Written-Off Debt Recoverable: NCLT Delhi Admits Bhushan Power Plea Against Former Subsidiary Over Rs 137 Crore

The National Company Law Tribunal (NCLT) at New Delhi has admitted an insolvency application filed by Bhushan Power & Steel Ltd against its former subsidiary Atma Ram House Investment Pvt. Ltd. The tribunal held that the Rs 136.92 crore amount advanced towards a commercial space in Delhi, qualifies as financial debt despite having been written off in the books and described as 'security' under contractual documents.

A coram comprising Judicial Member Ashok Kumar Bhardawaj and Technical Member Ravindra Chaturvedi rejected Atma Ram House Investment Pvt. Ltd's objection that the claim could not trigger insolvency merely because it was omitted from Bhushan Power's resolution plan.

The tribunal observed, “The concern that the amount referred to by the Applicant as debt and default was not included in the Information Memorandum (IM) and had not been taken into account by the SRA while submitting the resolution plan can be addressed appropriately, and the same cannot be ground to nix the CIRP.”

The case arose from transactions between 2008 and 2013, when Bhushan Steel disbursed Rs 136.92 crore to Atma Ram House Investment Pvt. Ltd under memorandums of understanding as an adjustable advance or security for a commercial space at Tolstoy Marg in New Delhi.

In its own financial statements, Atma Ram House Investment Pvt. Ltd treated the amount as long-term borrowing.

After the corporate insolvency resolution process of Bhushan Power, JSW Steel emerged as the successful resolution applicant and discovered that possession of the commercial premises had never been handed over.

Bhushan Power argued that the non-delivery of the space triggered default and that the amount qualified as financial debt under Section 5(8) of the Insolvency and Bankruptcy Code. It also pointed out that Atma Ram House Investment had consistently acknowledged the amount as long-term borrowing.

Atma Ram House, however, opposed the plea, arguing that the application was not maintainable because Bhushan Steel had written off the amount in the financial year 2016–17. It contended that the claim was absent from the information memorandum forming part of Bhushan Power's resolution plan and was flagged only through a communication in 2020. According to Atma Ram House Investment Pvt. Ltd, writing off the amount amounted to waiver of the claim, rendering it time-barred and ineligible as financial debt.

The tribunal rejected these objections, relying on its earlier ruling in Quinn Logistics India Private Limited vs Mack Soft Tech Pvt. Ltd, which held that writing off a debt by a holding company does not absolve a subsidiary of its liability.

It also referred to the Delhi High Court's decision in Taqa India Power Ventures vs NCC Infrastructure Holdings, which held that a written-off debt continues to be a recoverable asset.

The NCLT further examined the MoUs and supplementary agreements and noted that none of the documents provided for forfeiture of the security amount on failure to pay the balance consideration.

Accordingly, the NCLT admitted the Section 7 application and initiated the insolvency against Atma Ram. 

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