TaxTMI 
TaxTMI 
2026 (2) TMI 31
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.... The Appellant prays to set aside the impugned order dated 13.02.2025. 2. The prayer in the I.A. No. 2208/2023 in C.P(IB) No. 2688(ND)/2019 before NCLT was follows: "IA-2208/2023 This application has been filed seeking the following prayers: - a. Declare and set aside the decision of the Resolution Professional whereby the claim of the Applicant as a financial creditor of the Corporate Debtor has been rejected by the Resolution Professional; b. Direct the Resolution Professional to accept the claim of the Applicant as a Financial creditor of the Corporate Debtor to the extent of the amount of debt of Rs. 6,35,51,473/- to the Canbank Factors Facility submitted vide its Form C dated 17.12.2022; and c. pass such other orders and directions that may be deemed appropriate in the interest of justice and the facts and circumstances of the present case." 3. While dismissing the IA, the Adjudicating Authority had returned the following findings: "Mr. Abhishek Anand, Ld. Counsel appearing on behalf of the Respondent- Resolution Professional submitted that the issue involved in this application is covered by the order dated 10.11.202....
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....ication of Standard Chartered Bank Singapore (Ltd.) under Section 9 of the Code, CIR proceedings were initiated against Respondent No. 2 - M/s. RC Industries & Technologies Limited on 25.11.2022. In the CIR proceedings, the Appellant had filed its claim for Rs. 6,35,51,472.63 in Form C alongwith the proof of claim with the RP/R1. Respondent No.1/RP vide email dated 18.12.2022 did not admit the claim of the Appellant as a Financial Creditor and had been advising them to do so in different form as an Operational Creditor and not as a Financial Creditor. 6. Subsequently on April 2023, the Appellant filed an Application under Section 60(5) of the Code before the Adjudicating Authority seeking to set aside the decision of the Respondent No.1 and directing the Respondent No.1 to accept the claim of the Appellant as a Financial Creditor. Vide order dated 13.02.2025 the Adjudicating Authority had dismissed the application. 7. In his Appeal, the Appellant again claims that they are a Financial Creditor of the Respondent No.2 - M/s RCI Industries & Technologies Limited under Section 5(8) of the Code. They contend to have filed its claim before the Resolution Professional on 17.12.2022,....
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....scounting and re- discounting of trade receivables payable by buyers to suppliers, through financiers registered on the platform. The Corporate Debtor entered into a Master Buyer Agreement dated 21.12.2018 with Mynd Solutions Private Limited to participate in the said platform. The Appellant, in its capacity as a financier, also entered into a Master Financer Agreement with Mynd Solutions Private Limited for participation on the M1 platform. In furtherance of the aforesaid agreements, the Corporate Debtor participated in the Trade Receivables E-Discounting/Factoring Facility on the M1 Platform during the months of May and June 2019, in respect of receivables raised by its suppliers. In the course of this process, the Appellant submitted bids for the invoices uploaded by the Corporate Debtor on the M1 Platform. These bids were duly accepted, thereby signifying its commitment to make payment to the Appellant on the respective due dates, in lieu of the payments originally payable to its suppliers for goods supplied to the Corporate Debtor. In this process the Appellant purchased the operational debts of the Corporate Debtor i.e., Buyer and released payments to the suppliers of the Cor....
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....ts character into a financial debt. Accordingly, the Appellant was advised to submit its claim in the capacity of an Operational Creditor, using Form B as prescribed under the CIRP Regulations, 2016. 13. The Appellant issued multiple communications to the Respondent, to treat its claim filed in Form C' should be admitted as a financial debt in the CIRP of the Corporate Debtor, despite the Appellant's clear knowledge that the underlying transactions remained operational in nature. The very basis of the Appellant's claim lies in the discounting of trade receivables owed by the Corporate Debtor to its suppliers for goods received in the ordinary course of business transactions that squarely fall within the ambit of operational debt under the Code. 14. Thereafter, the Appellant filed the Application bearing I.A. No. 2208 of 2023 on 19.04.2023 before the Ld. Adjudicating Authority in the Company Petition against the Corporate Debtor under Section 60(5) of the Code inter alia seeking reliefs as noted by us herein earlier. 15. In the meanwhile, the Respondent had convened the 22nd CoC meeting qua the Corporate Debtor on 05.06.2024, wherein the CoC members approved the....
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....rs. In the present case, no disbursement was made to the Corporate Debtor, hence, the transactions cannot be held to be a 'financial debt". 17. Successful Resolution Applicant has submitted its plan in accordance with the timelines stipulated by the Respondent No. I herein. Time is of the essence under the Code as observed by the Hon'ble Supreme Court in the judgment titled as "Ebix Singapore (P) Ltd. V. Educomp Solutions Limited, (2022) 2 SCC 401". It is further contended that the Hon'ble Supreme Court in the matter of "Mobilox Innovations (P) Ltd. V. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353" observed that the timelines are sacrosanct under the Code as it is in the best interest of all the stakeholders of the process that the resolution or liquidation of the company happens in a time bound manner and is not protracted. 18. SRA further brings to our notice that this Appellate Tribunal in the matter of "Peccon Developers Pvt. Ltd. vs. Bimal Agarwal RP (CA (AT) (Ins) No. 756 of 2021)" has clarified that if the claims filed at belated stage are entertained, it will not only be unfair to the other creditors who could not file their claim with the RP because of the ....
