The Mumbai Bench of the National Company Law Tribunal (NCLT) has held that where entries in a duly signed balance sheet acknowledge borrowings within the subsisting period of limitation, a fresh period of limitation commences under Section 18 of the Limitation Act, 1963, and such acknowledgment, read with subsequent written communications and settlement proposals, can sustain a Section 7 petition within limitation. It further held that, at the stage of admission of a petition under Section 7 of the IBC, the enquiry is confined to the existence of financial debt and occurrence of default, and technical objections concerning strict evidentiary compliance do not defeat admission where certified bank records and an authenticated Information Utility record establish debt and default.
The NCLT clarified that, in real estate insolvencies, although the IBC is generally entity-centric, a project-oriented approach is warranted where the debt, security and loan documentation are confined to a specific project. Since the sanction letter and mortgage documentation unmistakably established that the financial facilities were intrinsically linked to the project “Rashmi Starcity Phase II & III” alone, the CIRP was required to remain confined to that project and could not extend to unrelated projects of the Corporate Debtor.
The Division Bench comprising Nilesh Sharma (Judicial Member) and Sameer Kakar (Technical Member) observed that the sanction letter, loan agreements, security documents, mortgage deeds, statements of account, Bankers’ Books Certificate and the Record of Default issued by NeSL collectively established that substantial financial facilities were extended by the Financial Creditor to the Corporate Debtor and that the liabilities remained unpaid. It observed that the principal defence of the Corporate Debtor was confined to technical objections.
On limitation, the Tribunal held that the Balance Sheet dated June 25, 2019 constituted acknowledgment of liability under Section 18 of the Limitation Act, 1963, and that a fresh period of limitation commenced from that date. It further held that the exclusion of limitation granted by the Supreme Court from March 15, 2020 till February 28, 2022 applied, and that the subsequent communication dated September 13, 2022 and the OTS proposal dated February 17, 2025 reinforced continuing acknowledgment of liability. The Tribunal reiterated of a clear and uninterrupted chain of acknowledgments through balance sheet entries, correspondence, and OTS proposals.
The Tribunal also rejected the evidentiary objections raised by the Corporate Debtor, observing that proceedings under Section 7 of the IBC are summary in nature and that, at the admission stage, the Adjudicating Authority is confined to determining the existence of financial debt and the occurrence of default. It held that the certified statements of account, Bankers’ Books Certificate and the authenticated Record of Default issued by the Information Utility were sufficient, and that hyper-technical objections regarding evidentiary formalities did not detract from the material establishing debt and default. On the Section 65 application, the Tribunal found no material whatsoever to establish fraudulent or malicious initiation, holding that mere institution of a Section 7 petition by a financial creditor in respect of an admitted financial debt and continuing default cannot constitute malicious initiation.
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Briefly, the Union Bank of India filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 against Rashmi Realty Builders Private Limited seeking initiation of CIRP in respect of a defaulted financial debt. The Financial Creditor claimed that a Working Capital Term Loan facility of Rs. 32 crores had been sanctioned on January 29, 2014 for financing the project “Rashmi Starcity Phase II & III” at Naigaon (East), District Palghar, and that the Corporate Debtor had executed the requisite loan, security and mortgage documents during March 2014. The loan account was classified as NPA on December 31, 2016, followed by issuance of recall notice dated January 18, 2017 and demand notice under Section 13(2) of the SARFAESI Act, 2002 dated April 05, 2017.
The Financial Creditor relied on the Balance Sheet of the Corporate Debtor for the financial year ending March 31, 2019, signed on June 25, 2019, the communication dated September 13, 2022, and the OTS proposal dated February 17, 2025 to establish continuing acknowledgment of liability. The Corporate Debtor opposed the petition primarily on limitation, evidentiary objections to the bank records and electronic evidence, and contended that any CIRP, if admitted, ought to be confined project-wise and not against the entire corporate debtor. It also filed an application under Section 65 of the IBC alleging fraudulent and malicious initiation of proceedings.
