It is not necessary that a transaction should involve written financial contract for initiation of Insolvency under Section 7 of IBC, 2016 | Loan given contrary to the limit prescribed under Section 186 of Companies Act, 2013 is an ultra vires act and is not a legally enforceable debt | For taking action under Section 65 of the Code, it is necessary that documentary evidence is brought on record – Proplarity Infratech Pvt. Ltd. Vs. Sky High Technobuild Pvt. Ltd. – NCLT Principal Bench
Hon’ble NCLT Principal Bench held that:
(i) CIRP Regulation 8, it is clear that the FC can rely upon any relevant document including financial contract to prove the existence of debt. The regulation does not contemplate existence of all documents rather it uses the word “or” which indicates that by any relevant document the existence of debt can be proved.
(ii) In effect, transaction involving payment of interest along with principal is one type of financial debt and that if the transaction does not involve ‘payment of interest’ the said transaction would not be outside the purview of section 5(8) of the Code.
(iii) Mere recording of transaction in the balance sheet of the CD as “Inter-Corporate Deposit” would not constitute it as Financial Debt unless proved by supporting document
(iv) Even if we assume that the said transaction was in the nature of loan, material available on the record suggest that the amount given by the Petitioner is contrary to the limit prescribed under Companies Act, 2013 which amounts to an ultra vires act and is not a legally enforceable debt.
(v) For taking action under Section 65 of the Code for malicious prosecution against the FC, as prayed by the CD, it is necessary that documentary evidence is brought on record of this Tribunal which leads it to form a prima facie opinion that the proceedings have been initiated with such intention.