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 the debtor, the claim was held to be an operational debt under Section 5(21) rather than a financial debt. The subsequent assignment of trade receivables to the claimant did not alter the debt's fundamental nature, so the Adjudicating Authority correctly rejected the Form C claim as inapposite. The impugned order was affirmed and the appeal dismissed, confirming that creditors cannot be reclassified as financial creditors where the underlying transaction lacks financing to the corporate debtor.

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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.

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