2026 (2) TMI 31 - AT - IBC

Characterisation of debt in trade receivable assignments and CIRP claim form compliance - operational debt upheld; appeal dismissed

Characterisation of debt turned on whether invoice discounting involved disbursement to the corporate debtor; because financers did not make payments to ... Characterisation of debt as operational debt vis-à-vis financial debt - Assignment of trade receivables / factoring arrangements - Form of claim under CIRP Regulations (Form B / Form C) and directory/mandatory nature - Finality of Committee of Creditors' approval of resolution plan and inadmissibility of belated/reclassified claims - Time-bound corporate insolvency resolution process and preservation of resolution timelines - HELD THAT:- The present is a case of transaction, wherein, seller, buyer and financers are registered and transaction takes place for sale and purchase of goods and discounting of invoices, payments and recoveries of payment by Financers. In the present case, no disbursement was made to the Corporate Debtor, hence, the transactions cannot be held to be a 'financial debt'. The debt in question is an operational debt coming within the meaning of Section 5(21) of the Code, having arisen from the Corporate Debtor's procurement of goods from its suppliers during the ordinary course of business operations. The mere subsequent assignment of these trade receivables to the Appellant does not change the fundamental nature of the debt from operational to financial. Thus, we find that the Adjudicating Authority has rightly dismissed the Appellant's claim under Form C and correctly held that the nature of the debt in question is operational. There exists no legal or factual basis for treating the Appellant as a Financial Creditor in the present case. The Impugned Order, therefore suffers from no infirmity and is in conformity with the statutory scheme under the Code. We accordingly dismiss the Appeal and confirm the order of the Adjudicating Authority and all the related IAs are disposed of. Issues: Whether the claim of Rs. 6,35,51,472.63 arising from invoice discounting/factoring on the TReDS platform is a financial debt under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 or an operational debt under Section 5(21) of the Code.Analysis: The claim arises from discounting of trade receivables originally payable by the corporate debtor to its suppliers through a TReDS platform, where the financier advanced payment to suppliers and acquired the right to recover from the corporate debtor. There was no disbursement by the financier to the corporate debtor and no element of consideration for the time value of money between the financier and the corporate debtor. The definition of 'Operational Creditor' includes a person to whom an operational debt has been assigned. The CIRP Regulations provide for verification of a claim submitted with proof and treat the form of submission as directory; however, classification of the nature of the debt depends on the substance of the underlying transaction. Relevant provisions of the Code and prior appellate decisions dealing with similar TReDS/factoring transactions establish that mere assignment of operational receivables to a financier does not convert their character into financial debt. The facts of the present case mirror those precedents: invoicing and supply of goods gave rise to operational liabilities, the financier stepped into the suppliers' position for recovery, and no loan or financing to the corporate debtor occurred.Conclusion: The claim is an operational debt under Section 5(21) of the Insolvency and Bankruptcy Code, 2016; it is not a financial debt under Section 5(8). The appeal is dismissed and the adjudicating authority's order holding the claim to be operational is confirmed.