TaxTMI 
TaxTMI 
2025 (12) TMI 236
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....or Eco Gold Nutri & Organics LLP is engaged in the business of the Soyabean, its factory being situated in district Indore, Madhya Pradesh. The corporate debtor had engaged in export of its product. ii. The respondent Drip Capital INC is a company registered at United States of America, has been providing export financing. iii. The corporate debtor and financial creditor (hereinafter referred to as 'Factor') entered into Receivable Purchase Factoring Agreement dated 04.04.2019 for availing factoring facilities by corporate debtor from respondent. iv. Receivable under the invoices issued by corporate debtor to different entities were to be purchased by factor and factor was to pay the corporate debtor and receive the payment from debtors. v. On the same day, on which date Receivable Purchase/Factoring Agreement dated 04.04.2019 was entered between the parties. Indemnity agreement was also entered on 04.04.2019. Letter dated 04.04.2019 was issued by the corporate debtor to the Drip Capital "ref. irrevocable undertaking for which recourse factoring of receivable". vi. Another Agreement referred as Collateral Management Agreement was entered....
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....a default of US $ 4,29,104/-. Corporate debtor also filed a claim before the Export Credit Guarantee Corporation of India (ECGC) which rejected the claim of corporate debtor on 26.07.2024. xiv. Reply to Section 7 application was filed by the corporate debtor on 20.01.2025 to which rejoinder was also filed by the financial creditor. xv. Adjudicating Authority by the impugned order 17.06.2025, admitted Section 7 application. Adjudicating authority after hearing the parties framed four issues for consideration which is noticed in paragraph 26 of the impugned order, which are as follows: "26. We have heard Ld. Counsel for the Financial Creditor as well as Ld. Counsel for the Corporate Debtor and perused the material available on record. The following issues arise for determination: - (a) Whether the debt claimed by the Financial Creditor constitutes a Financial Debt under Section 5(8)(e) of the Insolvency and Bankruptcy Code, 2016? (b). Whether a Default has occurred by the Corporate Debtor, entitling the Financial Creditor to initiate the Corporate Insolvency Resolution Process under Section 7 of IB Code? (c). Whether the petition ....
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....t. None of the clauses of remedy event have happened in the present case and clause 7.2 does not applies. The irrevocable undertaking has also recourse term dated 04.04.2019 relied by the financial creditor, do not apply in the facts of the present case. It is submitted that undertaking specifically provided that it would apply to "all purchase receivables of any approved debtor", acceding the respected debtors limit on the date of such purchases by the factor. Submission is that in Schedule 2 there was no debtor limit specified hence, provision of recourse terms are inapplicable. Non-recourse debt is excluded under clause (e) of Section 5(8) of the IBC, hence the application filed by the financial creditor was not maintainable. Undertaking dated 20.06.2023 was executed only to assist the financial creditor in disposing of the asset which were laying with the US Port and Customs Authority. Deed of undertaking was thus executed upon release of bill of landing to provide comfort and ensure realisation against the same. The undertaking 20.06.2023 does not supersede the terms of the Master Agreement, all realisation against bill of landing have already been paid to the respondent. Rely....
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....mitted that adjudicating authority after considering all relevant factors have rightly admitted Section 7 application, which need no interference in the present case. 6. We have heard learned counsel for the parties and perused the records. 7. The only issue which has been canvassed before us in support of the appeal is that Receivable Purchase/Factoring by the respondent of six invoices between 14.02.2023 to 17.03.2023 were on non-recourse basis, hence it was not a financial debt within meaning of Section 5(8)(e) of the IBC and there being no financial debt between the parties Section 7 application could not have been admitted. The issue thus to be considered and answered in this appeal is as to whether the six invoices which was issued by the corporate debtor to M/s. CapRock Grain, which were discounted by the respondent and paid to the corporate debtor whether on recourse basis or non-recourse basis. Definition of financial debt as contained in Section 5(8)(e) is as follows: "5. Definitions.- (8) "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes- (e) rec....
