DRT Order Setting aside NPA Classification Does not Negate Existence of Financial Debt: NCLT

The National Company Law Tribunal (NCLT) has made a significant ruling clarifying the impact of a Debt Recovery Tribunal (DRT) order on the existence of financial debt under the Insolvency and Bankruptcy Code (IBC). The NCLT held that an order issued by the DRT declassifying a loan account as a Non-Performing Asset (NPA) does not, in itself, negate the underlying financial debt owed by the borrower. Consequently, despite the DRT's decision on the NPA classification, the NCLT ruled that insolvency proceedings initiated based on the existence of that financial debt can continue under the IBC, highlighting the distinct purposes and scopes of the two legal frameworks.