Written Agreement Not Mandatory To Prove Financial Debt When Other Materials On Record are Available: NCLAT [Read Order]

The New Delhi bench of the National Company Law Appellate Tribunal (NCLAT) has ruled 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.

Ravi Auto Ltd, the Financial Creditor challenged  the order 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 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.

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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 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.

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

The  bench of Mr. Justice Ashok Bhushan (Judicial Member) and Mr. Arun Baroka (Technical Member) observed that the 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.

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It was viewed that since 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. The bench set aside the impugned order and the Adjudicating Authority was directed to admit section 7 application within one month.

To Read the full text of the Order CLICK HERE

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