Debt Acknowledgment and Limitation Compliance Lead to Corporate Debtor's Admission into CIRP
- REEDLAW
- Dec 3, 2024
- 2 min read
NCLAT held that the debt acknowledgement and compliance with limitation requirements led to the Corporate Debtor's admission into the Corporate Insolvency Resolution Process (CIRP).
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 financial debt under Section 5(8) of the IBC is established when money is disbursed for the time value of money and acknowledged by the debtor, and the application under Section 7 of the IBC is within limitation if supported by acknowledgements of debt and exclusions of time per Supreme Court directions on COVID-19. Consequently, the admission of the Corporate Debtor into CIRP was upheld.
The National Company Law Appellate Tribunal (NCLAT) dismissed an appeal filed by the Suspended Director of M/s Evyavan Merchantile Private Limited against the order of the National Company Law Tribunal (NCLT), Mumbai Bench, which had admitted the Corporate Debtor into the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Financial Creditor, M/s Ashika Global Securities Private Limited, had disbursed a sum of ₹7 crores to the Corporate Debtor between August 2016 and March 2017, out of which ₹1.9 crores were repaid. The Financial Creditor claimed that the outstanding debt, inclusive of interest amounting to ₹7.81 crores as of March 31, 2022, constituted a financial debt under Section 5(8) of the IBC.
The Corporate Debtor contested the claim, arguing that there was no formal loan agreement, no agreed repayment date, and no demand for principal repayment while asserting that the demand for interest alone was contrary to law. The Corporate Debtor also raised the defence of limitation, stating that the application was time-barred. However, the Financial Creditor presented evidence including the Corporate Debtor's acknowledgement of the debt in ledger accounts for financial years 2016-17, 2017-18, and 2018-19, which were signed by the Corporate Debtor's directors. The NCLAT found that the debt had been acknowledged as recently as April 1, 2019, and further held that the Supreme Court's exclusion of certain periods for limitation calculations during the COVID-19 pandemic rendered the Section 7 application filed on May 30, 2022, within the limitation period.
The NCLAT concluded that the ingredients of financial debt and default were established, and the debt exceeded the threshold under Section 4 of the IBC. It upheld the NCLT’s order admitting the Corporate Debtor into CIRP and found no merit in the appeal, which was accordingly dismissed along with related interlocutory applications. No costs were awarded.
Mr. Abhinav Agrawal, Advocate represented the Appellant.
Mr. Sandeep Kumar Mahapatra, Mr. Sugam Kumar Jha, Mr. Sreedass K.P., and Mr. Raghav Tandon, Advocates appeared for the Respondent.
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