P.) Ltd. [2021] 131 taxmann.com 211/168 SCL 692 (NCLAT – New Delhi) (para 3)
  • Prayag Polytech (P.) Ltd. v. Bon Lon Petrochem LLP [2022] 138 taxmann.com 183 (NCLAT – New Delhi) (para 18)
  • Satish Balan v. Mrs. Neeta Navin Nagda [Company Appeal (AT) (Ins.) No. 718 of 2023, dated 4-7-2023] (para 20).