Application under section 7(5) of IBC cannot be Rejected due to non furnishing of NeSL when existence of debt and default by CD is established: NCLT [Read Order]

In a recent case, the Mumbai bench of the National Company Law Tribunal(NCLT) has held that application under section 7(5) of the Insolvency & Bankruptcy Code 2016 (‘the Code’) cannot be Rejected due to non furnishing of NeSL when existence of debt and default by Corporate Debtor is established

The Applicant, M/s. Goyal Achal Sampatti Vikas and Niyojan Nigam Limited (“Financial Creditor” or “the Petitioner”), on 30.03.2025 against the Respondent- Quanteco World Limited (“Corporate Debtor”), under Section 7 of the Insolvency & Bankruptcy Code 2016 (‘the Code’) r/w Rule 4(1) of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, seeking commencement of the Corporate Insolvency Resolution Process (‘CIRP’) of the Corporate Debtor, appointment of Interim Resolution Professional (‘IRP) and declaration of moratorium under section 14 of the Code.

The amount claimed to be in default is INR 22,37,50,904/- (Rupees Twenty-Two Crores, Thirty-Seven Lakhs, Fifty Thousand, Nine Hundred and Four Only). The date of default is stated as 04th August, 2024.

On perusal of Part-I of Form 1, it is seen that the person authorised to submit this application on behalf of the Financial Creditor is Mr. Amit Somani residing at M2/12. Heeramandi Ratan Society, Bangur Nagar, near Shopping Centre, Motilal Nagar, Goregaon West, Mumbai-400104. Further, an affidavit in support of the application is affirmed by the above-named signatory, who is authorised by the resolution passed by the Board of Directors of the Applicant Company at its board meeting held on February 28, 2025.

A perusal of Part II of the application in Form 1 reveals that the Respondent/Corporate Debtor i.e. Quanteco World Limited, is a body corporate having its registered office at G-177/2, Raghuleela Mall, Behind Poisar Depot, Kandivali West, Mumbai, Maharashtra 400067. The date of incorporation of the Corporate Debtor is 29th May, 2021. The Authorised Share Capital and the Paid-Up Share Capital of the Corporate Debtor is INR 50,00,000/- (Rupees Fifty Lakhs Only).

The Applicant has proposed the name of Mr. Deepak Kumar Garg to be appointed as the IRP of the Corporate Debtor in the event that the petition gets admitted. The Applicant has also obtained the Written Consent in Form 2 from the proposed IRP above-named, the Certificate of Registration and the Authorisation for Assignment (‘AFA’), the copies of which have been collectively annexed to this application as Annexure A-3 (Colly). Perusal of AFA shows that the authorisation is valid from 24.07.2024 to 31.12.2025.

A perusal of Part IV of the application vide Form 1 reveals that the total amount of debt granted is INR 21,49,00,000/-, the amount claimed to be in default is INR 22,37,50,904/- and the date of default is stated as 04th August, 2024.

A perusal of the Loan Agreement dated 30.07.2023 read with Schedule I laid thereunder reveals that the Financial Creditor had agreed to provide an unsecured loan facility of INR 21,49,00,000/- to the Corporate Debtor for meeting its working capital requirements. The loan was to be disbursed in multiple tranches. As per Clause 3.1 of Schedule I, which deals with Repayment Terms, each tranche disbursed under the loan facility shall be repayable in full after 12 months from the disbursement date of the respective tranche.

It is further seen that as per Clause 2.8(a) of the Loan Agreement, which again deals with repayment of loan, the parties to the loan agreement (i.e. the Financial Creditor and the Corporate Debtor) had agreed that no interest shall accrue on loan until the next financial year i.e. FY 202324 and from FY 2024-25, it was further agreed that interest shall be charged at the applicable rate of 18% p.a. ensuring a balanced and manageable repayment structure for the Borrower.

It was observed that on account of the default committed by the Corporate Debtor, the Financial Creditor issued a Reminder cum Demand Notice dated 13.06.2024, requesting the Corporate Debtor to observe the scheduled timelines and ensure that all future payments are made on time as per the loan agreement.

However, since the default persisted on the part of the Corporate Debtor despite the issuance of the aforesaid reminder cum demand notice, the Applicant herein recalled the loan facility by issuing the Loan Recall Notice dated 18.12.2024 to the Corporate Debtor calling upon the latter to repay a sum of INR 22,37,50,904/- within a period of 15 days from the date of receipt of notice. Even after recalling the loan facility, since the default on the part of the Corporate Debtor persists, the Applicant has preferred the instant application under section 7 of the Code.

The Respondent has objected to the petition on the ground that the Corporate Debtor has terminated the Loan Agreement and has already invoked arbitration. The Respondent has even suggested the name of the arbitrator vide Notice dated 23.12.2024. Therefore, according to the Respondent, the captioned Company Petition deserves to be dismissed.

The Corporate Debtor has objected to the application on the ground that the purported debt and default have not been registered with the NeSL. The issue whether an application to which the record of default generated by the Information Utility is not annexed is liable to be dismissed, is no more res integra. There is no doubt that Regulation 20(1A) of the IBBI (Information Utilities) Regulations, 2017 provides that before filing an application to initiate corporate insolvency resolution process under section 7 or 9, as the case may be, the creditor shall file the information of default with the information utility and the information utility shall process the information for the purpose of issuing record of default in accordance with Regulation 21.

A two member bench of Shri Sameer Kakar, Member (Technical) and Shri Nilesh Sharma, Member (Judicial) observed that “we cannot dismiss the instant application under section 7(5) of the Code on the ground that the record of default from the Information Utility i.e. NeSL, has not been furnished, especially when the existence of debt and the factum of default committed by the Corporate Debtor in repayment of financial debt to the Financial Creditor have been satisfactorily established from other evidences. Accordingly, we reject the aforesaid plea of the Corporate Debtor to dismiss this petition on the ground that the debt and default have not been registered with NeSL.”

The Applicant/Financial Creditor has not only established the existence of financial debt but also satisfactorily proved that the Corporate Debtor has defaulted in repayment of the financial debt and such default well exceeds the minimum threshold of rupees one crore prescribed under section 4 of the Code for initiation of CIRP of the Corporate Debtor.

The bench admitted Corporate Insolvency Resolution Process under Section 7(5)(a) of the Code against the Corporate Debtor, namely, Quanteco World Limited.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates