The NCLAT held that financial debt could be established without a written agreement if supported by substantive evidence.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Arun Baroka reviewed an appeal and ruled that financial debt can be established without a written agreement if supported by substantive evidence such as ledgers, payment confirmations, and account acknowledgements, and clarified that procedural omissions, such as the absence of an explicit default date in the application, are not fatal when evidence sufficiently demonstrates the default, thereby overturning the NCLT's dismissal of the Section 7 application.
The Financial Creditor filed an appeal challenging the dismissal of its Section 7 application by the Kolkata Bench of the NCLT on 08.06.2022. The appeal arose from a dispute involving a financial transaction wherein the Financial Creditor had disbursed ₹1 crore to the Corporate Debtor on 01.11.2016, accompanied by a promissory note. The Corporate Debtor paid interest until 31.03.2018 but ceased payments thereafter. Despite a confirmation of accounts issued on 01.04.2018 acknowledging the debt, the NCLT dismissed the application, citing the absence of a written agreement, inadequacies in the promissory note, and a lack of clarity regarding the date of default.
The NCLAT, in its judgment, extensively reviewed the evidence. It noted that the Financial Creditor had provided sufficient material to substantiate the financial transaction, including ledgers, payment confirmations, and a balance acknowledgement signed by the Corporate Debtor. It held that a written agreement is not a prerequisite to establishing financial debt if other evidence demonstrates a financial transaction involving the time value of money. The NCLAT cited prior jurisprudence, including Agarwal Polysacks Limited v. K.K. Agro Foods and Storage Limited, REEDLAW 2023 NCLAT Del 09515, to affirm that such transactions can be established based on records, even in the absence of formal documentation.
Regarding the date of default, the NCLAT found that while the date was not explicitly mentioned in Part IV of the application, supporting documents such as ledgers and confirmations clearly indicated the default began on 01.04.2018. The Tribunal held that this omission was not fatal to the application, relying on precedent that emphasized the substance of evidence over procedural shortcomings.
In conclusion, the NCLAT overturned the NCLT’s dismissal of the Section 7 application. It ruled that the Corporate Debtor’s payments and acknowledgements unequivocally demonstrated the existence of financial debt and default, fulfilling the requirements under the Insolvency and Bankruptcy Code.
Mr. Ashok Kumar Parija., Sr. Advocate with Mr. Ayan Rai and Mr. Amritesh Mohanty, Advocates represented the Appellant.
Mr. Ashish Choudhury and Mr. Abhishek Arora, Advocates appeared for the Respondent.
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