Bhushan Power and Steel Limited's application for Corporate Insolvency Resolution Process upheld despite written-off debt
In a significant ruling, the National Company Law Tribunal (NCLT), New Delhi Special Bench, has admitted the application for initiation of Corporate Insolvency Resolution Process (CIRP) against Atma Ram House Investment Private Limited, filed by Bhushan Power and Steel Limited (BPSL). The tribunal's decision, dated November 12, 2025, underscores the interpretation of financial debt under the Insolvency and Bankruptcy Code (IBC), 2016, particularly concerning security deposits for commercial property transactions.
The case revolves around a Memorandum of Understanding (MoU) between BPSL and Atma Ram House Investment Private Limited, where BPSL disbursed INR 136.92 Crores as a security deposit for the purchase of commercial space. Despite the amount being written off in the financial creditor's accounts, the tribunal held that the debt remains recoverable and constitutes a financial debt under Section 5(8) of the IBC. The tribunal emphasized that writing off a debt does not absolve the corporate debtor of its liability to repay the amount.
The tribunal further noted that the corporate debtor acknowledged the disbursed amount as a long-term borrowing in its financial statements from 2016-17 to 2020-21. The application for CIRP was filed within the limitation period following the acknowledgment of debt, thereby affirming its maintainability under Section 7 of the IBC.
Upon admission of the CIRP application, a moratorium was declared under Section 14 of the IBC, prohibiting any action against the corporate debtor. The tribunal appointed Mr. Santanu T. Ray as the Interim Resolution Professional (IRP) to take charge of the CIRP and directed the petitioner to deposit INR 2,00,000 with the IRP for immediate expenses.
The tribunal's decision signifies a pivotal moment in the interpretation of financial transactions within the framework of insolvency law, reinforcing the notion that security deposits for future commercial transactions can be treated as financial debts. The ruling aligns with precedents set by the Supreme Court and other judicial bodies, emphasizing the recoverability of debts despite being written off in financial statements.
Bottom Line:
Corporate Insolvency - Financial debt arising out of security deposit for purchase of commercial space - Acknowledgment of debt in financial statements - Despite being written off, debt remains recoverable and constitutes financial debt under Section 5(8) of IBC - Application filed for initiation of CIRP within limitation period.
Statutory provision(s): Section 5(8), Section 7, Section 14 of the Insolvency and Bankruptcy Code, 2016
