Deposit of Amount "Without Prejudice" Does Not Imply Admission of Debt; Tribunal Must Decide Maintainability, Debt, and Default Before Closing Proceedings
In a landmark judgment dated September 9, 2026, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, in the appeal filed by M/s. North Life Spaces LLP against Dalal Family Private Trust, has held that the mere deposit of amounts by a corporate debtor during insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) without prejudice cannot be treated as an unconditional admission of debt or default. The appellate tribunal set aside the impugned order of the National Company Law Tribunal (NCLT), Mumbai Bench, which had closed the Section 7 company petition and released the deposited amount to the respondent without adjudicating the appellant’s objections regarding maintainability, existence of financial debt, and default.
The appellant, North Life Spaces LLP, had entered into a Facility Agreement with the respondent, Dalal Family Private Trust, and the respondent claimed a financial debt of approximately Rs. 4.15 crores under the agreement. Alleging default, the respondent initiated insolvency proceedings under Section 7 of the IBC. The appellant contested the petition by raising substantial objections on maintainability, authority of the petitioner, and even the existence of debt and default. An interlocutory application was also filed seeking relevant documents to substantiate these objections.
After hearing, the matter was reserved for orders on August 12, 2025. Subsequently, on August 18, 2025, the appellant deposited two demand drafts totaling around Rs. 3.49 crores towards principal and interest claimed, expressly stating the deposit was made “without prejudice” to their rights and contentions. The NCLT, however, passed an order on August 19, 2025, releasing the amount to the respondent, recording the payment of principal and interest, and closing the company petition. The NCLT also granted liberty to the respondent to pursue any legally maintainable claims, including claims for default interest which were not part of the original claim.
The appellant challenged this closure on the ground that their objections had not been adjudicated and that the deposit without prejudice should not have been treated as an admission of debt or default. They further disputed a subsequent demand notice issued by the respondent seeking Rs. 2.77 crores on account of interest, default interest, and legal expenses, which had materially different components from the original claim.
The NCLAT, after detailed examination, emphasized that a deposit made expressly without prejudice cannot be construed as an admission of the claim or default. It held that the NCLT ought to have adjudicated the appellant’s objections on maintainability and existence of debt and default before closing the petition. The appellate tribunal noted that the closure of a Section 7 petition without such adjudication was unsustainable and remanded the matter back to the NCLT for fresh consideration.
Further, the NCLAT clarified that the liberty granted to the respondent to pursue other claims does not amount to adjudication of those claims and each component of a financial debt must have a contractual or statutory foundation to be recoverable. The appellate tribunal also observed that insolvency proceedings cannot be fragmented by treating different parts of the same transaction as separate claims to justify initiation of Corporate Insolvency Resolution Process (CIRP) piecemeal.
The order sets an important precedent, underscoring that insolvency proceedings under Section 7 are not mere recovery mechanisms but require the adjudicating authority to carefully evaluate all objections relating to debt and default before admitting or closing a petition. It safeguards the rights of the corporate debtor to dispute claims without prejudicing their position through interim deposits.
The appellant is now directed to re-deposit the amount with the NCLT, which will reconsider the petition afresh after adjudicating all objections. The respondent retains the right to pursue legally maintainable claims in accordance with law.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Deposit of amount during proceedings under Section 7 of IBC does not constitute an admission of debt or default if made expressly "without prejudice" to rights and contentions. Adjudicating Authority is required to adjudicate objections regarding maintainability, debt, and default before closing the petition.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 - Section 7