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....any of its representations, warranties or obligations in a Facility Document which relate to that Purchased Receivable; (b) a fraud, illegality or unauthorised act is committed or permitted by the Client, any Affiliate or any director, proprietor, partner, individual, employee, contractor or agent of the Client or its Affiliate; (c) Factor is not paid in full or Factor is required to reimburse any person for moneys received by it from any person as a result of a Commercial Dispute (whether or not subsequently settled) or because of any injunction, stop order or other court order (whether or not subsequently discharged); (d) if any Credit Note is issued after the Purchase Date or any deduction is made by the Debtor in the amount evidenced as payable in the Invoice due to Credit Note issued by the Client which was not informed to Factor in writing; (e) Factor determines that it is or is likely to become unlawful in any jurisdiction for Factor to perform its obligations or enforce its rights." 11. Reliance has been placed by the appellant in clause 7.1 of the Master Agreement. Clause 7 deals with non-payment by debtor. Clauses 7.1, 7.2, 7.3 & 7.4....
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....BUR SEMENT 3. Thereafter, in accordance with the terms of the Master Agreement, the Corporate Debtor issued in favour of Financial Creditor, 'Purchase Request cum Deed of Assignment' dated 24.03.2023, 04.04.2023, 14.04.2023, 19.04.2023, and 02.05.2023 towards assignment of the 6 invoices on full recourse basis. All 6 Invoices were payable by CapRock Grain and the Bill of Lading towards 6 Invoices were deposited with the Financial Creditor. The Financial Creditor paid an aggregate amount of USD 842,520.00 (USD Eight Hundred and Forty Two Thousand Five Hundred and Twenty only) to Corporate Debtor towards assignment of the aforesaid 6 invoices as under- Invoice No. ("Invoices") Date of Payment Amount in USD CapRock Grain EXP/40/22-23 10.04.2023 84,420.00 EXP/44/22-23 17.04.2023 84,420.00 EXP/38/22-23 24.03.2023 168,840.00 EXP/36/22-23 19.04.2023 168,840.00 EXP/37/22-23 04.05.2023 168,000.00 EXP/39/22-23 04.05.2023 168,000.00 Total Amount paid by Financial Creditor 842,520 CapRock Grain is referred to as "Account Debtor" Each Invoice is referred to as "Invoice" ....
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....eful to notice letter dated 04.04.2019, which were irrevocable undertaking for with recourse factoring of receivables which is at page 178: "Date 4 Apr 2019 To Drip Capital Inc 555 Bryant St. #356, Palo Alto, CA 94301, USA Dear Sir Ref irrevocable undertaking for with recourse factoring of Receivables We refer to the Master Receivable Purchase Factoring Agreement executed on 4 Apr 2019 along with the Purchase Facility Letter executed/to be executed from time to time and any amendments, extension, renewals granted thereto from time to time together referred to as "Master Agreement entered into between Drip Capital Inc. USA ("Factor") and Exe Gold Nutri And Organics Up (Client', we us or our'). The capitalized terms used herein but not defined shall have the same meaning as contained in the Master Agreement or Recourse Terms attached hereto. As per the terms of the Master Agreement, the Factor may purchase the Receivables of the Client from various approved Debtors, at its sole discretion, up to the respective Debtor Limit (as amended from time to time), provided that the overall Purchase Limit is maintained. At o....
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....ot be construed 35 novation of this Master Agreement. 1.4 For the limited purpose of Recourse Receivables, the Recourse Terms and the Undertaking shall be read as the constituent part of the Master Agreement concluded between the Factor and the Client and all the terms of the Master Agreement shall be deemed to be incorporate in these Recourse Terms (except Clause 7.1 of the Master Agreement) as if they were always the part of these Recourse Terms. 1.5 For the purpose of these Recourse Terms, in the event of any contradictions between provisions of these Recourse Terms and the Master Agreement, provisions of the Recourse Terms shall prevail, then provisions of the Undertaking, then the provisions of the Master Agreement and then the enacting provisions of regulations governing contractual relationships of the Parties. 1.6 The Parties agree to designate these Recourse Terms and the Undertaking as the Purchase Document. 1.7 These Recourse Terms and the conditions hereunder shall come into force on the signing and execution of the same by the Client and the Factor 1.8 All other Capitalized terms not defined hereunder but defined in the Mast....
