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of <h1>Transaction not financial debt under Insolvency Code. Appellant not Financial Creditor. Lease = operational debt. Precision crucial.</h1> <h3>National Agriculture Cooperative Marketing Federation Limited (NAFED) Versus Synergy Petro Products Private Limited</h3> The Tribunal affirmed the Adjudicating Authority's decision that the transaction in question did not qualify as a 'financial debt' under the Insolvency ... Default in repaying the Arbitral Award - Section 7 of the IBC - November 2009 to 15th July 2015 - HELD THAT:- The Adjudicating Authority has rightly held that the basic nature of transaction is not covered under ‘financial debt’ and rental lease agreement can be ‘operational debt’ but not ‘financial debt’. The Transactions which transpired between the parties does not partake the character of a ‘financial debt’ and the Appellant does not qualify to be a Financial Creditor in relation to the Corporate Debtor. Registry to upload the Judgment on the website of this Appellate Tribunal and send the copy of this Judgment to the Adjudicating Authority (National Company Law Tribunal, Principal Bench, New Delhi.) forthwith. Issues Involved:1. Whether the transaction between the parties qualifies as a 'financial debt' under the Insolvency and Bankruptcy Code (IBC).2. Whether the Appellant qualifies as a 'Financial Creditor' or 'Operational Creditor.'3. Applicability of previous judgments and legal interpretations to the present case.Detailed Analysis:1. Qualification of Transaction as 'Financial Debt':The Appellant filed an application under Section 7 of the IBC for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, claiming default in repaying an Arbitral Award dated 10.07.2019. The Adjudicating Authority dismissed the application, holding that the transaction does not partake the character of 'financial debt' but rather an 'operational debt.' The Appellant argued that the transaction should be considered a financial debt, citing the definition under Section 5(8)(d) of the IBC, which includes liabilities arising from lease or hire purchase contracts deemed as finance or capital leases under Indian Accounting Standards.2. Qualification as 'Financial Creditor' or 'Operational Creditor':The Appellant contended that the Adjudicating Authority erroneously classified them as an Operational Creditor instead of a Financial Creditor. The Appellant relied on previous judgments, including 'Mr. M. Ravindranath Reddy Vs. Mr. G. Krishan & Ors.' and 'Promila Taneja Vs. Surendri Design Pvt. Ltd.,' which held that rent dues do not qualify as 'operational debt.' The Appellant also referred to the Supreme Court's judgment in 'Dena Bank (now Bank of Baroda) Vs. C. Shivakumar Reddy & Anr.,' which stated that a final judgment or Arbitral Award for payment of money, if not satisfied, would fall within the ambit of financial debt.3. Applicability of Previous Judgments:The Respondent argued that the Appellant failed to demonstrate that the transaction falls within the ambit of financial debt as defined under the IBC. The Respondent highlighted that the Leave and License Agreement dated 03.07.2006, which was the basis for the arbitration award, does not qualify as a financial or capital lease. The Respondent cited the case of 'Sushil Ansal Vs. Ashok Tripathi and Ors.,' where it was held that a decree-holder does not fall within the definition of a Financial Creditor unless the debt was disbursed against the consideration for the time value of money.Findings:The Tribunal concluded that the Adjudicating Authority rightly held that the transaction does not qualify as a 'financial debt' and that the Appellant does not qualify as a Financial Creditor. The Tribunal affirmed the impugned order dated 31.05.2021, stating that the basic nature of the transaction is not covered under financial debt, and a rental lease agreement can be considered operational debt but not financial debt.Conclusion:The Tribunal dismissed the appeal, affirming that the Appellant's claim does not qualify as a financial debt under the IBC and that the Appellant does not qualify as a Financial Creditor. The judgment emphasizes the strict interpretation of financial and operational debt definitions under the IBC.
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