Acknowledged Interest On ICDs Forms Part Of Financial Debt Under IBC: NCLAT New Delhi

On 13 July, the New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) held that acknowledged interest on Inter Corporate Deposits (ICDs) forms part of “financial debt” under the Insolvency and Bankruptcy Code, 2016 (IBC).

Judicial Member Justice N Seshasayee, along with Technical Members Indevar Pandey and Arun Baroka, allowed an appeal filed by Wild Dreams Trading Company Pvt. Ltd. against the Chandigarh Bench of the National Company Law Tribunal (NCLT), which had rejected its plea to initiate the Corporate Insolvency Resolution Process (CIRP) against Ascendancy Financial Services Pvt. Ltd. The Bench observed:

“The acknowledgment of liability, coupled with the admitted ICD transactions and TDS deductions, establishes the existence of financial debt exceeding the statutory threshold prescribed under Section 4 of the Code.”

Between 2016 and 2024, Wild Dreams Trading Company advanced eleven ICDs aggregating to Rs 2.32 crore to Ascendancy Financial Services. The ICDs carried agreed interest, initially at 11.5% per annum, which was later revised to 8% per annum. While Ascendancy Financial Services repaid the principal amounts of several ICDs, it failed to pay the accrued interest. On September 2024, Rs 62 lakh remained unpaid towards principal, along with accrued interest of Rs 45.08 lakh, taking the total outstanding liability to Rs 1.07 crore.

The debtor had also deducted and deposited tax deducted at source (TDS) on the interest component. After Wild Dreams Trading Company issued a demand letter on 13 September 2024, Ascendancy Financial Services, through its reply dated 19 September 2024, expressly acknowledged the liability of Rs 1.07 crore and sought two weeks' time to arrange funds.

After the debtor failed to clear the dues despite repeated extensions, Wild Dreams Trading Company filed a petition under Section 7 of the IBC before the NCLT, Chandigarh. On 3 February 2026, the NCLT dismissed the petition, holding that the interest component could not be included merely on the basis of TDS deductions and that the default amount was below the Rs 1 crore threshold prescribed under Section 4 of the IBC.

Before the NCLAT, Wild Dreams Trading Company argued that the liability was not being claimed solely on the basis of TDS deductions. It submitted that the debtor's letter dated 19 September 2024 independently acknowledged the entire liability of Rs 1.07 crore, including interest.

The Tribunal noted that at the admission stage, the NCLT is required to examine the existence of financial debt, occurrence of default and completeness of the application. It further observed that Section 5(8) of the IBC specifically includes interest within the definition of financial debt and that excluding interest would defeat the legislative intent of recognising the time value of money. It observed:

“The nature of the transaction as financial assistance has not been disputed. The record further reflects that the ICDs were not gratuitous advances, but were accompanied by an understanding regarding payment of interest. The Appellant's case is supported not merely by unilateral calculations of interest, but also by the conduct of the Corporate Debtor, including deduction of TDS on the interest component and its subsequent correspondence acknowledging the outstanding liability.”

Further, the Bench held that the NCLT had wrongly confined its analysis to whether TDS deductions alone could establish interest liability and failed to consider the cumulative evidence, including the debtor's acknowledgment and the statutory definition of financial debt. It noted that the circumstances established the existence of debt and default under the IBC.

Accordingly, the NCLAT allowed the appeal and granted Ascendancy Financial Services 15 days to pay the outstanding amount along with interest. It directed that if the payment was not made within the stipulated period, the NCLT shall admit the Section 7 petition and initiate CIRP.

For Appellants: Advocates Tishamapti Sen, Mukul Kulhari and Riddhi Sancheti