2026 Supreme(Online)(NCLT) 2679

NATIONAL COMPANY LAW TRIBUNAL
Sameer Kakar, Technical Member, Nilesh Sharma, Judicial Member
Prime Focus Limited – Appellant
Versus
Reliance Alpha Services Private Limited – Respondent
IA (I.B.C)/5178(MB)2023 | C.P. (IB)/845(MB)2023

A debt assumed via a Business Transfer Agreement and acknowledged through financial statements and conduct qualifies as 'financial debt' under IBC, and a pending commercial suit does not bar a Section 7 petition as the adjudicating authority only needs to ascertain default.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 3(12), 4, 5(8), 7, 13(1)(b), 14, 15, 17, 18, 19, 20, 21, 31, 33, 60(5) - Limitation Act, 1963 - Section 18 - Income Tax Act, 1961 - Section 194A - Corporate Insolvency Resolution Process - Admission of application - Validity - Financial debt - Default - Disputed debt - Pre-existing dispute - Contingent liability - Adjudicating Authority’s power - The Adjudicating Authority, when dealing with a Section 7 application by a financial creditor, is only required to ascertain the existence of a debt and a default from the records of the information utility or evidence furnished by the financial creditor; it is not required to examine any dispute regarding the existence of such debt, nor is it required to consider the corporate debtor’s viability or ability to pay, as the scope of enquiry is limited to the existence of default of a debt due and payable. (Paras 121-122, 126 and 134-135)

(B) Insolvency and Bankruptcy Code, 2016 - Section 5(8) - Financial debt - Definition - Existence of - The elements of a financial debt, being a disbursal against the consideration for the time value of money, can be established not only by direct evidence of a fresh loan disbursed to the corporate debtor, but also by the corporate debtor’s assumption of an existing liability (originally a financial debt from the creditor to another entity), subsequent acknowledgment of that liability in its books of account, a fresh loan agreement executed without caveat, deduction and deposit of tax deducted at source on interest, and conduct such as seeking extensions for interest payments. (Paras 113-114 and 124-135)

(C) Insolvency and Bankruptcy Code, 2016 - Section 7 - Admission of application - Discretion of Adjudicating Authority - The decision in Vidarbha Industries Ltd v. Axis Bank (Civil Appeal No. 4633 of 2021), which suggested that the Adjudicating Authority has discretion to consider a corporate debtor’s financial viability before admitting a Section 7 petition, has been clarified in review and by the Supreme Court in M. Suresh Kumar Reddy v. Canara Bank (Civil Appeal 7121 of 2022) and Power Trust (Promoter of Hiranmaye Energy Ltd.) v. Bhuvan Madan (Civil Appeal No(s). 2211/2024 decided on 18.02.2026); the ratio in Innoventive Industries Ltd. v. ICICI Bank (Civil Appeal No. 8337-8338 of 2017) still holds good, meaning the Adjudicating Authority’s role is to ascertain default, not to assess the debtor’s viability. (Paras 131, 134 and 137)

Facts of the case:
The Financial Creditor (FC) filed an application under Section 7 of the IBC against the Corporate Debtor (CD) for default on a loan of Rs. 200 crores. The loan was originally disbursed by the FC to a third party (RMWL) under an Inter-Corporate Deposit (ICD) facility. Subsequently, a Business Transfer Agreement (BTA) was executed between RMWL, the CD, and another entity, under which the CD acquired RMWL’s business and assumed liabilities, including the debt owed to the FC. The CD and FC then executed a Loan Agreement on 25.02.2019 formalizing the CD’s liability. The CD acknowledged the debt in its annual reports, deducted TDS on interest, and sought extensions for interest payments, but defaulted. The CD contested the application, arguing that the debt was contingent on the transfer of assets under the BTA, which had not occurred, and that the underlying suit in the Bombay High Court demonstrated a pre-existing dispute. The National Company Law Tribunal (NCLT), Mumbai Bench, admitted the CD into CIRP.

Findings of Court:
The NCLT, following the ratio in Innoventive Industries and Power Trust, held that once the FC proved the existence of a financial debt (evidenced by the ICD, Loan Agreement, bank statements, annual reports, TDS deductions, and the CD’s own correspondence seeking extensions) and default, the dispute raised by the CD regarding the BTA was irrelevant at the admission stage. The Tribunal found the CD’s acknowledgment of the debt through its books of account, tax deductions, and personal guarantee was decisive, distinguishing cases like Anuj Jain and Bidhuri Buildcon relied upon by the CD. The application was therefore admitted.

Issues: The main issues were whether the claim constituted a ‘financial debt’ under Section 5(8) IBC despite the contingent nature of the BTA and the absence of a fresh disbursement to the CD, and whether the existence of a commercial suit and a disputed status in the NeSL Form D constituted a valid ‘pre-existing dispute’ barring admission under Section 7.

Ratio Decidendi: The court ruled that a debt does not cease to be a ‘financial debt’ simply because it originates from an assumption of liability under a business transfer agreement; admission of such liability in financial statements, execution of an unconditional loan agreement, and conduct consistent with a debtor-creditor relationship (e.g., TDS deductions, requests for extensions) are sufficient to prove the debt. The existence of a contractual dispute or a pending civil suit does not prevent admission under Section 7, as the Adjudicating Authority’s role is limited to verifying default and not to adjudicating contractual disputes.

Result: Company Petition admitted; the Corporate Debtor was admitted into CIRP and Interim Resolution Professional (IRP) appointed; the associated Interlocutory Application (IA 5178/2023) was dismissed as not maintainable. (Para 137-138) IA 5178/MB/2023 is dismissed as not maintainable and CP (IB)/845(MB)2023 stands admitted. (Para 138) The parties are the Financial Creditor (Applicant) and the Corporate Debtor (Respondent). No dissenting opinion was noted.