05 (8)

Amount disbursed against consideration for the time value of money in the form of 50% of the share profit contemplating return of the amount after the completion of the project has the commercial effect of borrowing as defined under Section 5(8)(f) of IBC – Sumangal Dealmark Pvt. Ltd. and Ors. Vs. Citystar Infrastructures Ltd. – NCLT Kolkata Bench

In this case, the financial creditor is supposed to render financial assistance (which has been termed as interest free security deposit) which the corporate debtor is required to refund after the completion of the said project along with 50 per cent of the profit share.

Hon’ble NCLT Kolkata Bench held that the amount has been disbursed against consideration for the time value of money in the form of 50 per cent of the share profit. The disbursement contemplates return of the amount after the completion of the project. Thus, the transaction has the commercial effect of borrowing as defined under Section 5(8)(f) as well, apart from main Section 5(8) of IBC.

Amount disbursed against consideration for the time value of money in the form of 50% of the share profit contemplating return of the amount after the completion of the project has the commercial effect of borrowing as defined under Section 5(8)(f) of IBC – Sumangal Dealmark Pvt. Ltd. and Ors. Vs. Citystar Infrastructures Ltd. – NCLT Kolkata Bench Read Post »

Raising of amount by Company through Share Subscription-cum Shareholders Agreement is a Financial Debt – Spectrum Trimpex Pvt. Ltd. Vs. VPhrase Analytics Solutions Pvt. Ltd. – NCLT Mumbai Bench

Hon’ble NCLT Mumbai Bench refers Sanjay D. Kakade v. HDFC Ventures Trustee Co. Ltd & Ors. (2023) ibclaw.in 751 NCLAT and holds that since the transaction has the commercial effect of borrowing and there was a disbursement of money against the consideration for time value of money, the money was raised by the Corporate Debtor from the shareholders through Share Subscription-cum-Shareholders Agreement is a financial debt, as defined u/s 5(8) of the Code.

Raising of amount by Company through Share Subscription-cum Shareholders Agreement is a Financial Debt – Spectrum Trimpex Pvt. Ltd. Vs. VPhrase Analytics Solutions Pvt. Ltd. – NCLT Mumbai Bench Read Post »

Can Insolvency/ CIRP proceedings under Section 7 of IBC be initiated against a Co-Borrower? – Amit Narang Suspended Director of Narang Developers Pvt. Ltd. Vs. Aditya Birla Finance Ltd. and Anr. – NCLAT New Delhi

Hon’ble NCLAT held that:

(i) The obligation of the Co-Borrower is co-extensive and coterminous with that of the Primary Borrower and hence a right or cause of action becomes available to the financial creditor to proceed against the primary borrower, as well as the Co-Borrower in equal measure in case they commit default in repayment of the amount of debt.
(ii) The liability of a Corporate Debtor cannot be done away merely on the ground of stamping inadequacy in the Facility Agreement.
(iii) Declaration of account as NPA under the SARFAESI Act is an independent proceeding and cannot be adopted as a defence to obstruct the Financial Creditor from proceeding under IBC to initiate CIRP against the Corporate Debtor.

Can Insolvency/ CIRP proceedings under Section 7 of IBC be initiated against a Co-Borrower? – Amit Narang Suspended Director of Narang Developers Pvt. Ltd. Vs. Aditya Birla Finance Ltd. and Anr. – NCLAT New Delhi Read Post »

Whether Operational Creditor has priority in payment in distribution under Section 53 of IBC over Unsecured Financial Creditor who is a related party of the Corporate Debtor? – Times Innovative Media Ltd. Vs. Pawan Kumar Aggarwal (Liquidator) and Anr. – NCLAT New Delhi

Hon’ble NCLAT held that:

(i) On plain reading of Section 53(1), it is clear that financial debts owed to unsecured creditors ranked higher than debt of operational creditor.
(ii) Scheme of Regulations 2016 does not indicate that related party is excluded from filing a claim.
(iii) Appellant cannot claim any priority in distribution of assets of the corporate debtor as compared to unsecured financial creditor.

Whether Operational Creditor has priority in payment in distribution under Section 53 of IBC over Unsecured Financial Creditor who is a related party of the Corporate Debtor? – Times Innovative Media Ltd. Vs. Pawan Kumar Aggarwal (Liquidator) and Anr. – NCLAT New Delhi Read Post »

In absence of any written loan agreement or any other document showing the tenure of the loan or the rate of interest or periodicity of interest payment, loan amount cannot be classified as Financial Debt as defined under Section 5 (8) of IBC – Imdadali M Momin and Ors. Vs. Pellucid Lifesciences Pvt. Ltd. – NCLAT New Delhi

Hon’ble NCLAT held that:

(i) There is no loan agreement between the appellants and the Corporate Debtor. There is no document which provides the tenure of the loan, rate of interest prescribed and frequency of payment of interest i.e. whether monthly, yearly or any other interval. The only document in this regard relied by appellants is the ledger accounts of the appellants maintained by the Corporate Debtor.
(ii) The Application is only the application for recovery of balance amount of interest. The Corporate Debtor has already paid the amount of principal and interest for the amount for which TDS was paid. The aforesaid application for initiation of CIRP process against Corporate Debtor was not filed for resolution of insolvency of the Corporate Debtor.

