DISBURSEMENT OF FUNDS BY NBFCS BASED ON THE ORAL AGREEMENT CANNOT BE CONSTRUED AS FINANCIAL DEBT - KOLKATA NCLT

The NCLT Kolkata, while deciding a petition u/s 7 of the Insolvency and  Bankruptcy Code, 2016 ('IBC"), held that disbursement of funds by a Non-Banking Financial Institution ("NBFC") based on an oral agreement cannot be construed as financial debt. The Bench of Shri Rajasekhar V.K. (Judicial Member) and Shri Balraj Joshi (Technical Member) further said that there is nothing to show on record that there was the disbursement of the loan. 

FACTS

The NBFC, Narendra Promoters & Fincon Pvt. Ltd. was approached by the corporate debtor, Vinline Engineering for financial assistance of Rs 10,00,000/-. The parties entered into an oral agreement whereby the Financial Creditor would disburse 10,00,000/- along with an interest rate of 16% per annum.

On 8 September 2015, the Financial Creditor disbursed the said amount. The Corporate Debtor paid an amount of Rs 5,82,136/- towards the interest due from 8 September 2015 to 31 March 2019. The Corporate debtor however failed to pay the principal amount and hence, on 18 March 2020, the Financial Creditor approached the Kolkata NCLT bench.

HELD 

The bench observed that the bank statements reveal that an amount of Rs 10,00,000/- was disbursed by the Financial Creditor. However, it cannot be construed as the existence of financial debt since the terms and conditions are not before the bench and show no record of disbursement of loans.

The bench referred to the RBI guideline on Fair Practices Code for NBFCs, wherein it has been stated that NBFCs should disburse loans in writing, it should also consist of terms and conditions, rate of interest, and method of application. Hence it is mandatory for an NBFC to have written documents.

In view of the same, the petition was dismissed at the liberty to approach other available remedies.