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....sh Kumar Gupta, Civil Appeal No. 9402-940155 of 2018", has held that the only reasonable construction of the Code is the balance to be maintained between timely completion of the CIRP and the Corporate Debtor, otherwise being put into liquidation and if there is a Resolution Applicant who can continue to run the Corporate Debtor as a going concern, every effort must be made to try and see that this is made possible. In facts and circumstances of the case the Respondent No. 1/ Resolution Professional has examined the resolution plan and has certified the resolution plan as being compliant with the provisions of the Code and CIRP Regulations, 2016. 24. Furthermore, despite the Respondent No. 1's/ Resolution Professional's explicit direction to file the claim as an "Operational Creditor" in Form B, as is evident from the contents of the present appeal, the Appellant is deliberately trying to mislead this Appellate Tribunal by filing the frivolous appeal. The Appellant's conduct not only violates the established framework under the Code but also demonstrates an attempt to subvert the orderly resolution mechanism by claiming an elevated creditor status to which it is not ....
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....f an 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." Appraisal 27. We have heard Counsels of both sides and also perused materials placed on record. 28. The main issue for our consideration is whether the claim of Rs. 6,35,51,472.63 by the Appellant is to be considered as a financial debt instead of operational debt in a situation wherein the Appellant had provided factoring services to the Corporate Debtor. 29. Briefly speaking, we note that Appellant, M/s Canbank Factors Limited, is engaged in the business of factoring, which involves the purchase of trade receivables from suppliers. Under such arrangements, the Appellant, acting as the 'Factor', acquires invoices raised by suppliers on their respective buyers and advances payments to such suppliers against those invoices. The Appellant then assumes the responsibility of recovering the corresponding amounts directly from the buyers, thereby providing liquidity to suppliers while undertaking the c....
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....s, and any recovery from the Corporate Debtor was in lieu of its operational dues payable to said suppliers. The debt that arose in the above-mentioned transactions between the Corporate Debtor and the Supplier are for the purchase of goods in the normal course of business of the Corporate Debtor, and therefore according to the definition of the Operational Debt given under Section 5(21) of the Code, the debt is Operational in nature. The relevant portion of Section 5 of the Code is reproduced herein below: "Section 5 - In this Part, unless the context otherwise requires - (20) "Operational Creditor" means a person to whom an Operational Debt is owed and includes any person to whom such debt has been legally assigned or transferred. (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 Central government, any State Government or any local authority." 31. The definition of Operational Creditor includes any person to whom such Operational Debt has been legally assigned or transferred which ....
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.... of the Corporate Debtor ought to be treated as Financial Debt. The Mudraksh Investfin Pvt. Ltd therein had advanced similar arguments as raised in the present case that by virtue of assignment of receivables through TReDS, it stood in the position of a financier to the Corporate Debtor and thus ought to be treated as a Financial Creditor under Section 5(8) of the Code. This Appellate Tribunal, after examining the substance of the transaction, the nature of the disbursal, and the definition of Financial Debt, held categorically that the amounts paid by the NBFC i.e., Mudraksh Investfin Pvt. Ltd. under the invoice discounting/factoring arrangement were in the nature of Operational Debt. This Tribunal had affirmed the order of the Adjudicating Authority and held that the assignment of receivables does not alter the underlying character of the debt, which originally arose from the supply of goods or services. Therefore, the NBFC could only be classified as an Operational Creditor, not a Financial Creditor. Following is the relevant extract of the same: "21. It was held that Section 5(8) does not expressly exclude an interest free loan. The above judgment of the Hon'ble Su....
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....ty Vs. Prabhjit Singh Soni and Anr. (2024) 6 SCC 767, wherein it was ruled that the Form in which a claim is to be submitted is directory and not mandatory and what is important is the claim must be supported by proof. Therefore, if a claim is submitted by an Operational Creditor, claiming itself as a Financial Creditor, it would have to be accorded consideration in the category to which it belongs provided is verifiable. The Appellant relies on the following paragraphs of the above mentioned judgment: ".... 20. The use of the words "a person claiming to be an operational creditor" in the opening part of Regulation 7, and the words "a person claiming to be a financial creditor" in Regulation 8, indicate that the category in which the claim is submitted is based on the own understanding of the claimant. Thus, there could be a situation where the claimant, in good faith, may place itself in a category to which it does not belong. However, what is important is, the claim so submitted must be with proof. As to what could form proof of the debt/ claim is delineated in sub-regulation (2) of Regulations 7 and 8 of the CIRP Regulations, 2016. 21. Once a claim is ....
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.... of being served notice of the meeting of the COC, available under Section 24(3)(c) of the IBC to an operational creditor with aggregate dues of not less than ten percent of the debt and, secondly, in the proposed plan, outlay for the appellant got reduced, being a percentage of the dues payable. In our view, for the reasons above, the resolution plan stood vitiated. However, neither NCLT nor NCLAT addressed itself on the aforesaid aspects which render their orders vulnerable and amenable to judicial review." 38. Appellant's reliance on the above judgment by the Appellant may not be relevant as Greater Noida Industrial Development Authority (supra) was pronounced on 12.02.2024 and by that time RP had already taken a decision to reject the claim. Moreover, that judgment relates to secured Operational Creditor and may not be strictly applicable in the facts of the case. Presuming it is applicable and the claims are treated as Operational Creditor, Resolution Plan provides 0.11% for Operational Creditor which works out to be Rs. 6,500 only. 39. We observe that Resolution Plan has already been approved by the CoC with the requisite majority in its 22nd CoC meeting held on 05.06.2....