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The Written Agreement Is Not Mandatory To Establish A Financial Debt Under The IB Code

The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ananat Bijay Singh, Judicial Member and Naresh Salecha, Technical Member was hearing an Appeal and observed that the written agreement isn't mandatory to establish a financial debt under the Code.

The existence of financial debt under the Insolvency and Bankruptcy Code does not mandate an explicit written agreement and can be established through corroborative evidence such as a balance sheet acknowledging the debt.

In the Company Appeal (AT) (Insolvency) Nos. 879 of 2021 and 270 of 2022, a National Company Law Tribunal order admitting Shankar Khandelwal's application under Section 7 of the Insolvency and Bankruptcy Code against A. Gangwal Real Estate L.L.P. was challenged. The appeals brought to light a complex web of events: changes in designated partners, alleged fund transfers, financial scams, document authenticity disputes, and disagreements over debts and agreements.

RIICO, one of the appellants, challenged Khandelwal's claimed debt, citing a lack of evidence and contesting the legitimacy of the loan and presented documents. On the other hand, Khandelwal disputed agreements, highlighted outstanding dues, and questioned the authenticity of the LLP agreement.

The crux of the matter revolved around determining the legitimacy of claimed debts, the authenticity of agreements, and the intention behind transactions. Khandelwal sought outstanding dues of Rs. 33,80,22,172/-, disputing previous payments to other entities and balance sheet inconsistencies, arguing that the land under mortgage belonged to the Corporate Debtor.

The Appellate Tribunal clarified that a written agreement isn't mandatory to establish a financial debt under the Code. They relied on the Corporate Debtor's balance sheet acknowledging dues to Khandelwal, dismissing the appellant's argument.

The LLP Agreement of 31.12.2015 played a pivotal role, requiring the Corporate Debtor to settle Khandelwal's dues post-resignation. The Tribunal highlighted the Agreement's clauses, absolving Khandelwal of future claims or rights in the LLP or its assets.

Ultimately, the Appeals succeeded as the Impugned Order admitted Khandelwal's application under Section 7 erroneously. The Appellate Tribunal found no financial debt owed to Khandelwal at the time of the application.

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