Deposit Made 'Without Prejudice' Cannot By Itself Amount To Admission Of Debt In CIRP Proceedings: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi, has ruled that a deposit expressly made “without prejudice” to a debtor's rights and contentions cannot, by itself, be treated as an unconditional admission of liability.

The bench of Judicial Member Justice N. Seshasayee and Technical Member Indevar Pandey observed, “A deposit expressly made without prejudice cannot, by itself, be treated as an unconditional admission of a liability, particularly when the appellant had already raised specific objections to the maintainability of the proceedings. At the best it only indicates that the appellant is solvent and not insolvent to initiate CIRP.”

Dalal Family Private Trust had filed an insolvency plea against North Life Spaces LLP, alleging default of about ₹4.15 crore under a Facility Agreement dated 5 April 2021.

The claim comprised principal, interest and tax penalty. North Life Spaces disputed the maintainability of the proceedings, the authority of the person instituting them, and the existence of debt and default.

After the matter was reserved for orders, North Life Spaces deposited ₹3,49,55,172 with the NCLT Registry towards the principal and interest claimed. The accompanying praecipe expressly stated that the deposit was made without prejudice to its rights, remedies and contentions and to demonstrate solvency.

The NCLT released the amount to the Trust and closed the Section 7 petition without adjudicating the objections on maintainability, debt and default.

The NCLAT held that the deposit did not, by itself, amount to an unconditional admission of liability. Where debt, default and maintainability have been specifically questioned, those issues cannot be left undecided merely because an amount has been deposited.

The bench noted that the deposit could be taken into account. However, it could not substitute the determination required in a Section 7 proceeding.

The bench also considered a subsequent Demand Notice seeking ₹ 2,77,72,206 towards interest, default interest and legal expenses. It noted that the components of this claim were materially different from those in the Section 7 petition.

The bench observed, “Such subsequent computation cannot, by itself, establish a financial debt.” Each component must have a contractual or statutory foundation and must otherwise be legally recoverable. The liberty granted by the NCLT to pursue other legally maintainable claims could not itself amount to an adjudication of those claims.

The bench further observed:

“On this aspect we have our own doubts. If Sec.7 IBC is not a recovery proceeding, it is difficult to hold how can the same debtor, be treated as an insolvent justifying the commencement of a CIRP one for part of the claim and the other for rest of the claim, where both the claims arise out of the same transaction.”

The NCLAT allowed the appeal and set aside the NCLT's August 2025 order. It remanded the Section 7 petition for fresh consideration and directed the Trust to re-deposit the amount to the credit of the case before the NCLT.

The bench clarified that it was not deciding the merits of the subsequent claim. The Trust remained free to pursue any amount otherwise legally due.