Belated Proforma Invoice for Consultancy Cannot Override Financial Debt: NCLAT Upholds NCLT's Section 7 Admission [Read Order]

The National Company Law Appellate Tribunal (NCLAT) has, in a recent case, upheld section 7 admission against the corporate debtor (CD) and held that a belated proforma invoice claiming consultancy services cannot be used to dispute the existence of a financial debt.

This appeal arose from a Section 7 application filed by Kaliber Associates Pvt. Ltd. the respondent, against West Star Constructions Pvt. Ltd. under the Insolvency and Bankruptcy Code, 2016. The Appellant is the Suspended Director of Corporate Debtor (CD) (West Star Constructions Pvt. Ltd.) and was admitted into insolvency under Section 7 of the Code.

The corporate debtor, West Star Constructions Pvt. Ltd had received ₹1 crore from the financial creditor, the respondent, in 2010, which it contended was an advance for consultancy services. The appellant argued that a proforma invoice raised in 2012 was evidence of a consultancy arrangement and not a loan, challenging the existence of a financial debt.

The appellant contended that the sum of ₹1 crore received from Kaliber was not a loan, but an advance for consultancy services rendered in the real estate sector. They highlighted that a proforma invoice dated 15.12.2012 for ₹1.2 crore was issued, and only ₹20 lakh remained unpaid.

The Appellant argued that the balance sheet entries showing ₹1 crore as “other long-term liabilities” were merely accounting treatments and could not be construed as an admission of a financial debt. They emphasised that the IBC’s purpose is to revive insolvent companies, not to facilitate recovery of ordinary commercial dues, relying on judgments such as Invest Asset Securitisation and Reconstruction Pvt. Ltd. v. Girnar Fibres Ltd. and Swiss Ribbons Pvt. Ltd. v. Union of India.

Further, the Appellant argued that the filing of their claim of ₹20 lakh with Kaliber’s Liquidator on 01.10.2024 was in pursuance of the Tribunal’s earlier remand order, and not a recognition of financial debt.

The Respondent contended that the ₹1 crore disbursed on 20.11.2010 constituted a financial debt under Section 5(8) of the IBC, as it was a disbursal of money against consideration for the “time value of money.” They argued that the Appellant’s consultancy claim was a fabricated narrative, relying belatedly on a 2012 proforma invoice to disguise what was essentially a loan.

The Respondent highlighted that the Corporate Debtor’s balance sheets consistently recorded the amount as “other long-term liabilities”, which, as per G.S. Buildtech (P) Ltd. v. Ardee Infrastructure Venture (P) Ltd., are reliable indicators of financial debt. They also invoked the Supreme Court’s ruling in Pioneer Urban Land and Infrastructure Ltd., clarifying that the time value of money is satisfied when money is disbursed and recognized as a liability.

Furthermore, Kaliber argued that the Corporate Debtor had defaulted on repayment, with demand notices issued on 18.07.2019 and 20.07.2020, and that the Corporate Debtor’s solvency or viability does not absolve it from repayment obligations once default is established, relying on Edelweiss ARC v. Takshashila Heights India Pvt. Ltd..

They contended that a formal loan agreement is not necessary to establish a financial debt. Overall, the Respondent maintained that all statutory requirements under Section 5(8) were met, justifying the admission of the Section 7 application by the NCLT.

The Tribunal observed that the Corporate Debtor has failed to produce any documentary evidence, such as consultancy agreements, invoices contemporaneous to the transaction, or tax records, showing that services were rendered to support its claim. The tribunal noted that the timing of the invoice, issued well after the disbursal, affected the credibility of the consultancy argument.

Additionally, the corporate debtor’s subsequent filing of a claim for ₹20 lakh before the liquidator appeared to be a strategic attempt to retroactively justify its position.

The two-membered bench of Mohammad Faiz Alam Khan (Judicial Member) and Arun Baroka (Technical Member) upheld the NCLT’s admission of the Section 7 application, concluding that the corporate debtor could not substantiate its defence of consultancy advance. Debt and default were clearly established, and the belated proforma invoice could not override the statutory recognition of financial debt.