Interest-Free Payment Does Not Automatically Become Financial Debt Merely Because Called A Loan: NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai, has held that an interest-free payment does not automatically become a financial debt merely because it is described as a loan.

The tribunal ruled that the nature and commercial purpose of the transaction, along with the surrounding documentary evidence, must be examined.

A coram of Judicial Member Nilesh Sharma and Technical Member Sameer Kakar observed, “An interest-free payment does not automatically become a financial debt merely because it is described as a loan. What is material is the nature and commercial purpose of the transaction. In the present case, the CD's own classification of the amount as a borrowing supplies important corroboration of the Applicant's case.”

The bench was dealing with a Section 7 insolvency petition filed by Jagdish Kumar Parulkar, Liquidator of B.Y. Agro And Infra Limited, against Wardha Mega Food Park Private Limited.

The applicant claimed that an unsecured loan of ₹3.90 crore had been advanced to the Corporate Debtor in 2015-16 for working-capital requirements. An amount of ₹1.48 crore remained outstanding, according to the applicant.

The Corporate Debtor's financial statements from 2018-19 to 2021-22 also recorded the amount as an “Unsecured Loan from M/s B Y Agro and Infra Limited” under long-term borrowings.

The Corporate Debtor argued that the transaction could not qualify as a financial debt in the absence of material showing consideration for the time value of money. It also pointed to the absence of a formal loan agreement, repayment terms, tenure, maturity date, interest obligation and other lending documents.

The tribunal, however, held that the absence of a formal loan agreement could not be considered in isolation or treated as determinative. It observed that the IBC does not require a financial debt to be established, only through a document styled as a “loan agreement."

The substance of the transaction and the parties' dealings and documentary records were relevant.

The bench noted that the Corporate Debtor's own ledger and successive audited financial statements repeatedly recognised the applicant as a creditor and the amount as a borrowing.

The FY 2024-25 audited accounts, signed on September 4, 2025, also recognised the liability, supporting the applicant's case. The tribunal held that the absence of interest did not, by itself, exclude the transaction from financial debt. Relying on Orator Marketing, it noted that interest-free business loans are not excluded.

The tribunal also found sufficient basis to treat the FY 2021-22 and FY 2024-25 accounts as acknowledgements under limitation law. It admitted the Section 7 petition, declared a moratorium, and appointed Sanjay Shrivastava as IRP.

For Applicant: Advocate Bilal Ali

For Respondent: Advocates Ankanksha Nehra, Sanjana Srivastava.