NCLAT Overrules NCLT: Appeal Succeeds as Transaction Deemed Operational Debt, Not Financial Debt, under IBC 2016.

The NCLAT allowed the appeal, setting aside the NCLT's order that admitted a Section 7 application under the IBC, 2016. The Court determined that the transaction constituted an operational debt, not a financial debt, aligning with precedent. The alleged financial creditors were directed to pursue remedies under Section 9, if necessary, without awarding costs.

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Issues:
1. Admissibility of Section 7 application under the Insolvency and Bankruptcy Code, 2016 based on financial debt vs. operational debt classification.

Analysis:
The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 by the suspended director of a Corporate Debtor against the order passed by the National Company Law Tribunal, Mumbai, admitting a petition under Section 7 of the Code filed by financial creditors. The financial creditors claimed an amount of Rs. 4,37,14,449, out of which Rs. 2,34,17,965 was the principal amount. The dispute arose from the purchase of goods by the Corporate Debtor from a supplier, where the invoices were sold to a fintech company for quick fund recovery. The financial creditors claimed that the amount paid by them constituted a financial debt, while the Corporate Debtor argued it was an operational debt, challenging the maintainability of the application.

The Tribunal observed that the transaction fell under receivables sold or discounted as per Section 5(8)(e) of the Code, making the application under Section 7 maintainable. The Tribunal noted that the application could be maintained by all financial creditors together, as the amount exceeded the threshold provided under Section 4 of the Code. Consequently, the Tribunal admitted the application, appointed an Interim Resolution Professional (IRP), and imposed a moratorium.

During the appeal hearing, the appellant relied on a previous judgment involving similar facts to argue that the application under Section 7 was not maintainable, and the financial creditors should seek remedy under Section 9 of the Code. The Respondent contended that the transaction constituted a financial debt, supporting the impugned order without citing any relevant judgment.

The Court deliberated on the dispute and referred to the earlier judgment in a similar case, where it was held that the application under Section 7 was not maintainable, and the financial creditors were directed to seek remedy under Section 9 of the Code. Following the precedent, the Court allowed the appeal, setting aside the impugned order. The alleged financial creditors were advised to file an application under Section 9 of the Code if deemed necessary, in accordance with the law. No costs were awarded in the matter.

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