05 (8) (h)

While deciding the issue of whether a debt is a Financial Debt or an Operational Debt under IBC, it is necessary to ascertain what is the real nature of the transaction – Global Credit Capital Ltd. and Anr. Vs. Sach Marketing Pvt. Ltd. and Anr. – Supreme Court

In this landmark decision, Hon’ble Supreme Court ruled that:

(i) There cannot be a debt within the meaning of Section 3(11) of the IB Code unless there is a claim within the meaning of Section 3(6) of thereof;
(ii) The test to determine whether a debt is a financial debt within the meaning of Section 5(8) is the existence of a debt along with interest, if any, which is disbursed against the consideration for the time value of money. The cases covered by categories (a) to (i) of sub-section (8) must satisfy the said test laid down by the earlier part of Section 5(8);
(iii) While deciding the issue of whether a debt is a financial debt or an operational debt arising out of a transaction covered by an agreement or arrangement in writing, it is necessary to ascertain what is the real nature of the transaction reflected in the writing; and
(iv) Where one party owes a debt to another and when the creditor is claiming under a written agreement/ arrangement providing for rendering ‘service’, the debt is an operational debt only if the claim subject matter of the debt has some connection or co-relation with the ‘service’ subject matter of the transaction.

While deciding the issue of whether a debt is a Financial Debt or an Operational Debt under IBC, it is necessary to ascertain what is the real nature of the transaction – Global Credit Capital Ltd. and Anr. Vs. Sach Marketing Pvt. Ltd. and Anr. – Supreme Court Read Post »

Indemnity obligations under Debenture Subscription Agreement is not a Financial Debt under Section 5(8)(h) of the IBC and if Applicant is neither a bank nor Financial Institution, it cannot be construed as Financial Creditor against the Corporate Debtor – HT Media Ltd. Vs. GHCL Ltd. – NCLT Ahmedabad Bench

Hon’ble NCLT Ahmedabad Bench held that:
(i) The Applicant has claimed himself as Financial Creditor, though the investments by way of convertible debentures were made in Rosebys Interiors India Limited. It is an admitted fact that the said convertible debentures have since been converted to equity shares and that the Rosebys Interiors India Limited is presently under liquidation.
(ii) The Applicant is claiming to be Financial Creditor in terms of Section 5(8)(f), (h) r.w (i) of IBC, 2016. The Respondent/ Corporate Debtor is admittedly indemnifier as per Debenture Subscription Agreement.
(iii) In the present case, the Applicant is neither a bank nor Financial Institution. Hence, the applicant cannot be construed as Financial Creditor against the Respondent/ Corporate Debtor.
(iv) In regard to the above averments and interpretation of the Section 5(8)(f), (h) and (i) this Tribunal is of the view that the debt claimed by the Applicant does not falls under the ambit of the Financial debt provided under the Section 5(8) of IBC, 2016.

Indemnity obligations under Debenture Subscription Agreement is not a Financial Debt under Section 5(8)(h) of the IBC and if Applicant is neither a bank nor Financial Institution, it cannot be construed as Financial Creditor against the Corporate Debtor – HT Media Ltd. Vs. GHCL Ltd. – NCLT Ahmedabad Bench Read Post »

Disbursal against the consideration for time value of money remains an essential part even in respect of any of the transactions referred to in Section 5(8), sub-sections (a) to (h) – Nikhil Gandhi Vs. Sudip Bhattacharya RP of Reliance Naval and Engineering Ltd. – NCLAT New Delhi

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Disbursal against the consideration for time value of money remains an essential part even in respect of any of the transactions referred to in Section 5(8), sub-sections (a) to (h) – Nikhil Gandhi Vs. Sudip Bhattacharya RP of Reliance Naval and Engineering Ltd. – NCLAT New Delhi Read Post »

Whether Personal Guarantor is entitled to include as Secured Creditor in the list of creditors prepared under Section 36 of IBC claiming right of subrogation under Section 140 of Contract Act? – K.V. Jayaprakash Vs. State Bank of India – NCLAT New Delhi

In this case, proceedings under IBC against the Corporate Debtor who is a Principal Borrower is going on at Liquidation stage and property of personal guarantor is sold for recovery of debt under the SARFAESI Act. The main endeavour of the appellant (Guarantor) is that, when insolvency or liquidation proceedings are initiated against the Corporate Debtor(Principal Borrower) and if the property of personal guarantor is sold for recovery of debt under the SARFAESI Act, he is entitled to recover the amount from the corporate debtor under Section 140 of the Indian Contract Act and the liability of the surety is coextensive with that of the Principal Debtor, thereby, he is entitled to be included as a Secured Creditor in the list of creditors under Section 36 of IBC. Read here NCLAT view.

