Written Agreement Not Mandatory To Prove Financial Debt If It Can Be Proved From Other Materials On Record: NCLAT

The NCLAT New Delhi bench of Mr. Justice Ashok Bhushan (Judicial Member) and Mr. Arun Baroka (Technical Member) has affirmed that it is not necessary for financial debt to be proved by a written agreement if it can be established from other materials on record then application under section 7 can be admitted.In this case, the section 7 application of the financial creditor was rejected on the ground that there was not written agreement to prove the existence of financial debt.

Brief Facts

This Appeal has been filed by a Financial Creditor challenging the order dated 08.06.2022 passed by the Adjudicating Authority by which Section 7 application was dismissed.

The Financial Creditor disbursed an amount of Rs.1,00,00,000/- to the Corporate Debtor on 01.11.2016. A Promissory Note was also executed by the Corporate Debtor on 01.11.2016. Financial Creditor issued confirmation of the accounts to the corporate debtor for the period 01.04.2017 to 31.03.2018. The confirmation was duly signed by the corporate debtor acknowledging an amount of Rs.1,10,79,999/-. Thereafter Financial Creditor filed Section 7 application on 16.01.2020 in which debt due was claimed.

Adjudicating Authority by its order dated 08.06.2022 rejected the Section 7 application. It was held that there is no written agreement between the parties. It further held that the Promissory Note is not in proper format and not on a stamp paper and not properly signed. It further held that the confirmation of the accounts issued by the corporate debtor fails to establish that the amount due from the corporate debtor to the financial creditor is on account of the ICD. It was further held that there is no document to suggest the date of default.

Aggrieved by this order, the present appeal has been filed.

Contentions:

The appellant submitted that the mere fact that there is no written agreement between the parties is not decisive when the financial transaction was reflected from the materials which were filed by the financial creditor and that non-stamping of the promissory note has no relevance since financial transaction is reflected from other materials on record.

It was further contended that the corporate debtor by accepting the confirmation of accounts dated 01.04.2018 has acknowledged that the debt is due right from 01.04.2018 and the Adjudicating Authority erred in rejecting the application on the ground that no demand has put on record.

Per contra, the respondent submitted that the promissory note relied by the financial creditor refers to payment on demand, no proof of demand hasbeen filed by the financial creditor and application under Section 7 has rightly been rejected.

That date of default is not mentioned in Part IV of the application for which the application was liable to be rejected. There was no written agreement between the parties to prove that there is a financial debt. The mere fact that Rs.1,00,00,000/- was disbursed does not itself prove that there was any financial transaction.

Decision Of The Tribunal:

The tribunal perused part IV of the section 7 application from which the tribunal united becomes clear that the corporate debtor has serviced interest till the period ending 31.03.2018 and balance confirmation was also issued. Details of outstanding interest were also annexed as to the Section 7 application. Ledger of the corporate debtor maintained by the financial creditor reflecting the payment of interest was also annexed and further letter dated 01.04.2018 on confirmation of accounts has also been pleaded.

The tribunal further noted that it is not necessary for financial debt to be proved by a written agreement is no more res integra.

In Agarwal Polysacks Limited vs. K.K. Agro Foods and Storage Limited- 2023 the NCLAT has held that “if the financial debt can be proved from other documents on record, requirement of a written contract is not a precondition for proving the same.”

The tribunal went through the various materials annexed with the section 7 application and noted that it is clear that the interest was paid by the corporate debtor till 31.03.2018 which was reflected in the ledger and payment of interest was not denied. Disbursement of Rs.1,00,00,000/- on 01.11.2016 is admitted fact and not denied. Payment of interest is also admitted fact, hence, it is clearly proved that the disbursement was for time value of money since the interest was admittedly paid by the corporate debtor till 31.03.2018.

The tribunal also observed that the date of default is clearly reflected from materials brought on the record along with Section 7 application and the mere fact that specifically there was no mention of date of default in Part IV Col.2 is not fatal. When Section 7 application, pleadings and materials brought on the record clearly point out the date of default which in the present case is 01.04.2018, non-mention of specific date of default in Part-IV is not fatal.

In support of this conclusion, the tribunal referred to its own judgment in Manmohan Singh Jain vs. State Bank of India and Another - 2021 wherein it was held that “this 'Tribunal' hold that omission to mention date of default in Col. 2 Part IV in Form 1 is not fatal to the application. As we are of the view that as per Col. 8 of Part V in Form 1 regarding particulars of Financial Debt documents, records and evidence of default to be attached, the Financial Creditor has shown sufficient documentary evidence to establish the date of NPA.”

The above judgment of this Tribunal fully supports the submissions of the Counsel for the Appellant that non-mention of the date of default in Part-IV is not fatal when other materials and pleadings in Part-IV clearly points out the date of default.

The tribunal further observed that promissory note was only an additional material filed by the financial creditor to prove that the amount was disbursed to the corporate debtor. When disbursement of the amount is not even disputed, the factum that the promissory note is not duly stamped becomes insignificant.

The promissory note is not the only document relied by the financial creditor to support his claim. Promissory note was filed to prove the disbursement.

The tribunal concluded that “the financial creditor has been able to satisfactorily prove that there was financial transaction between the parties and financial debt is due to be paid by the corporate debtor in which default was committed. Sufficient ground was made out to admit Section 7 application.” Accordingly, the impugned order was set aside and the Adjudicating Authority was directed to admit section 7 application within one month.

Case Title: Ravi Auto Ltd. Vs. Surana Mercantiles Pvt. Ltd.

Case Number: Company Appeal (AT) (Insolvency) No. 1059 of 2022 & I.A. No. 3090 of 2022

Date Of Judgment: 27/11/2024

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