IBC Trigger Upheld Despite No Dues Certificate: NCLAT Affirms Balance Sheet Acknowledgement as Valid Debt Admission

NCLAT upheld the initiation of the Corporate Insolvency Resolution Process under the IBC despite the existence of a No Dues Certificate, holding that acknowledgements of debt in the corporate debtor’s balance sheets constitute valid admissions of liability under law.

On 30 May 2025, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench—comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka—dismissed two appeals and held that a Section 7 application under the Insolvency and Bankruptcy Code, 2016 is maintainable where the existence of debt and default is established, and the limitation period stands validly extended under Section 18 of the Limitation Act, 1963 through acknowledgments of liability in the corporate debtor’s audited balance sheets. The Tribunal further held that the issuance of a No Dues Certificate does not negate a prior or subsequent default if there is consistent documentary evidence supporting the creditor’s claims.

The National Company Law Appellate Tribunal (NCLAT), in a judgment delivered in May 2025, dismissed two appeals preferred under Section 61(1) of the Insolvency and Bankruptcy Code, 2016, by the suspended managements of two corporate debtors—Extol Industries Ltd. and Xyron Technologies Ltd.—against the common financial creditor, Bank of Baroda. The appeals arose from two separate but similar orders passed on 24.03.2025 by the Adjudicating Authority (NCLT, Indore Bench), whereby Section 7 applications filed by the financial creditor were admitted and both corporate debtors were brought under the Corporate Insolvency Resolution Process (CIRP).

The Appellants argued that the Section 7 applications were time-barred and premised on a flawed classification of the loan accounts as Non-Performing Assets (NPAs). It was their submission that the date of default relied upon—31.03.2016 in one case and 31.03.2017 in the other—was incorrect as a ‘No Dues Certificate’ had been issued shortly before the alleged default dates. They further contended that the classification as NPA violated RBI guidelines, and that the adjudicating authority failed to appreciate this and proceeded to admit the petition ex-parte, without granting them the opportunity to respond.

However, the NCLAT found that the financial creditor had adequately substantiated the existence of debt and default through various records, including statements under the Bankers’ Book Evidence Act and continued acknowledgements of liability in the audited balance sheets of the corporate debtors from FY 2015-16 through FY 2022-23. The tribunal noted that even if default initially occurred in 2016 or 2017, repeated acknowledgements under Section 18 of the Limitation Act extended the limitation period. It relied upon established precedent,s including Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy and Another, REEDLAW 2021 SC 08512 and Asset Reconstruction Company (India) Limited v. Bishal Jaiswal and Another, REEDLAW 2021 SC 04535, affirming that entries in audited balance sheets constitute valid acknowledgements of debt.

The NCLAT also rejected the appellants’ procedural objections. The tribunal found that the adjudicating authority had provided sufficient opportunity for hearing and that the appellants’ repeated absence and delay could not be justified. The applications seeking rehearing (IA Nos. 98 and 99 of 2025) had been duly considered and dismissed with reasoned orders.

In conclusion, the NCLAT affirmed the impugned orders admitting both companies into CIRP, holding that the financial creditor had established the existence of a financial debt and continuing default. The appeals were dismissed as meritless, and all interim applications stood disposed of.

Mr. Gaurav Mitra, Mr. Arjun Gaur, Mr. Vineet Gupta, Ms. Lavanya and Mr. Shaurya, Advocates, represented the Appellant.

Mr. Abhindra Maheshwari and Mr. Mohan Singh, Advocates, appeared for the Respondent No.1.

Mr. Abhishek Naik, Ms. Gulafsha Kureshi, Ms. Deepsikha Mishra, and Mr. Falak Zaidi, Advocates, appeared for the Respondent No. 2 (IRP).

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REEDLAW 2025 NCLAT Del 05587