Classification of advance amount as inventory in the Books of Financial Creditor will not change the nature of transaction | Refundable Security Deposit carried Interest advanced in Development Agreement falls within Financial Debt under Section 5(8)(f) of IBC – Chintan Jhunjhunwala Vs. Avani Towers Pvt. Ltd. and Anr. – NCLAT New Delhi

In this case, FC was required to provide the refundable Security Deposit of Rs.12 Crores with option to add an extra Rs. 3 Crores. The initial deposit of Rs.12 Crores would not accrue interest while any additional deposit up to maximum Rs. 3.5 Crores bear the interest at the rate of 18% compounded and payable quarterly.

Hon’ble NCLAT held that:
(i) For a transaction to be covered under Section 5(8) first requirement is disbursal against the consideration of the time value of money.
(ii) The Development Agreement is a transaction between the parties and looking to the Clauses of Development Agreement, it is clear that transaction has commercial effect of the borrowings.
(iii) Referred Judgment of Hon’ble Supreme Court in Global Credit Capital Ltd. and Anr. v. Sach Marketing Pvt. Ltd. and Anr. (2024) ibclaw.in 125 SC.
(iv) Classification of the same as inventory in the Books of Financial Creditor will not change the nature of transaction and the Financial Creditor has been relying on the acknowledgement of the Corporate Debtor in the Balance Sheet for purposes of limitation under Section 18, which has rightly been noted and accepted by the Adjudicating Authority.

Classification of advance amount as inventory in the Books of Financial Creditor will not change the nature of transaction | Refundable Security Deposit carried Interest advanced in Development Agreement falls within Financial Debt under Section 5(8)(f) of IBC – Chintan Jhunjhunwala Vs. Avani Towers Pvt. Ltd. and Anr. – NCLAT New Delhi Read Post »