The National Company Law Tribunal (NCLT) has admitted an insolvency application filed by Bhushan Power & Steel Limited (BPSL) against its subsidiary company over an outstanding debt of ₹137 crore.
The tribunal held that writing off a debt in financial records does not extinguish the creditor’s legal right to recover it under the Insolvency and Bankruptcy Code, 2016 (IBC).
The NCLT clarified that a written-off amount continues to qualify as a “debt” in law if it remains legally recoverable.
Background of the Case
Bhushan Power & Steel Limited, currently undergoing its own resolution process under the IBC, filed a petition under Section 7 of the Code. The company sought initiation of the Corporate Insolvency Resolution Process (CIRP) against its subsidiary for default in repayment.
The total claimed amount stood at ₹137 crore.
The subsidiary opposed the application. It argued that BPSL had already written off the debt in its books of accounts. According to the subsidiary, this meant the debt was no longer legally enforceable.
Key Issue Before the Tribunal
The main question before the NCLT was whether a debt written off for accounting purposes can still form the basis of an insolvency application.
The corporate debtor argued that writing off the amount indicated abandonment of the claim. It also claimed that the accounting treatment reflected an intention not to pursue recovery.
NCLT’s Findings
The NCLT rejected these arguments.
The tribunal held that accounting write-offs do not determine legal enforceability. It observed that such write-offs only reflect financial prudence and accounting accuracy.
The NCLT clarified that a write-off does not amount to waiver, settlement, or relinquishment of legal rights.
The tribunal further noted that under the IBC, only two conditions are required:
- Existence of a financial debt
- Occurrence of default
In this case, both conditions were clearly satisfied.
The tribunal found that the debt was acknowledged and the default was established through documentary evidence. Therefore, the application could not be rejected.
IBC Focuses on Substance, Not Accounting Form
The NCLT emphasised that the IBC prioritises substance over accounting formality.
It stated that allowing companies to avoid insolvency proceedings based on accounting entries would defeat the purpose of the Code.
Accordingly, the tribunal admitted the insolvency application and initiated CIRP against the subsidiary.
Significance of the Ruling
The decision clarifies that written-off debts remain actionable under the IBC.
It reinforces that accounting treatment cannot override legal rights. The ruling is particularly relevant for group companies and inter-corporate transactions, where write-offs are often used as a defence.
Legal experts note that this judgment strengthens insolvency jurisprudence and ensures that genuine claims are not defeated by accounting practices.
Case Title: Bhushan Power and Steel Limited v. Atma Ram House Investment Private Limited
