Post‑Dated Cheques Amount to Acknowledgement of Unpaid Financial Debt: NCLAT Sets Aside NCLT Order Against NBFC [Read Order]
Rejecting the NCLT’s view that absence of a sanction letter negated the transaction, the appellate tribunal found that the financial creditor had successfully proved default under Section 7 of the Insolvency and Bankruptcy Code (IBC).
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has overturned the Kolkata Bench of the National Company Law Tribunal (NCLT),The NCLAT held that post‑dated cheques issued by the corporate debtor amounted to clear acknowledgement of liability and established the existence of unpaid financial debt.
The dispute arose from disbursement of ₹1.6 crore by Sinki Commodities, a Non‑Banking Financial Company (NBFC), to ABC Floors in March 2019.
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The loan carried interest at 8% per annum, and the corporate debtor initially paid interest and deducted tax at source (TDS). However, repayment cheques were dishonoured, leading the financial creditor to issue a demand notice in September 2019 and subsequently file a Section 7 application in November 2019.
The NCLT had acknowledged the disbursement but dismissed the application on 31 March 2022, holding that the “intention of the parties was not clear” and that the NBFC had failed to produce a sanction letter or loan agreement as required under RBI’s Fair Practices Code. It concluded that without such documentation, the transaction could not be classified as “financial debt” under Section 5(8) of the IBC.
On appeal, the NCLAT examined the record and found ample evidence of a financial debt. Bank statements, confirmation of accounts, letters from the corporate debtor, and Form 16A, which reflected TDS on interest payments, all corroborated the loan transaction.
Crucially, the corporate debtor itself admitted in its reply that it had received ₹1.6 crore carrying interest at an annual rate of 8%.
The two-member bench of Ashok Bhushan (Chairperson) and Barun Mitra(Technical Member) highlighted that the essence of financial debt under Section 5(8) is disbursement for “time value of money.”
Even in the absence of a formal sanction letter, the transaction was clearly a commercial borrowing with agreed interest. The NCLAT noted that while RBI guidelines are binding on NBFCs, breach of such guidelines does not erase the existence of financial debt under the IBC, which is a special legislation designed for time‑bound insolvency resolution.
The tribunal also rejected the corporate debtor’s argument that the arrangement had been novated by the issuance of fresh post‑dated cheques extending up to March 2022. Instead, it held that the cheques themselves constituted an acknowledgement of continuing liability. Letters dated 17 September 2019 and 24 September 2019, along with the cheques, demonstrated that the debt remained unpaid and that the debtor recognised its obligation.
In its operative findings, the NCLAT concluded that the financial creditor had successfully proved default. It held that the NCLT erred in rejecting the Section 7 application and set aside the impugned order.
However, in the interest of justice, the tribunal granted ABC Floors three months to discharge the debt along with 8% interest, failing which insolvency proceedings would proceed.
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