Acknowledgment of liability in balance sheets extends limitation period

NCLAT Upholds Insolvency Proceedings Against Vasundhara Tubes, Rejects Appeal. Tribunal Confirms Operational Debt and Default, Dismisses Claims of Fabricated Dispute

In a significant judgment, the National Company Law Appellate Tribunal (NCLAT) has dismissed the appeal filed by Rakesh Bhailalbhai Patel, the suspended director of Vasundhara Seamless Stainless Tubes Private Limited, thereby upholding the initiation of Corporate Insolvency Resolution Process (CIRP) against the company. The ruling came on October 17, 2025, following a thorough examination of the claims and counterclaims presented by the parties involved.

The appeal challenged the order passed by the National Company Law Tribunal (NCLT), Ahmedabad Bench, which admitted a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by the Operational Creditor, Hiralal Bhimjibhai Kumavat. The petition sought the refund of Rs. 1 crore advanced for the purchase of scrap and machinery under a Sale Agreement dated January 31, 2019. The Corporate Debtor allegedly failed to permit the lifting of the scrap or refund the advance, leading to the initiation of insolvency proceedings.

The NCLAT, comprising Justice Yogesh Khanna and Mr. Indevar Pandey, scrutinized the arguments presented by both the appellant and respondent. The tribunal noted that the appellant's claims of no operational debt and fabricated dispute were unsupported by evidence. It emphasized that the amount of Rs. 1 crore paid by the Operational Creditor constituted an operational debt as defined under Section 5(21) of the IBC, given the Corporate Debtor's failure to deliver goods or refund the payment.

The tribunal highlighted the lack of contemporaneous evidence to support the appellant's assertion that the scrap was lifted as per the contract. It pointed out that the consistent documentary trail of letters from the Operational Creditor, acknowledged by the Corporate Debtor, demonstrated a continuous demand for either delivery or refund. Furthermore, the Corporate Debtor's audited financial statements for FY 2020-21 and 2021-22, which reflected the amount as "Advance from Others," were deemed as clear acknowledgment of liability.

The NCLAT also addressed the appellant's contention of pre-existing disputes, noting that the police complaint alleging forgery was filed long after the Section 9 application was reserved for orders. The tribunal reaffirmed the principle that disputes raised after issuance of a demand notice cannot qualify as pre-existing under the IBC. The timing of the complaint was seen as an afterthought, lacking credibility to bar insolvency proceedings.

In its analysis, the NCLAT referred to several Supreme Court judgments, including Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. and Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions Pvt. Ltd., emphasizing the criteria for operational debt and the non-existence of pre-existing disputes. The judgment underscored the summary nature of proceedings under Section 9 of the IBC, aimed at ensuring the recovery of undisputed debts.

Ultimately, the NCLAT concluded that the Adjudicating Authority rightly admitted the Section 9 application, as the operational debt and default were established, and the claim of pre-existing disputes was unsubstantiated. The appeal was dismissed, reaffirming the initiation of CIRP against Vasundhara Seamless Stainless Tubes Private Limited.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 3(12), 5(21), 8, 9, 9(5)(ii)(d), 8(2)(a); Limitation Act Section 18

Rakesh Bhailalbhai Patel v. Vasundhara Seamless Stainless Tubes Private Limited, (NCLAT)(Principal Bench, New Delhi) : Law Finder Doc Id # 2796837