Factoring transactions on recourse basis only will fall within the mischief of Section 5(8)(e) of the IBC- M/s Canbank Factors Ltd. Vs. M/s. Shree Jaya Laboratories Pvt. Ltd. – NCLT Hyderabad Bench
August 23, 2022
The Adjudicating Authority held that in the background of the RBI Circular "Provision of Factoring Services by Banks — Review", dated 30 July 2015, when we refer the definition of Financial Debt in section 5(8) of the Code, more particularly the clause (e) thereof, it becomes immediately clear that only the factoring transactions in respect of "receivables other than on non-recourse basis" are included therein. In other words, factoring transactions on recourse basis only will fall within the mischief of Section 5(8)(e) of the Code. The reason to restrict the mischief of Section 5(8)(e) to debt arising from discounting of bills otherwise than on non-recourse basis only fits perfectly into the concept of Financial Debt under the Code having the two intrinsic ingredients of 'disbursal" of funds for "time value of money" which would obtain in the case of an Assignor only.
