NCLAT Rules: Section 7 Admission Justified When Debt and Default Are Clearly Established Despite Disputed Claims
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REEDLAW Legal News Network reports: The Appellate Tribunal reaffirmed that once a clear case of financial debt and default is established through verified records and statutory data, mere allegations or disputed claims cannot obstruct the admission of a Section 7 application under the Insolvency and Bankruptcy Code, 2016. The ruling emphasised that objective proof of default, including data retrieved from the National e-Governance Services Limited (NeSL) system and audited financial statements, carries overriding evidentiary value against unsubstantiated objections raised by the Corporate Debtor.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a Company Appeal, held that the admission of a Section 7 IBC application was justified as the Corporate Debtor’s default exceeding ₹100 crores stood conclusively proved through authenticated financial records and NeSL data. The Tribunal ruled that the Adjudicating Authority rightly disregarded the Corporate Debtor’s allegations of record tampering and pending counterclaims, observing that such contentions could not override clear evidence of default under Section 7 of the Code.
The Appellant, a suspended director of the Corporate Debtor, had filed an appeal challenging the order passed by the Adjudicating Authority, Mumbai Bench, admitting a Section 7 application filed by the Financial Creditor under the Insolvency and Bankruptcy Code, 2016. The Adjudicating Authority had found that the Corporate Debtor had committed default in repayment of dues exceeding Rs. 100 crores, and accordingly, admitted the petition and appointed an Interim Resolution Professional. The Appellant contended that the Financial Creditor had failed to establish debt and default and alleged that the statement of account filed before the Adjudicating Authority contained discrepancies and tampering. It was further argued that the NeSL report relied upon by the Adjudicating Authority was not conclusive proof and that the balance confirmation and financial statements were unreliable due to theft of the Corporate Debtor’s records during an earlier CIRP.
The Appellate Tribunal observed that the Corporate Debtor had availed various credit facilities from the Financial Creditor, which were enhanced in 2019 to Rs. 105.62 crores. Due to financial irregularities and failure to regularise the account, it was classified as a Non-Performing Asset (NPA) on 26 August 2019. The Financial Creditor issued notices under Section 13(2) of the SARFAESI Act and a recall notice, and subsequently filed a Section 7 application supported by the NeSL report and complete statements of accounts. The Tribunal found that the Appellant’s claim regarding incomplete or tampered statements was baseless, as the Financial Creditor had duly produced the statements as directed by the Adjudicating Authority. It further noted that the Corporate Debtor itself had confirmed the outstanding balance of Rs. 97.28 crores as on 31 March 2020, and had not denied the existence of debt or default at any prior stage.
The Tribunal also recorded that during the pendency of the appeal, the Appellant had made statements expressing willingness to submit a one-time settlement (OTS) proposal and liquidate the outstanding dues, which further established acknowledgement of debt and default. The Tribunal held that pendency of any counterclaim before the Debts Recovery Tribunal did not bar initiation of insolvency proceedings under Section 7 of the Code. Concluding that the Adjudicating Authority had correctly found the Corporate Debtor in default of over Rs. 100 crores, the Appellate Tribunal upheld the admission of the Section 7 application and dismissed the appeal. It also directed that the period during which the interim order had operated would stand excluded from the computation of the CIRP period.
Mr. Abhijeet Sinha and Mr. Krishnendu Datta, Sr. Advocates with Mr. Anish Agarwal, Mr. Tejas Agarwal, Mr. Harshit Chaudhary, Mr. Harsh Gurbani, Mr. Pratik Chakma, Mr. Abhinav Maurya and Ms. Natasha Bagga, Advocates, represented the Appellant.
Mr. Sanjiv Sen, Sr. Advocate with Ms. Anjali Singh, Mr. Prahalad Balaji and Ms. Ricky Sampat, Advocates, appeared for the Respondent No. 1.
Mr. Animesh Khandelwal, Advocate, appeared for the Respondent No. 2.
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