Case Note & Summary
The present appeal was filed by M/s Lok Sewak Leasing & Investment Pvt. Ltd., a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India, under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Appellant challenged the Impugned Order dated 22.01.2025 passed by the National Company Law Tribunal, Mumbai Bench, Court-IV, in Rst. A (IBC) No. 73(MB)2024 filed in C.P. (IB) No. 631(MB)2024, whereby the Adjudicating Authority rejected the Appellant's application under Section 7 of the IBC for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, M/s GBL Chemical Ltd. The Appellant contended that in January 2024, the Corporate Debtor approached it for a short-term business loan of Rs. 7,03,00,000/- at an interest rate of 10.21% per annum, repayable in six instalments of Rs. 1,19,16,667/- each, commencing from 08.02.2024 over a 120-day period. The terms were incorporated in a Facility Agreement dated 24.01.2024, executed by the Corporate Debtor, its Director Mr. Ramakant Shankarmal Pilani, and its parent company M/s Ganesh Benzoplast Ltd. as co-borrowers. A demand promissory note and letter of continuity dated 19.01.2024 were also executed. The Corporate Debtor failed to repay the loan, leading to default. The Appellant filed a Section 7 application on 20.06.2024. The Adjudicating Authority rejected the application on the grounds that the loan was not a financial debt and that the application was barred by limitation. The NCLAT examined the definition of 'financial debt' under Section 5(8) of the IBC and held that the loan advanced by an NBFC clearly falls within the ambit of financial debt as it involves disbursal of money against the time value of money. The NCLAT also noted that the Facility Agreement, demand promissory note, and letter of continuity established the debt and default. Regarding limitation, the NCLAT observed that the date of default was 08.02.2024, and the application was filed on 20.06.2024, well within the three-year limitation period. The NCLAT concluded that the Adjudicating Authority erred in rejecting the application and set aside the Impugned Order, remanding the matter for fresh consideration on merits. The appeal was allowed.
Headnote
A) Insolvency and Bankruptcy Code - Financial Debt - Section 5(8) IBC, 2016 - Loan advanced by NBFC - The Appellant, an NBFC, advanced a loan of Rs. 7,03,00,000/- to the Corporate Debtor under a Facility Agreement dated 24.01.2024. The Corporate Debtor defaulted in repayment. The Adjudicating Authority rejected the Section 7 application holding that the loan was not a financial debt. The NCLAT held that the loan disbursed by an NBFC falls within the definition of 'financial debt' under Section 5(8) as it involves disbursal of money against the time value of money. The Facility Agreement, demand promissory note, and letter of continuity clearly establish the debt and default. (Paras 1-10) B) Insolvency and Bankruptcy Code - Limitation - Section 7 Application - Date of default - The Appellant filed the Section 7 application on 20.06.2024, within three years from the date of default (08.02.2024). The Adjudicating Authority's finding that the application was barred by limitation was erroneous. The NCLAT held that the limitation period for a financial debt begins from the date of default, and the application was well within time. (Paras 11-15) C) Insolvency and Bankruptcy Code - Adjudicating Authority - Error in Rejection - The Adjudicating Authority failed to consider the documents on record, including the Facility Agreement and repayment schedule, and erroneously concluded that no financial debt existed. The NCLAT set aside the Impugned Order and remanded the matter for fresh consideration on merits. (Paras 16-20)
Issue of Consideration
Whether the Adjudicating Authority erred in rejecting the Section 7 application filed by the Appellant/Financial Creditor on the ground that the loan was not a financial debt and that the application was barred by limitation.
Final Decision
The NCLAT allowed the appeal, set aside the Impugned Order dated 22.01.2025, and remanded the matter to the Adjudicating Authority for fresh consideration on merits in accordance with law.
Law Points
- Financial debt under Section 5(8) IBC
- 2016
- existence of debt and default
- Section 7 application
- limitation period for financial debt
- NBFC as financial creditor
- facility agreement as financial contract
