Sinki Commodities Pvt. Ltd. Vs ABC Floors Pvt. Ltd. (NCLAT Delhi)
The appeal before the National Company Law Appellate Tribunal (NCLAT), Delhi arose from an order dated 31.03.2022 passed by the National Company Law Tribunal (NCLT), Kolkata Bench, which had rejected a Section 7 application filed by a Financial Creditor seeking initiation of the corporate insolvency resolution process. The Adjudicating Authority, while acknowledging that an amount of ₹1.60 crore had been disbursed to the Corporate Debtor, concluded that the transaction could not be treated as a “financial debt” due to lack of proper documentation and unclear intention of the parties.
The Financial Creditor, a non-banking financial company (NBFC), had disbursed ₹1.60 crore between March and July 2019 at an agreed interest rate of 8% per annum. The Corporate Debtor issued post-dated cheques towards repayment, which were dishonoured. The Corporate Debtor also paid interest amounting to ₹3,55,067 and deposited tax deducted at source on such interest with the Income Tax Department up to June 2019. A demand notice was issued on 24.09.2019, and upon non-payment, a Section 7 application was filed in November 2019.
The NCLT rejected the application on the ground that the Financial Creditor, being an NBFC, was required under RBI guidelines to issue a written sanction letter specifying loan terms, which was not produced. It held that in the absence of such documentation, the transaction could not be treated as a financial debt under the Insolvency and Bankruptcy Code.
Before the NCLAT, the Financial Creditor contended that a written loan agreement was not a statutory precondition for establishing a financial debt. It relied on bank statements, confirmation of accounts, Form 16A, and multiple letters issued by the Corporate Debtor admitting receipt of the amount as a loan carrying interest at 8% per annum. The Corporate Debtor, while not disputing the disbursement or interest payment, argued that RBI guidelines were mandatory and that non-compliance disentitled the Financial Creditor from invoking Section 7. It also contended that the arrangement stood novated by issuance of fresh post-dated cheques extending repayment up to March 2022, rendering the Section 7 application premature.
The NCLAT examined the documentary record, including letters issued by the Corporate Debtor explicitly acknowledging receipt of funds as loans, confirmation of accounts reflecting interest on loan, and evidence of interest payments. The Tribunal noted that the Corporate Debtor itself had admitted the borrowing of ₹1.60 crore at 8% interest and issuance of cheques towards principal and interest.
The Tribunal held that for a debt to qualify as a financial debt under Section 5(8) of the Code, the essential requirement is disbursement against consideration for the time value of money. The admitted payment of interest clearly established that the transaction was a commercial borrowing. The absence of a formal written loan agreement or sanction letter did not negate the existence of a financial debt, particularly when the real nature of the transaction was evident from surrounding documents and admissions of the Corporate Debtor.
While acknowledging that RBI guidelines issued to NBFCs are statutory and binding, the Tribunal held that any breach of such guidelines may attract regulatory consequences but cannot alter the character of a transaction that otherwise satisfies the definition of financial debt under the Code. The Insolvency and Bankruptcy Code, being a special legislation, requires examination of whether a financial debt exists in substance.
The Tribunal also rejected the plea of novation. It observed that the subsequent letters and fresh post-dated cheques relied upon by the Corporate Debtor themselves acknowledged the outstanding liability. The Financial Creditor had expressly disputed any change in agreed terms and had demanded repayment within September 2019. There was no evidence that the Financial Creditor had accepted an interest-free restructuring or deferred repayment arrangement.
On these findings, the NCLAT concluded that the NCLT had erred in rejecting the Section 7 application. The order dated 31.03.2022 was set aside. However, considering the circumstances, the Tribunal granted the Corporate Debtor one final opportunity to discharge the debt by paying ₹1.60 crore with interest at 8% per annum within three months. It directed that if the debt was not discharged within this period, the Adjudicating Authority would proceed to admit the Section 7 application. Each party was directed to bear its own costs.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
