Sale consideration cannot become financial debt merely because it is payable in instalments with interest and security.

A sale of assets for a fixed consideration was not treated as a loan merely because the unpaid balance was payable in instalments with interest and security. The contemporaneous documents controlled the character of the transaction, and later pleadings could not convert a sale into borrowing. As no money was disbursed against the consideration for the time value of money, no financial debt arose under the Insolvency and Bankruptcy Code. On that basis, a section 7 application by a financial creditor was not maintainable against the corporate debtor, and the admission order was set aside.

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Issues: (i) Whether the transaction dated 27.11.1990 was a sale transaction or a loan transaction giving rise to a financial debt under the Insolvency and Bankruptcy Code, 2016; (ii) Whether the section 7 application was maintainable against the corporate debtor on the basis of the said transaction.

Issue (i): Whether the transaction dated 27.11.1990 was a sale transaction or a loan transaction giving rise to a financial debt under the Insolvency and Bankruptcy Code, 2016.

Analysis: The contemporaneous documents, namely the letter of acceptance, the agreement for sale, and the deed of guarantee, showed that the financial institutions sold the assets of the defaulting company to the purchaser for a fixed consideration. The balance amount represented unpaid purchase price payable in instalments with interest and security, but no money was disbursed to the corporate debtor as a loan. The Court held that the true nature of the transaction had to be gathered from the documents themselves, and that later statements or pleadings could not alter that character. A mere obligation to pay the balance sale consideration, even with instalments and interest, did not by itself convert the transaction into a borrowing.

Conclusion: The transaction was held to be a sale and purchase arrangement, not a loan transaction, and therefore it did not create a financial debt.

Issue (ii): Whether the section 7 application was maintainable against the corporate debtor on the basis of the said transaction.

Analysis: Since section 7 can be invoked only by a financial creditor in respect of a financial debt and default, the absence of a financial debt was fatal to the application. The Court also held that the finding of the adjudicating authority that money had been disbursed to the corporate debtor was unsustainable, because the payment obligations arose only from the purchase of assets and not from any financing arrangement. The precedents relied upon by the respondent were distinguished on facts.

Conclusion: The section 7 application was not maintainable.

Final Conclusion: The impugned admission order was set aside, the section 7 proceedings were dismissed, and the appellants succeeded in the appeal.

Ratio Decidendi: For a claim to qualify as a financial debt, there must be a disbursement against the consideration for the time value of money; an unpaid balance of sale consideration under a sale of assets does not become financial debt merely because it is payable in instalments with interest and security.

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