NCLT Kolkata: Explicit Written Agreement Of Loan Compulsory For NBFC To Establish 'Financial Debt'

The National Company Law Tribunal (NCLT), Kolkata Bench, comprising of Smt. Bidisha Banerjee (Judicial Member) and Shri Arvind Devanathan (Technical Member) dismissing a CIRP petition held that an explicit written agreement of loan is compulsory for the Financial Creditor for being a NBFC to demonstrate whether the amount disbursed constituted a 'financial debt' under Insolvency and Bankruptcy Code, 2016 (IBC). Background Facts Desana Impex Limited (Financial Creditor) initiated a Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC against Brick and Mortar Reality Private Limited (Corporate Debtor). Contentions of the Financial Creditor: The Financial Creditor argued that the Corporate Debtor defaulted on an outstanding amount of Rs.2.31 Crores. Further, the Corporate Debtor's balance sheet shows the loan by the Financial Creditor under the heading “Other Liabilities”. It contended that the Corporate Debtor has acknowledged the outstanding debt and thus, the petition under Section 7 of the IBC stands. Contentions of the Corporate Debtor: The Corporate Debtor contended that no loan agreement has been disclosed showing that the loan was granted by the Financial Creditor to the Corporate Debtor. Further, it is compulsory for the Financial Creditor being a Non-Banking Financial Company (NBFC) to file the loan agreement without which the interest alleged or the tenure of the loan cannot be ascertained. NCLT Verdict: The NCLT Kolkata dismissed the CIRP petition since the Financial Creditor did not produce any loan agreement and held that an explicit written agreement of loan is a mandatory instrument for the Financial Creditor for being a NBFC. The Tribunal by placing reliance on Narendra Promoters & Fincon Pvt. Ltd. vs. Vinline Engineering Pvt. Ltd. observed that the Financial Creditor being an NBFC registered with the Reserve Bank of India is bound by the Master Circular “Master Circular-Fair Practices Code for NBFCs, dated July 01, 2015” issued by the RBI. Therefore, NBFCS must keep the terms and conditions recorded in writing. It highlighted that an explicit written agreement of a loan is a mandatory instrument to substantiate the nature of transactions between the lender and borrower. In conclusion, the Tribunal observed that in the absence of any loan agreement in the present case, there can be no determination as to whether the amount advanced was a financial debt, and if yes, the rate of interest is 12% or the tenure of the loan agreement to determine the date of default. Thus, there is no proof that the said loan amount is payable on a particular date by the Corporate Debtor. Case Title: Desana Impex Limited vs. Brick and Mortar Reality Pvt. Ltd. Case No.: Company Petition (IB) No. 342/KB/2022 Counsel for the Financial Creditors: Ms. Tanvi Luhariwala, Adv. and Mr. Ritesh Goel, Adv. Counsel for the Corporate Debtor: Ms. Urmila Chakraborty, Adv., Mr. Arkodeb Sinha, Adv. and Ms. Meenakshi Manot, Adv. Click Here To Read/Download Order

NCLT Kolkata: Explicit Written Agreement Of Loan Compulsory For NBFC To Establish 'Financial Debt'

Sachika Vij

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