Admission of IBC application for default in repaying ₹5.7 Cr over 10-Year interest-free period

Conclusion: Loans advanced by Financial creditors were supported by a board resolution and reflected in the balance sheets of the corporate debtor, constituted a valid financial debt undersection 5(8) of IBC. The acknowledgment of such borrowings in financial statements extended the limitation period, thereby rendering the Section 7 petition maintainable. As the debt exceeded the statutory threshold and default stood established, the petition was admitted, CIRP initiated, and an IRP appointed with moratorium declared under Section 14.

Held: In the instant case, the dispute pertained to promoter and inter-corporate loans advanced to the respondent-corporate debtor Palchan Bhang Power Private Limited (PBPPL) between 2011 and 2014 for the development of the Palchan Bhang Hydro Electric Project. A Board Resolution had stipulated that such borrowings would remain interest-free for ten years from the date of first disbursement, following which it would attract interest at 24% per annum for as long as the loan remained unpaid. The first loan was disbursed on 3 May 2011, establishing 3 May 2021 as the end of the interest-free period. Since the corporate debtor failed to repay the loan amount within the stipulated period, assessee claimed a default on the total loan amount of ₹5.7 crore, which was tagged with accrued interest, resulting in a total claim of ₹10.62 crore by 2024. The plea was filed by entities who claimed to be financial creditors of the company. PBPPL resisted the petition and disputed the existence of financial debt while questioning the validity of the Board Resolution. PBPPL argued that the claims were time-barred and contended that part payments had been made under a Memorandum of Understanding (MoU) in 2017. Assessee countered by presenting documentary evidence including bank statements, the corporate debtor’s balance sheet for the financial year 2021–22 where the loan liability was reflected under “Long Term Borrowings” and the corporate debtor’s own loan application to the Indian Renewable Energy Development Agency Limited (IREDA) acknowledging promoter contributions of ₹5.77 crore within their rejoinder. Against the arguments on the basis of the 2017 MoU, assessee maintained that the payments pertained to the divestment of the project’s shareholding, assets and liabilities and was not towards repayment of the outstanding loans. It was held that the petition was filed within limitation, holding that the date of default arose upon expiry of the ten-year repayment period and that the debt was acknowledged in the corporate debtor’s balance sheet for the financial year 2021–22 under “Long Term Borrowings”. NCLT observed that the documentary evidence sufficiently established the existence of financial debt under Section 5(8) of the IBC. As the admitted amount was above the statutory threshold of ₹1 crore and since default stood proved, the petition was deemed complete. Accordingly, NCLT admitted the petition and declared a moratorium under Section 14 of the Code, appointing Vigyan Prakash Arora as the Interim Resolution Professional to oversee the corporate insolvency resolution process and management of PBPPL. Tribunal directed the commencement of the CIRP, while creditors were directed to submit their claims to the IRP for verification and collation in the resolution process.