Case Summary
The National Company Law Appellate Tribunal (NCLAT), Ahmedabad Bench, has set aside an NCLT Ahmedabad order that rejected Meck Pharma India Pvt. Ltd.’s insolvency plea against Accurate Infrabuild Pvt. Ltd. The Tribunal held that an advance of ₹1 crore made by Meck Pharma qualifies as a financial debt under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), even though no formal written loan agreement existed.
Meck Pharma had extended ₹1 crore to Accurate Infrabuild in 2016 as a short-term advance. The amount was never repaid. NCLT earlier dismissed the insolvency petition on grounds that the transaction lacked documentation proving a “financial debt.” On appeal, NCLAT reversed this finding, emphasizing that oral agreements supported by evidence of disbursal and the element of time value of money can still constitute financial debt under the IBC.
Key Findings
- Financial Debt Need Not Be in Writing
The Tribunal clarified that the existence of a financial debt under Section 5(8) IBC does not require a written contract, as long as there is proof of disbursal for consideration involving time value of money. - Oral Agreements Recognized
The ruling reaffirmed that oral arrangements—if supported by bank statements or other corroborative evidence—can create enforceable financial obligations under IBC. - Time Value of Money is the Core Test
What defines a financial debt is the presence of consideration for time value of money, not the form of documentation. - Purpose of Transaction Matters
The ₹1 crore was not a trade advance or investment; it was a financial accommodation intended to be repaid, meeting the definition of financial debt. - NCLT Order Set Aside
NCLAT directed that the Section 7 petition filed by Meck Pharma be restored and reconsidered on merits.
Key Takeaways
- IBC Recognizes Substance Over Form: Lack of formal documentation does not negate the existence of financial debt if intent and repayment obligation are clear.
- Oral or Informal Financial Arrangements Are Valid: Evidence of actual money transfer and repayment terms can suffice.
- Encourages Commercial Discipline: Borrowers cannot escape liability merely due to absence of a written contract.
- Strengthens Creditor Rights: Reinforces that genuine financial disbursals—documented or oral—deserve insolvency protection under the IBC.
Conclusion
This ruling strengthens the jurisprudence that under the IBC, the essence of a financial debt lies in its substance—not its form. Oral agreements backed by clear proof of disbursal and an obligation to repay can qualify as financial debt, providing critical relief to creditors in informal lending arrangements.
