MoU Between Debtor And Creditor Is Only Acknowledgment, Not Proof Of Debt: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has said that a Memorandum of Understanding (MoU) can, at best, show an acknowledgment of debt, but it cannot, by itself, prove that a financial debt exists or that there has been a default.

The tribunal said documents showing the original loan and actual disbursal of money are necessary to trigger insolvency proceedings.

A coram of Judicial Member Nilesh Sharma and Technical Member Sameer Kakar dismissed a petition filed by Mulraj Mody against Westin Habitats Pvt Ltd, which sought initiation of the corporate insolvency resolution process (CIRP) based on MoUs and settlement documents.

The tribunal observed, “The MoUs attached/submitted by the Applicant may act as acknowledgment of debt, however, they may not alone prove the original disbursement and existence of a financial debt. In our view, without producing the documents evidencing the original transaction including loan agreement, guarantee deed, documents evidencing disbursement etc. and solely based on the MoUs, Section 7 cannot be triggered.”

Mody claimed that he had advanced Rs. 5 crores in July 2016 to Vijay Shankar Prabhu, who allegedly transferred the funds to Westin Habitats. He said the amount was repayable within 20 days along with interest.

An MoU dated December 21, 2017, was later executed between Mody and Westin Habitats acknowledging the alleged dues. Following this, partial payments were made and post-dated cheques were issued to meet the claim. Some of them were dishonored. Subsequently, they entered into settlement terms once in February 2022 and another in August 2024, both of which were allegedly breached, prompting Modi to approach this tribunal.

Rejecting the plea, the tribunal noted that key documents necessary to prove a debt were missing.

These included a loan agreement, a guarantee deed, bank statements showing disbursal of money to the corporate debtor, and proof of invocation of any alleged guarantee. It also recorded that no record of default from an information utility had been placed on record.

The tribunal said repeated settlements and restoration of the petition did not cure these basic defects.

Holding that debt and default were not established, the tribunal dismissed the petition. It clarified that the applicant was free to pursue other remedies available under the law.

Case Title: Mulraj Mody vs Westin Habitats Pvt Ltd

Citation: 2026 LLBiz NCLT (MUM) 33

Case Number: RCP (IB)/16(MB)2024

For Applicant: Advocate Niraj Shah i/b Law Chamber of Siddharth Murarka

For Respondent: Advocate Pritesh Burad