Financial debt under the Insolvency Code requires borrowing attributes; project-linked investment advances cannot sustain a Section 7 petition.

Money advanced under a term sheet for clearing title to land and facilitating a proposed joint development was not financial debt under the Insolvency and Bankruptcy Code, 2016 because the record did not show a loan transaction or treatment of the amount as borrowing in financial statements. The arrangement was characterised as an investment linked to the development project, lacking the essential attributes of debt. As a result, a petition under Section 7 was not maintainable and the dismissal of the insolvency application was upheld.

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Issues: Whether the amount advanced under the term sheet constituted a financial debt under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 so as to sustain a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The money was found to have been advanced for the purpose of clearing title over the land and for a proposed joint development arrangement under which the parties were to share the land in agreed proportions. The record did not show that the amount was advanced as a loan, and no material was produced to establish that it was treated as loan in the financial statements. The arrangement was therefore held to be in the nature of an investment linked to development of the project, not a borrowing carrying the character of financial debt.

Conclusion: The amount did not constitute financial debt and the Section 7 application was not maintainable. The dismissal of the insolvency application was upheld, and the appeal failed.

Ratio Decidendi: Money advanced for a joint development or investment arrangement, without the essential attributes of borrowing, does not amount to financial debt under the Insolvency and Bankruptcy Code, 2016 and cannot support a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016.

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