The NCLAT upheld the CIRP admission despite the lack of a written contract, finding that the oral agreement and repayment evidence sufficiently proved the financial debt.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) was hearing an appeal and observed that despite the absence of a written contract, the Adjudicating Authority's decision to admit the Corporate Debtor into the Corporate Insolvency Resolution Process (CIRP) was valid, as the evidence presented sufficiently demonstrated the existence of a debt and a default exceeding the prescribed threshold under the IBC.
The present appeal, filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), arises from an Order dated 03.02.2023 issued by the National Company Law Tribunal, Mumbai Bench-V, in C.P. (IB) No. 196/MB/2021. This Order admitted Bazargaon Paper & Pulp Mills Pvt. Ltd. (the Corporate Debtor) into the Corporate Insolvency Resolution Process (CIRP) following a Section 7 application by M/s Alka Prakash Agarwal. The suspended director of the Corporate Debtor contested this decision.
The Appellant's counsel argued that the loan of Rs.70 lakhs provided by Respondent No. 1 was based on an oral agreement, with the entire sum disbursed in four tranches and repaid by the Corporate Debtor over several years. The Appellant claimed that the full amount, including interest, was repaid and that this was not disclosed to the Adjudicating Authority, which led to an erroneous ex parte admission of the CIRP application. Additionally, the Appellant challenged the interest rate applied, alleging it was inflated by Respondent No. 1 to exceed the threshold of Rs.1 crore required under Section 4 of the IBC.
The Appellant further contended that Respondent No. 1 had used forged documents to support the claim and had not properly notified the Corporate Debtor of any outstanding amounts before seeking CIRP. They emphasized that their non-appearance was due to the death of a close family member and the subsequent closure of their office, a fact the Adjudicating Authority had overlooked. However, Respondent No. 1 argued that the Appellant had wilfully avoided participation, as evidenced by their concurrent criminal proceedings and admissions of debt in various documents.
The NCLAT examined whether the Adjudicating Authority had acted within its powers in admitting the application, considering if there was sufficient evidence of debt and default exceeding the threshold limit. The Tribunal noted that despite the absence of a written contract, the oral agreement and repayment evidence were sufficient to prove financial debt. It found that the Adjudicating Authority had appropriately relied on available documents and did not err in admitting the application.
Ultimately, the NCLAT upheld the Adjudicating Authority’s decision, finding no merit in the appeal. The appeal was dismissed, the interim stay was vacated, and the Resolution Professional was directed to continue with the CIRP process.
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