2024 (12) TMI 953 - AT - IBC

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

Varun Gupta Versus ISINOX Pvt. Ltd. Through the IRP Mr. Manishkumar R. Patel & Ors.

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 ... Admissibility of Section 7 application under the Insolvency and Bankruptcy Code, 2016 - financial debt or operational debt - whether in the given facts and circumstances the financers / alleged financial creditors can maintain the application under Section 7 of the Code or it is a transaction of an operational debt for which an application under Section 9 is maintainable? - HELD THAT:- It would be suffice to note that a similar controversy has been decided by this Court earlier in the case of Minions Ventures Pvt. Ltd. [2023 (3) TMI 1213 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] in which exactly the same issue was raised and this Court categorically held that the case would not be covered by Section 5(8)(e) rather it shall be covered by Section 5(20) and 21(5) of the Code and hence the application filed under Section 7 is not maintainable. However, at the same time, the financers were not left remediless as they are relegated to avail their remedy to file an appropriate application in accordance with law under Section 9 of the Code. Thus, in view of the law laid down in the case of Minions Ventures Pvt. Ltd., there are merit in the present appeal and hence, the same is hereby allowed and the impugned order is set aside but at the same the Respondents / alleged financers are relegated to their remedy to file an application under Section 9 of the Code, if so adviced, in accordance with law - appeal allowed. 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.