High seas sale transactions do not become financial debt; Section 7 insolvency petition fails where the underlying deal is commercial import.

A high seas sale agreement for import of goods was treated as a commercial import transaction, with title passing while goods were in transit. On that basis, the arrangement could not be re-characterised as a financial arrangement giving rise to a financial debt under the Insolvency and Bankruptcy Code. The applicant therefore could not be regarded as a financial creditor for Section 7 purposes. The existence of a pledge arrangement, loan documents, an arbitral award and later correspondence did not change the character of the underlying transaction, and the Section 7 petition was held not maintainable.

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Issues: Whether the claim arising from the high seas sale agreement could be treated as a financial debt and whether the applicant could maintain a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 as a financial creditor.

Analysis: The application was founded on a high seas sale agreement for import of goods, supported by a pledge arrangement, loan documents, and an arbitral award. The deciding authority analysed the nature of a high seas sale transaction and held that it is a commercial import transaction in which goods and title are transferred while the goods are still in transit. On that basis, the agreement could not be re-characterised as a financial arrangement giving rise to a financial debt. Since the source transaction did not answer the statutory description of financial debt, the applicant could not be treated as a financial creditor for purposes of Section 7. The existence of an arbitral award and subsequent correspondence did not alter the character of the underlying transaction.

Conclusion: The petition under Section 7 was not maintainable because the alleged liability did not constitute financial debt and the applicant was not a financial creditor.

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