Whether Personal Guarantor is entitled to include as Secured Creditor in the list of creditors prepared under Section 36 of IBC claiming right of subrogation under Section 140 of Contract Act? – K.V. Jayaprakash Vs. State Bank of India – NCLAT New Delhi Read Post »

Lease of land by NOIDA to Builders does not fall within the ambit of Financial Debt, to be treated as an Operational Debt – New Okhla Industrial Development Authority Vs. Anand Sonbhadra – Supreme Court

Hon’ble Supreme Court held that Section 5(8)(d) includes only a finance or a capital lease, which is deemed, as such, under the Indian Accounting Standards. Section 5(8)(f) is a residuary and catch all provision. A lease, which is not a finance or a capital lease under Section 5(8)(d), may create a financial debt within the meaning of Section 5(8)(f), if, on its terms, the Court concludes that it is a transaction, under which, any amount is raised, having the commercial effect of the borrowing. All that we are finding, in the facts of this case, is that the lease in question does not fall within the ambit of Section 5(8)(f). This is for the reason that the lessee has not raised any amount from the appellant under the lease, which is a transaction.

Lease of land by NOIDA to Builders does not fall within the ambit of Financial Debt, to be treated as an Operational Debt – New Okhla Industrial Development Authority Vs. Anand Sonbhadra – Supreme Court Read Post »

The definition of Financial Debt in Section 5(8) of IBC does not expressly exclude an interest free loan. Financial Debt would have to be construed to include interest free loans advanced to finance the business operations of a corporate body – M/s. Orator Marketing Pvt. Ltd. Vs. M/s. Samtex Desinz Pvt. Ltd. – Supreme Court

This judgment is not only on interest free advance. In this judgment, Hon’ble Supreme Court interpreted definition of Financial Creditor u/s 5(8) of the IBC, right of a financial creditor on default by Corporate Debtor, Construction/Interpretation of Statutory Provision, in case of doubt, how to read a statute, Interpretation of word “include” etc. Read summary with full text of the judgment.

The definition of Financial Debt in Section 5(8) of IBC does not expressly exclude an interest free loan. Financial Debt would have to be construed to include interest free loans advanced to finance the business operations of a corporate body – M/s. Orator Marketing Pvt. Ltd. Vs. M/s. Samtex Desinz Pvt. Ltd. – Supreme Court Read Post »

Interpretation of Preferential & Undervalued Transactions under Section 43 of IBC| Whether the lender of Holding Company could be recognized as Financial Creditors of the Corporate Debtor (Subsidiary Company/Guarantor) on the strength of the mortgage created by the Corporate Debtor, as collateral security of the debt of its Holding Company – Anuj Jain IRP for Jaypee Infratech Ltd. Vs. Axis Bank Ltd. etc. – Supreme Court

This judgment covers:
A.1 PUFE transactions comes into full effect in CIRP too.
A.2 The concept of Preferential Transactions.
A.3 Charging parts of the Section 43 of IBC.
A.4 Section 43 of IBC is deeming provision.
A.5 Look-back period.
A.6 Exclusion Part: Interpretation of Section 43(3) of IBC.
A.6.a. Meaning of “new value” Explanation to Section 43(3).
A.6.b. Transfer made in the ordinary course of the business or financial affairs.
A.6.c. The expression “or”, appearing as disjunctive between the expressions “corporate debtor” and “transferee”, ought to be read as “and”.
A.6.d. The expression ‘ordinary course of business’.
A.7. Net concentrate of Section 43 of IBC.
A.8 Checklist/Test whether a transaction falls squarely within the ambit of Section 43 of the Code.
A.9 To do: Steps follow by a Resolution Professional to find out whether a Transaction falls under Section 43 of IBC.
A.10. Can RP file one composite application under Sections 43, 45 and 66 of the Code and AA decide?
B. Whether transactions in the present case are preferential, falling within the ambit of sub-section (2) of Section 43 IBC.
C. Interpretation of definition of Financial Debt and Financial Creditor.
C.1 The expressions “means and includes” in the definition of Financial Creditor.
C.2 The essentials for financial debt and financial creditor.
C.3 Every secured creditor may not be a financial creditor.
C.4 A person having only security interest over the assets of corporate debtor cannot partake the character of a Financial Debt within the meaning of Section 5(8) of IBC.
C.5 Secured creditors indicated by this Court in Essar Steel and Swiss Ribbons, as being subsumed in financial creditors.
D. Whether Lenders of JAL could be categorised as Financial Creditors of JIL.

Interpretation of Preferential & Undervalued Transactions under Section 43 of IBC| Whether the lender of Holding Company could be recognized as Financial Creditors of the Corporate Debtor (Subsidiary Company/Guarantor) on the strength of the mortgage created by the Corporate Debtor, as collateral security of the debt of its Holding Company – Anuj Jain IRP for Jaypee Infratech Ltd. Vs. Axis Bank Ltd. etc. – Supreme Court Read Post »

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