AI Drafter 
TaxTMI 
TaxTMI 
2024 (1) TMI 304
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....d re-discounting of the trade receivables/ invoices of the suppliers from the Buyer through the financers. (ii) The Corporate Debtor - M/s RCI Industries and Technologies Limited purchased certain goods from one of its suppliers namely BC Power. The Corporate Debtor did not have sufficient liquidity. The Corporate Debtor availed the factoring services granted by the Financers, under the Factoring Regulation Act, 2011. The Corporate Debtor entered into a Master Buyer Agreement dated 21.12.2018 with one Mynd Solutions Pvt. Ltd. (iii) On default being committed by the Corporate Debtor in making the payment as per the Master Buyer Agreement, SBI Gobal Factors Ltd. filed an Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred toas the "Code") being CP (IB) No.743/ND/2020 against the Corporate Debtor, which Application was dismissed for nonprosecution. (iv) Financial debt owed by the Corporate Debtor to SBI Global Factors Ltd. and DBS Bank was assigned to the Appellant vide Assignment Agreements dated 23.06.2022 and 08.08.2022 respectively. (v) On an Application filed by M/s Standard Chartered Bank Singapore (Li....
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....r had entered into reverse factoring transaction with the Financers, which transaction fall under Section 5(8) (f) of the Code. It is submitted that Section 5(8) (e) of the Code is not applicable in the facts of the present case, since the said clause specifically deals with discounting/ factoring of trade receivables, whereas, in the instant case, the trade payables have been discounted and hence, such a transaction would not fall within the ambit of Section 5(8)(e) of the Code. It is submitted that reverse factoring has a commercial effect of borrowing. The Adjudicating Authority failed to appreciate the true nature of the transaction between the Appellant and the Corporate Debtor and has erroneously categorized the Appellant's debt as 'operational debt'. 5. The learned Counsel for the RP refuting the submission of the learned Counsel for the Appellant submits that in the present case the Corporate Debtor had purchased ferrous and non-ferrous products from B.C. Power Control Ltd. Therefore, the Corporate Debtor incurred an operational debt, i.e. "Trade Payables" of an amount of INR 7,05,91,531.39/- towards the Supplier/ Sellers and got its Sale Invoices discounted through - M1....
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....ous terms, defines 'Factoring Unit' in Clause 1.15 to the following effect : "1.15. "Factoring Unit" refers to an invoice or a bill of exchange or any other products permitted by the RBI from time to time to be discounted on the M1 Website, each of which is uploaded by the Supplier and accepted by the Buyer. Provided, in the case of reverse factoring the factoring unit shall be created by the Buyer;" 9. 'Transaction' is defined in Clause 1.35, which is as follows: "1.35. "Transaction" shall mean all actions carried out between the Supplier, the Buyer, the Buyer's Bank and the Financers on the M1 Website in respect of a Factoring Unit, including but not limited to bidding for the Factoring Unit, discounting of the Factoring Unit, transfer of the Bid amount, assignment of the Trade Receivables of the Factoring Unit and payment of the amount underlying the Factoring Unit on the Due Date and shall also include all the processes for the rediscounting of an already discounted Factoring Unit;" 10. Clause 5.1.5.1 deals with 'Settlement of Payment to the Suppliers', is as follows: "5.1.5.1 Settlement of Payment to the Suppliers: Once the Financier's Bid ....
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....lement of Payment to the Suppliers: Once the Financier's Bid in respect of a Factoring Unit is accepted, payment equivalent to the Debit Amount in respect of such Factoring Unit would be debited from the Financier's Bank account and the Credit Amount would be credited to the Supplier's Bank account. NPCI will pull the Debit Amount from the Financier's Bank account and push the Credit Amount to be credited into the Supplier's Bank account and shall also push the Commission into the Bank account of the Company. The settlement of payment-shall be made on T + 1 day or any other time period which may be approved by the RBI from time to time, with the date of acceptance of the Bid by the Supplier being referred to as "T". Consequently, the Financier will then be entitled to receive the total amount underlying the Factoring Unit in accordance with this Agreement and the Procedural Guidelines, from the Buyer on the Due Date unless the Factoring, Units have been rediscounted by the Financier prior to the Due Date, in which case the ultimate Financier will be entitled to the amount underlying such Factoring Units on the Due Date. For the avoidance of doubt, it is hereby c....
