The NCLAT set aside the NCLT’s rejection and held that once debt and default are established, the admission of an IBC petition under Section 7 is mandatory.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench led by Justice Yogesh Khanna (Judicial Member) and Technical Member Mr. Ajai Das Mehrotra reviewed an appeal and held that a loan reflected as a borrowing in the corporate debtor’s balance sheets constitutes financial debt, and once debt and default are established through records and demand notice, the petition under Section 7 of the IBC must be admitted, regardless of disputes or failed settlements.
The NCLAT set aside the NCLT’s order dismissing the petition under Section 7 of the IBC, 2016. The appellant had filed the petition to recover a loan of ₹1,26,89,350, which was reflected as long-term borrowing in the corporate debtor’s balance sheets for 2019-20 and 2020-21. The NCLT had dismissed the petition, holding that there was no evidence of the debt being due or defaulted, no demand notice was issued, and the petition was an abuse of law due to failed settlement attempts.
The NCLAT, however, found the debt to be prima facie established from the company’s financial records and a demand notice sent by the appellant. The Tribunal relied on precedents, including Innoventive Industries Limited v. ICICI Bank and Another, REEDLAW 2017 SC 08563, which clarified that even unsecured loans can constitute financial debt if they are intended to have a commercial effect. It emphasized that the adjudicating authority’s role is limited to verifying the existence of debt and default, and disputes over the transaction do not invalidate the claim.
The NCLAT also noted that the obligation to repay a loan arises immediately upon demand unless otherwise agreed. Since the corporate debtor had not contested its liability and the debt remained unpaid, the NCLAT allowed the appeal, remanding the case to the NCLT for further proceedings in accordance with the law. All pending applications were also disposed of.
Mr. Sunil Fernandes, Senior Advocate with Ms Shankari Mishra, Ms Diksha Dadu, Advocates represented the Appellant.
Mr. Gaurav Kohli, Advocate appeared for Respondent.
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