Tribunal Affirms Lack of Clarity on Default Date and Limitations in Financial Debt Claim
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) in New Delhi dismissed an appeal by M/s. Shree Dhanvantari Pharmaceuticals challenging a decision by the National Company Law Tribunal (NCLT) Mumbai Bench, which had rejected their application under Section 7 of the Insolvency and Bankruptcy Code (IBC) for initiating Corporate Insolvency Resolution Process (CIRP) against M/s. Konkan Ayur Pharma Private Limited.
The appeal, heard by a bench comprising Justice N. Seshasayee (Judicial Member) and Mr. Arun Baroka (Technical Member), was decided on July 17, 2026. It revolved around the alleged financial debt owed by Konkan Ayur Pharma, amounting to Rs. 3.55 crore, including interest, claimed by Shree Dhanvantari Pharmaceuticals.
The NCLAT examined the issue of authorization to file the insolvency petition and the nature of the claimed financial debt. The Tribunal observed that the partnership firm, Shree Dhanvantari Pharmaceuticals, had not demonstrated clear authority from all its partners to institute proceedings, as required under the Partnership Act, 1932. The Tribunal further noted that the decision to proceed with the insolvency application was taken by only two out of three surviving partners, which was contested by the third partner, leading to internal disputes.
On the merits, the NCLAT found that the absence of a formal loan agreement and lack of a specific interest stipulation weakened the claim of financial debt. It was observed that the amounts advanced were recorded as sundry creditors in the balance sheet of the corporate debtor, which did not necessarily constitute a financial debt under the IBC.
A crucial aspect of the judgment was the determination of the date of default, which impacts the calculation of the limitation period for filing insolvency applications. The NCLAT concurred with the NCLT’s finding that there was no clarity on the date of default. Although the appellant attempted to amend the date of default to May 30, 2022, this was not substantiated by credible evidence, rendering the debt time-barred as per limitation laws.
The Tribunal upheld the NCLT’s decision, emphasizing that artificially assigning a date of default without supporting documentation cannot revive a time-barred debt, leading to the dismissal of the appeal. This decision reinforces the importance of adhering to procedural requirements and the substantive definition of financial debt under the IBC.
Bottom line:-
Insolvency and Bankruptcy Code, Section 7 application can only be maintained if the financial debt and occurrence of default are established. The lack of clarity in the date of default and the bar of limitation are crucial in determining maintainability.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Section 7; Partnership Act, 1932 - Section 12(c), Section 18, Section 22