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....d any operational debt to a financial creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such assignment or legal transfer". You would note that even if operational debt is assigned to a financial creditor, the same would still be regarded as operational debt. Accordingly, you are requested to file such a claim as operational debt through Claim "Form-B". Regards Brijesh Singh Bhadauriya Interim Resolution Professional of RCI Industries and Technologies Limited" 13. After rejection of the claim by RP, IA No.1990 of 2023 was filed by the Appellant before the Adjudicating Authority. In the IA No.1990 of 2023, details of transactions entered between the parties has been captured in paragraphs 8 and 9, which are to the following effect: "8. That the Corporate Debtor was one such buyer, who purchased various ferrous and non-ferrous products from one BC Power Controls Ltd. ("Seller"). However, since the Corporate Debtor did not have sufficient liquidity/ funds to make payment against the goods so purchased from the Seller, the Corporate Debtor entered into a Master Buyer Agr....
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....availing the trade receivables discounting and rediscounting services. Hence, the Financers stepped into the shoes of Suppliers of the Appellant. No amount was disbursed to the Corporate Debtor by the Financers and Financers have discounted the invoices under the M1 Platform as per Agreement with Mynd Solutions Pvt. Ltd. The Corporate Debtor has also entered into Master Buyer Agreement with Mynd Solutions Pvt. Ltd. as noticed above. The transaction between the parties arose out of sale and purchase of goods and Financers have paid directly to the Suppliers as per the Agreement with the M1 Platform. The failure of the Corporate Debtor in clearing the debt of the Financers, resulted in filing of claim by the Financers in the CIRP of the Corporate Debtor. The original transaction between the parties were for the sale and purchase of goods. 15. The 'operational debt' is defined in Section 5, sub-section (21), which is to the following effect : "5(21) "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Cent....
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....ancers and liability arose to the Corporate Debtor to pay the Financers as per Agreement and as per transactions carried on M1 Platform. We already noticed the averments made by the Appellant in paragraph-9 of the Application - IA 1990 of 2023, which indicates that invoices were raised by the Suppliers at the behest of the Corporate Debtor were discounted by the Financers, hence, the Corporate Debtor was liable to make payment to the Financers along with interest. The transaction was that of discounting of the invoices by the Financers and the Financers have made payment to the Suppliers. The present is not a case that any disbursement is made to the Corporate Debtor by the Financers. Liability to make payment to Financers arose to the Corporate Debtor as per Master Buyer Agreement 21.12.2018. The Corporate Debtor having failed to honour the commitment, a claim was filed by Assignee of Financer. Nature of transaction between the parties arose out of sale of goods and services. We fail to see any financial transaction between the parties. 18. The learned Counsel for the RP has referred to Section 5, sub-section (8) (e). In the present case Master Financer Agreement between Mynd S....
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....n amount of Rs.3,42,03,903/- for amount of Rs.1,75,23,133/- the Financiers/Appellants entered into shoes of the Seller and had become Operational Creditors in terms of Section 5(20) as well as 21(5) and Section 5(7) and 5(8)(e) of the Code is not at all applicable. 14. Thus, in view thereof, there is no error in the order of the Adjudicating Authority who has though rejected the application filed under Section 7 of the Code but relegated the Appellants (Financiers) to avail their remedy under Section 9 of the Code in accordance with law. Hence, the appeal is hereby dismissed. However, with no order as to costs." 19. Learned Counsel for the Appellant has placed reliance on judgment of Hon'ble Supreme Court (2023) 3 SCC 752 - Orator Marketing Private Limited vs. Samtex Desinz Private Limited. In the Orator's case Original Lender has advanced a Term Loan of 1.60 crores to the Corporate Debtor for a period of two years, which was assigned to Appellant. The loan credit was without any interest/ charge. The facts have been noted in paragraphs 2, 3 and 4 of the judgment, which are as follows: "2. The short question involved in this appeal is, whether a person who give....