Tribunal affirms Financial Lease status, deems Second Respondent Financial Creditor under I&B Code. Debt ruled Financial.

The Tribunal affirmed that the Lease Agreement qualified as a Financial Lease, the Second Respondent was deemed a Financial Creditor, and the Adjudicating Authority's decision to admit the application under Section 7 of the I&B Code was upheld. The Tribunal determined that the debt in question constituted a Financial Debt, leading to the dismissal of the appeal without costs.

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Issues Involved:
1. Whether the Lease Agreement qualifies as a Financial or Capital Lease under the Indian Accounting Standards.
2. Whether the Second Respondent qualifies as a Financial Creditor under Section 5(7) and 5(8) of the Insolvency and Bankruptcy Code (I&B Code).
3. Whether the Adjudicating Authority erred in admitting the application under Section 7 of the I&B Code.
4. Whether the procedural requirements under Section 8 of the I&B Code were met.

Issue-wise Detailed Analysis:

1. Qualification of Lease Agreement as Financial or Capital Lease:
The Appellant argued that the Lease Agreement dated 03.04.2017 did not indicate that the liability was in consideration for the time value of money and was not deemed as a Financial or Capital Lease. The Appellant contended that the Second Respondent failed to plead and prove that the Lease Agreement was a Financial Lease under the Indian Accounting Standards. The Tribunal, however, found that the Lease Agreement clearly envisaged that the Lessor (Second Respondent) provided Lease Finance Assistance to the Lessee (First Respondent) for business purposes. The Tribunal concluded that the Lease Agreement was indeed a Financial Lease, satisfying the requirements of Section 5(8) of the I&B Code.

2. Qualification of Second Respondent as a Financial Creditor:
The Appellant contended that the Second Respondent was not a Financial Creditor as defined under Section 5(7) of the I&B Code, as the transaction was an ordinary leasing transaction and not a financial debt. The Tribunal referred to the Supreme Court judgment in 'Phoenix ARC Pvt Ltd Vs Ketulbhai Ramubhai Patel' and concluded that the disbursal of amounts to the manufacturer 'Interio Architecture' constituted a disbursal against the consideration for the time value of money. The Tribunal held that the Second Respondent qualified as a Financial Creditor under Section 5(7) and 5(8) of the I&B Code.

3. Adjudicating Authority's Decision to Admit the Application:
The Appellant argued that the Adjudicating Authority failed to consider whether the Second Respondent qualified as a Financial Creditor and whether the Lease Agreement was a Financial Lease. The Tribunal found that the Adjudicating Authority was satisfied with the submissions regarding the existence of financial debt and occurrence of default. The Tribunal held that the Adjudicating Authority's decision to admit the application under Section 7 of the I&B Code was free from legal flaws.

4. Procedural Requirements under Section 8 of the I&B Code:
The Appellant contended that the Second Respondent issued Demand Notices under Section 8 of the I&B Code, reaffirming that the Second Respondent was not a Financial Creditor. The Tribunal noted that the Second Respondent issued regular Legal Notices, not Demand Notices in the prescribed form under the I&B Code. The Tribunal found that the procedural requirements under Section 8 were not strictly applicable to the case, as the application was filed under Section 7 by a Financial Creditor.

Conclusion:
The Tribunal dismissed the appeal, affirming that the Lease Agreement was a Financial Lease, the Second Respondent was a Financial Creditor, and the Adjudicating Authority's decision to admit the application under Section 7 of the I&B Code was correct. The Tribunal concluded that the debt in question was a Financial Debt and not an Operational Debt, and the appeal was dismissed without costs.

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