Written loan agreements are not mandatory; breach of settlement creates fresh cause of action under IBC.

The Appellant (Financial Creditor), an NBFC, extended loans totaling ₹22.75 Crores to the Respondent (Corporate Debtor) between 2011 and 2016 based on an oral understanding

The debt was evidenced by bank statements, demand promissory notes, confirmation letters, and TDS deductions on interest

Following a default, the Appellant filed a Section 7 petition (CP 215/2022), which was later withdrawn after the parties executed a Settlement Agreement on 18.11.2022

When the Respondent breached the settlement terms, the Appellant filed a fresh Section 7 petition (CP 146/2023)

The Adjudicating Authority (NCLT, Kolkata) dismissed this second petition on 23.09.2024, holding that: (i) the withdrawal of the first petition without specific liberty to file afresh barred the second petition; (ii) the matter was hit by res judicata; and (iii) an NBFC must have a written loan agreement per RBI guidelines to establish a "financial debt"

1. Whether the breach of settlement terms constitutes a "financial debt" and provides a fresh cause of action for a Section 7 petition

2. Whether a petition withdrawn without the explicit leave of the Court precludes a petitioner from filing afresh on the same cause of action under the IBC

3. Whether an explicit written agreement is a mandatory instrument for an NBFC to substantiate a financial debt under the IBC

The court primarily applied Section 5(8) of the IBC, which defines "financial debt" as a debt disbursed against the consideration for the time value of money

It relied on Section 238 of the IBC, which mandates that the Code overrides any inconsistent provisions in other laws or instruments, including RBI Circulars

The court followed the precedent in Desana Impex Limited v. Brick and Mortar Realty Private Limited, establishing that a written contract is not a sine qua non for proving a financial debt if the transaction's nature is otherwise evident

It further applied the principles from Shraddha Enterprises v. Simplex Infrastructures Ltd., holding that a breach of settlement creates a new cause of action and technicalities regarding "liberty to revive" should not shield unscrupulous debtors

Finally, it cited Innoventive Industries Ltd. v. ICICI Bank regarding the Adjudicating Authority's limited scope under Section 7 to merely verify debt and default

The Tribunal found that the NCLT erred by relying on an RBI Master Circular to mandate a written loan agreement, noting that Section 238 of the IBC ensures the Code’s supremacy over such circulars

Ample evidence, including bank statements and TDS deductions, sufficiently proved the debt and default

Regarding the withdrawal of the first petition, the Tribunal clarified that res judicata does not apply because the first petition was never adjudicated on merits

The Tribunal reasoned that the breach of a Settlement Agreement provides a distinct and fresh cause of action

It rejected the "hyper-technical" requirement of obtaining explicit liberty to revive, observing that such a rule would allow Corporate Debtors to use sham settlements to permanently evade insolvency proceedings

The Tribunal concluded that since the debt and default (above the threshold limit) were clearly established, the Adjudicating Authority was statutorily bound to admit the petition

It held that a written agreement is not mandatory to prove financial debt and that a fresh Section 7 petition is maintainable upon the breach of a settlement agreement, notwithstanding the unconditional withdrawal of a prior petition

The Adjudicating Authority was directed to pass an order of admission for the Section 7 application within one month and proceed with the CIRP in accordance with the law

No order as to costs was made