In absence of any written loan agreement or any other document showing the tenure of the loan or the rate of interest or periodicity of interest payment, loan amount cannot be classified as Financial Debt as defined under Section 5 (8) of IBC – Imdadali M Momin and Ors. Vs. Pellucid Lifesciences Pvt. Ltd. – NCLAT New Delhi Read Post »

Fund raised by issuing Subsidiary’s Compulsorily Convertible Preference Shares indemnified by Corporate Debtor to construct flats over land owned by Corporate Debtor under the Construction Contract entered into between Subsidiary Company and Corporate Debtor is Financial Debt under IBC – IIRF India Realty XII Ltd. and Anr. Vs. Srigopal Choudhary, RP of Shree Ram Urban Infrastructure Ltd. and Ors. – NCLT Mumbai Bench

In this case, Applicants invested in the shares of Subsidiary based on assurances provided by the Corporate Debtor as well as Subsidiary and these funds were ultimately used for the benefit of the Corporate Debtor.

Hon’ble NCLT Mumbai Bench held that:

(i) Adjudicating Authority has no hesitation to say that the amount paid under the transaction of subscription to CCPS had the commercial effect of borrowing.
(ii) Contravention, if any taken place, or bar under FEMA cannot be a ground to characterize a transaction to hold it not be in nature of a debt, if it otherwise qualifies to be so under the definition(s) of Financial Debt contained in the Code.
(iii) The duty to verify claim in terms of CIRP Regulation 13 requires the IRP/RP to verify each claim received form the proof of claim in order to ascertain the claim amount and the class under which such claim is admissible because if the verification does not encompass the determination of class of a creditor, this will disable the IRP/RP to decide the class of claimant which may render the exercise of verification of claim futile.

Fund raised by issuing Subsidiary’s Compulsorily Convertible Preference Shares indemnified by Corporate Debtor to construct flats over land owned by Corporate Debtor under the Construction Contract entered into between Subsidiary Company and Corporate Debtor is Financial Debt under IBC – IIRF India Realty XII Ltd. and Anr. Vs. Srigopal Choudhary, RP of Shree Ram Urban Infrastructure Ltd. and Ors. – NCLT Mumbai Bench Read Post »

Whether transactions between the Family Companies were out to help each other is a Financial Debt under Insolvency Code? – Sushil Kumar Bajaj Vs. Mandyati Dealcomm Pvt. Ltd. and Anr. – NCLAT New Delhi

Hon’ble NCLAT observed that transaction between the two Companies were out to help each other, which were the family Companies and amounts were given as help to one Family Company by other Family Companies which amount was repaid from time to time. The transaction was never a Financial Debt nor any loan transaction.

Whether transactions between the Family Companies were out to help each other is a Financial Debt under Insolvency Code? – Sushil Kumar Bajaj Vs. Mandyati Dealcomm Pvt. Ltd. and Anr. – NCLAT New Delhi Read Post »

Whether disbursement of property (instead of disbursement of money) is covered by Financial Debt | Whether Section 7 application can be filed on default in balance payment of sale consideration | Whether conversion of sale consideration into loan can be treated as Financial Debt under Section 5(8) of IBC – Sandeep Mittal Vs. ASREC (India) Ltd. and Ors. – NCLAT New Delhi

In this important judgment, Hon’ble NCLAT held that:

(i) The guarantee by the Corporate Debtor for payment of purchase price, cannot in any manner be read as any financial debt owned by the Corporate Debtor.
(ii) The letter, Agreement and Guarantee Deed documents clearly indicate and prove that transaction was sale and purchase transaction and in no manner can be said to be a financial transaction under which financial debt was undertaken to be paid by the Corporate Debtor to the Financial Creditor.
(iii) Disbursal of property cannot be accepted to be covered by definition of ‘financial debt’ under Section 5(8) of IBC.
(iv) Nature of transaction is to be determined from the documents reflecting the transaction and any subsequent letter or subsequent pleadings of the parties cannot be considered in the facts of the present case.

Whether disbursement of property (instead of disbursement of money) is covered by Financial Debt | Whether Section 7 application can be filed on default in balance payment of sale consideration | Whether conversion of sale consideration into loan can be treated as Financial Debt under Section 5(8) of IBC – Sandeep Mittal Vs. ASREC (India) Ltd. and Ors. – NCLAT New Delhi Read Post »

Money given to Corporate Debtor for the purpose of clearing their title over the land in question which was to be shared by both of them in a ratio cannot be treated as Financial Debt under Section 5(8) of the IBC, 2016 – Meehika Buildcon LLP Vs. City Star Infrastructure Ltd. – NCLAT New Delhi

Hon’ble NCLAT observed that the Appellant has not advanced the money as loan rather the money has been given to the Respondent for the purpose of clearing their title over the land in question which was to be shared by both of them in the ratio of 30% / 70%. The Appellant has not filed any financial statement on record in order to show that the money which has been given as per term sheet has been shown as a loan advanced to the Respondent.

Money given to Corporate Debtor for the purpose of clearing their title over the land in question which was to be shared by both of them in a ratio cannot be treated as Financial Debt under Section 5(8) of the IBC, 2016 – Meehika Buildcon LLP Vs. City Star Infrastructure Ltd. – NCLAT New Delhi Read Post »

Secured Creditor can be both Operational Creditor as well as Financial Creditor but Financial Creditor is altogether different from Operational Creditor – Greater Noida Industrial Development Authority Vs. Anand Sonbhadra – NCLAT New Delhi

Hon’ble NCLAT held that there is no error in the impugned order because the secured creditor can be both operational creditor as well as the financial creditor but financial creditor is altogether different from the operational creditor and since it has been held that a similar authority, namely, Noida Authority is an operational creditor, claiming the same relief on the basis of the lease deed, the Appellant, namely, GNIDA cannot be held to be a Financial Creditor on the same facts and has rightly been held to be an operational creditor.

Secured Creditor can be both Operational Creditor as well as Financial Creditor but Financial Creditor is altogether different from Operational Creditor – Greater Noida Industrial Development Authority Vs. Anand Sonbhadra – NCLAT New Delhi Read Post »

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