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.... Address UK Maximum Funded Rate 80.0% Debtor Limit Maximum Payment Terms 3 days from Discharge Date Document Route via Collateral Management Agent Interest Rate 5.25% p.a. Factoring Commission Fee 0.1% up to 10 days from Discharge Date 0.20% up to 20 days from Discharge Date 0.30% up to 30 days from Discharge Date 0.45% up to 45 days from Discharge Date 0.60% up to 60 days from Discharge Date Charged on the net invoice value Protracted Default 120 days from invoice due date 1. The Parties agree that the Agreement shall, with effect from 4 Apr 2019 ("Effective Date") be read as modified by the terms of this letter. 2. The Client hereby expressly and irrevocably agrees and undertakes with the Factor that all Purchased Receivables of any approved Debtor, exceeding the respective Debtor's Limit on the date of such purchase by the Factor; or the amounts by which the aggregate of the Purchased Receivables of any Debtor exceeds the respective Debtor Limit; or any Purchased Receivables for which a Collateral is provided by the Client; shall be on full recourse basis to the Client. 3. The Parties agree that ex....
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.... any debtor's limit and have left the column of debtor limit blank, the clear intention is that no debtor limit is contemplated and the execution of the factoring with recourse terms and conditions of the same day which has been given overriding effects clearly means that factoring was on recourse basis. If any limit would have been provided then upto that limit it could be said that factoring was on non- recourse basis but when there is no limit provided no transaction is contemplated as non-recourse basis. 22. The sequence of the event and correspondence between the parties at the relevant time clearly indicate that parties were well aware that factoring with regard to 6 invoices were on recourse basis. The undertaking was immediately given when the amount become due and not paid in June 2023. A deed of undertaking was executed by corporate debtor on 20.06.2023, where the corporate debtor clearly undertook to make the payment of six invoices, with advance value as 8,42,520. Deed of undertaking dated 20.06.2023 is part of the record at page 244, which provides as follows: "DEED OF UNDERTAKING THIS DEED OF UNDERTAKING ("Deed") is made as on 20 June 2023 ('E....
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....of Eco Gold 5. Drip Capital agrees that once Drip Capital receives the entire Outstanding Amount along with fees, interests and other charges, the balance amount, if any left will be paid to Eco Gold This Deed shall be governed by the laws of India and the courts of Mumbai will have exclusive jurisdiction, without reference to conflict of laws principles and shall survive in perpetuity Eco Gold undertakes that upon signature by its authorized representative listed below, this Deed shall have been duly executed and be legally binding upon Eco Gold in all respects Any failure to enforce any provision of this Deed shall not constitute a waiver thereof or of any other provision. This Deed may not be amended, nor any obligation waived." 23. The corporate debtor has clearly undertook to make the payment by 30.07.2023. The deed of undertaking by the corporate debtor reinforces our conclusion that corporate debtor was well aware that purchase of receivables and discounting of invoices by respondent was on recourse basis. Had the transaction was on non-recourse basis, there was no occasion for client/corporate debtor to admit its liability to make payment to the respond....
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.... exceeds the respective Debtor Limit; or 3. any Purchased Receivables for which a Collateral is provided by the Client; or 4. such other Purchased Receivables The undertakings and Recourse Terms are in addition to all the terms, conditions, representations and warranties provided under the Master Agreement. We understand that the factor has agreed to purchase our aforesaid Receivables of approved Debtor, inter alia, relying solely on the additional undertaking and Recourse Terms entered into between us and the Factor..." 25. Item No. 1 which mention all purchase receivables of any approve debtor exceeding the respected debtors limit on the date of such purchase by the factor. We have already noticed that no debtor limits were prescribed in Schedule 2 and the said column was blank. Thus, no receivables was non- recourse basis any limit being not provided. Further, we notice that Item No. 3 which mention "any purchase receivable for which a collateral is provided by the client". The present is a case where collaterals were provided by the corporate debtor to the respondent which is handing over bill of landing, which subsequently on request of the corpor....