Characterisation of director funding as financial debt requires full scrutiny of the transaction's true nature and supporting records.

An advance made by a director to a corporate debtor was reflected in the company's books as long-term borrowings, and correspondence suggested funds were infused by promoters and directors for working capital in proportion to shareholding. However, other material, including references to a share purchase arrangement and a gift deed relating to recovery of the amount, left the true character of the transaction unclear. On that basis, the existing record was insufficient to conclusively determine whether the amount constituted financial debt under the Insolvency and Bankruptcy Code, and the matter required remand for a fuller merits-based examination of the transaction's nature.

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Issues: Whether the amount advanced by a director to the corporate debtor, reflected in the books as long-term borrowings and supported by the parties' correspondence, could be treated as a financial debt under the Insolvency and Bankruptcy Code, and whether the matter required remand for a fuller examination of the real nature of the transaction.

Analysis: The books of account of the corporate debtor showed the appellant's advance under long-term borrowings, and the reply sent by the respondent also indicated that funds were infused for the company's working capital by promoters and directors in proportion to shareholding. At the same time, the record contained material suggesting that the true character of the transaction was not fully clear, including references to a share purchase arrangement and a gift deed concerning the recovery of the amount. The existing material therefore raised a substantial question about the nature of the debt that could not be conclusively resolved without a fuller inquiry by the adjudicating authority.

Conclusion: The appeal succeeded to the extent that the matter required remand for decision on merits after proper examination of the nature of the transaction.

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