Corporate Debtor Cannot Be Dragged Into CIRP Mala Fide For Any Purpose Other Than Resolution Of Insolvency: NCLT Mumbai

[23 June 2022] The National Company Law Tribunal (“NCLT”), Mumbai Bench, comprising of Justice P. N. Deshmukh (Judicial Member) and Mr. Kapal Kumar Vohra (Technical Member), while adjudicating an application filed in Gateway Offshore Private Limited and Anr. v Runwal Realtors Pvt. Ltd., has held that a written contract cannot be treated as a pre- requisite to prove the existence of a financial debt and the Adjudicating Authority must be satisfied that the Corporate Debtor is not being dragged into Corporate Insolvency Resolution Process (“CIRP”) mala fide for any purpose other than the resolution of the Insolvency. The order was passed on 10.06.2022.
Decision Of The Adjudicating Authority

The Adjudicating Authority relied on the NCLAT judgment in Narendra Kumar Agarwal and Ors. v Monotrone Leasing Private Limited and Ors., Company Appeal (AT) (Insolvency) No. 549 of 2020, wherein it was held that the written contract cannot be treated as an essential element or prerequisite to prove the existence of Financial Debt. The Bench observed that the Applicants had failed to bring on record any other evidence in the form of a loan agreement, promissory note, contract or any document to substantiate their claim that there was a financial debt and a default of the same. Accordingly, the Bench held as follows: “However, in absence of any written document indicating the purpose of the said transactions, it cannot be assumed to have been towards a loan as claimed by the Financial Creditor. In light of the above facts and circumstances, we hold that while a written contract cannot be treated as a pre- requisite to proving the existence of financial debt, the Adjudicating Authority must be satisfied that the Corporate Debtor is not being dragged into Corporate Insolvency Resolution Process mala fide for any purpose other than the resolution of the Insolvency.” The Application was dismissed by the Bench.