NCLAT held that Section 7 of the IBC was maintainable as the Financial Creditor had proven the existence of debt and default, even though the appeal became moot due to subsequent resolution proceedings.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench headed by Justice Rakesh Kumar Jain (Judicial Member) and Technical Member Mr. Arun Baroka reviewed an appeal on Monday and held that an application under Section 7 of the IBC is maintainable if the Financial Creditor establishes the existence of debt and default through admissible evidence, such as balance sheets and financial records, and that such acknowledgement of debt suffices under Section 18 of the Limitation Act, 1963.
In Company Appeal (AT) (Insolvency) No. 410 of 2022, the National Company Law Appellate Tribunal (NCLAT) reviewed an appeal challenging the National Company Law Tribunal's (NCLT) order admitting Vibrant Buildwell Private Limited (the Corporate Debtor) into insolvency under Section 7 of the Insolvency and Bankruptcy Code (IBC). The appeal, filed by the Corporate Debtor’s shareholders and a suspended director, contested the initiation of proceedings by Dilwara Leasing and Investment Ltd. (DLIL), the Financial Creditor.
The appellants argued that DLIL's transactions were equity investments, not financial debts, and alleged forgery of documents, conflicts of interest, and improper procedural conduct. They contended that the insolvency petition was initiated with malafide intent, seeking to wrest control of the Corporate Debtor. Despite these submissions, the NCLT relied on balance sheets, audited financial statements, and Form 26AS to establish the existence of debt and default. The Corporate Debtor’s applications under Section 65 of the IBC, alleging abuse of the insolvency process, were also dismissed.
The NCLAT noted that DLIL had presented evidence confirming the disbursal of loans, their acknowledgement in financial statements signed by the Corporate Debtor’s directors, and the default in repayment as of March 16, 2020. Citing the Supreme Court’s judgment in Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal & Anr., REEDLAW 2021 SC 04535, the NCLAT held that entries in balance sheets constitute acknowledgement of debt under Section 18 of the Limitation Act, 1963. The tribunal emphasized that under Section 4 of the IBC, a default of Rs. 1 lakh or more suffices to trigger the Corporate Insolvency Resolution Process (CIRP).
While the appeal was pending, a coordinate bench of the NCLAT approved a resolution plan for the Corporate Debtor in a related matter, rendering the present appeal infructuous. The tribunal, however, examined the case on merits and concluded that the debt and default were substantiated. It dismissed the appeal as infructuous and lacking merit, reaffirming the Adjudicating Authority’s decision to admit the Corporate Debtor into insolvency. The NCLAT's judgment underscored the importance of documentary evidence in establishing financial debt and default for proceedings under Section 7 of the IBC.
Mr. Sidhartha Barua, Mr. Tushar Thareja and Mr. Praful Jindal, Advocates represented the Appellants.
Mr. Krishnendu Datta, Sr. Advocate with Mr. Anand M. Mishra, Advocate appeared for Respondent No. 1.
Mr. Rishi Sood, Advocate appeared for Respondent No.2.
Mr. P. Nagesh, Sr. Advocate with Mr. Saurabh Kalia and Mr. Harshal Kumar, Advocate appeared for Respondent No. 3.
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