Receivables discounting with recourse qualifies as financial debt under Section 5(8)(e), CIRP initiated against corporate debtor

The NCLT Chennai admitted a Section 7 application for initiating CIRP against a corporate debtor. The tribunal determined that receivables discounting with recourse constituted financial debt under Section 5(8)(e) of IBC. Following SC precedents in Innoventive Industries and Mobilox Innovations, the tribunal held that upon establishing financial debt exceeding Rs. 1 crore and default, admission is mandatory. The corporate debtor's defenses of set-off or counter-claims cannot constitute disputes regarding financial debt. With proven debt and default exceeding Rs. 1 crore, CIRP was initiated and moratorium declared.

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Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Existence of financial debt and default by the Corporate Debtor.
3. Appointment of Interim Resolution Professional (IRP).
4. Imposition of moratorium under Section 14 of the IBC, 2016.

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP)
The Financial Creditors, comprising Ms. Apurva Jain and 10 others, filed an application under Section 7 of the IBC, 2016, seeking to initiate CIRP against the Corporate Debtor, M/s. Adaptio Facility Management Private Limited. The application was based on the claim that the Corporate Debtor defaulted on a financial debt, which was part of a bill discounting arrangement facilitated through an online portal, "KredX," operated by Minions Ventures Pvt. Ltd.

2. Existence of Financial Debt and Default
The Financial Creditors claimed that they advanced a total sum of Rs. 1,08,83,596.95 to the Corporate Debtor under a bill discounting arrangement. The arrangement involved a tripartite Agreement for Transfer of Rights, where the Corporate Debtor raised invoices on an enterprise, and the Creditors provided discounted payments. The enterprise was supposed to pay the full invoice value into an escrow account, but defaulted, leading to the Corporate Debtor's liability to refund the consideration to the Creditors. The cheques issued by the Corporate Debtor for this purpose were dishonored, indicating insolvency. The Financial Creditors provided various documents, including a Bank Confirmation Agreement, Seller Services Agreement, invoices, and a Record of Default by NeSL, to substantiate their claim. The Tribunal found that the receivables sold under a recourse basis constituted a financial debt as per Section 5(8)(e) of the IBC, 2016. The Tribunal also noted that the default amount exceeded Rs. 1 Crore, meeting the threshold for initiating CIRP.

3. Appointment of Interim Resolution Professional (IRP)
The Financial Creditors proposed Ms. Satyadevi Alamuri as the IRP, who had filed her consent and held valid authorization. The Tribunal appointed her as the IRP and directed her to take charge of the Corporate Debtor's management immediately. The IRP was instructed to make a public announcement and call for submissions of claims by creditors as per the regulations.

4. Imposition of Moratorium
Upon admission of the application, a moratorium under Section 14 of the IBC, 2016, was imposed. This moratorium prohibits the institution or continuation of suits, transferring or disposing of assets, and recovery actions against the Corporate Debtor. The Tribunal clarified that essential goods or services to the Corporate Debtor should not be terminated during the moratorium. The moratorium will remain in effect until the completion of the CIRP or until a resolution plan is approved or liquidation is ordered.

In conclusion, the Tribunal admitted the application for CIRP against the Corporate Debtor, appointed an IRP, and imposed a moratorium, marking the initiation of the insolvency resolution process as per the provisions of the IBC, 2016.

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