Tribunal rules operational debt, rejects financial debt claim under I&B Code

The tribunal dismissed IA No. 169/JPR/2019, ruling that the applicant's claim was properly categorized as operational debt by the RP. The tribunal also rejected IA No. 202/JPR/2019, IA No. 205/JPR/2019, and IA No. 212/JPR/2019, deeming them similar to IA No. 169/JPR/2019. Citing a prior decision in IA No. 135/JPR/2019, the tribunal found that the applicant's claim did not fulfill the requirements for financial debt under the I&B Code.

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Issues Involved:
1. Classification of the applicant's claim as financial debt or operational debt.
2. Validity of the RP's decision to treat the claim as operational debt.
3. Applicability of the previous decision in IA No. 135/JPR/2019 to the current case.

Detailed Analysis:

1. Classification of the Applicant's Claim as Financial Debt or Operational Debt:

The applicant, M/s The Sakchi Stores, filed an application under Section 60(5) of the I&B Code, 2016, against the Resolution Professional (RP) of M/s Mount Shivalik Industries Limited. The applicant sought a direction for its claim to be admitted as a financial debt rather than an operational debt. The applicant argued that it was a financial creditor for a debt amounting to Rs. 1,80,47,500/- and had filed its claim in Form C. However, the RP treated the claim as operational debt, which prompted the applicant to file the application.

The applicant provided financial assistance to the corporate debtor initially in 2005 and later in 2010, both times veiled as deposits. The corporate debtor paid interest and repaid the principal amount initially but defaulted later. The applicant claimed that the financial assistance provided was treated as a debt with interest, and hence, it should be classified as financial debt.

2. Validity of the RP's Decision to Treat the Claim as Operational Debt:

The RP, in her reply, referred to a previous decision in IA No. 135/JPR/2019, asserting that the issue was already covered by that decision. The RP argued that the claim should be treated as operational debt because the financial assistance was veiled as a deposit and did not meet the criteria for financial debt under Section 5(8) of the I&B Code.

The RP emphasized that the applicant failed to provide evidence showing that the security deposit was used for the corporate debtor's business funding. The RP argued that the interest paid was incidental to the deposit and not indicative of a financial debt. The RP also pointed out that the applicant did not submit sufficient documents to establish that the amount was borrowed for commercial purposes.

3. Applicability of the Previous Decision in IA No. 135/JPR/2019:

The tribunal referred to the order dated 18.01.2021 in IA No. 135/JPR/2019, where a similar issue was adjudicated. In that case, the tribunal concluded that the security deposit did not constitute a financial debt as it was not disbursed against the consideration for the time value of money. The tribunal noted that the agreement between the parties did not reflect a financial contract as defined under the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The tribunal observed that the facts and issues in the current case were identical to those in IA No. 135/JPR/2019. Therefore, the decision in the previous case was applicable to the present case. The tribunal dismissed the applicant's claim, stating that the RP had rightly considered it as operational debt.

Conclusion:

The tribunal dismissed IA No. 169/JPR/2019, holding that the applicant's claim was rightly classified as operational debt by the RP. The tribunal also dismissed IA No. 202/JPR/2019, IA No. 205/JPR/2019, and IA No. 212/JPR/2019, as they were identical to IA No. 169/JPR/2019. The tribunal relied on the previous decision in IA No. 135/JPR/2019 to conclude that the applicant's claim did not meet the criteria for financial debt under the I&B Code.

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