Whether Recovery Certificate would be a "financial debt" within the meaning of Clause (8) of Section 5 of the IBC Code?
The Supreme Court considered the relevant sections of the Code when deciding on the issue of financial debt. It observed that "Default" is non-payment of debt by the debtor or the Corporate Debtor, which has become due and payable, as the case may be, a "debt" is a liability or obligation in respect of a claim which is due from any person, and a "claim" means a right to payment, whether such a right is reduced to judgment or not. Taking into consideration the object and purpose of the IBC, the legislature could never have intended to keep a debt, which is crystallized in the form of a decree, outside the ambit of Clause (8) of Section 5 of the IBC. It was thus opined that a liability in respect of a claim arising out of a Recovery Certificate would be a "financial debt" within the ambit of its definition under Clause (8) of Section 5 of the IBC, the holder of such Recovery Certificate would be a financial creditor within the meaning of Clause (7) of Section 5 of the IBC and therefore such a "person" would be a "person" as provided Under Section 6 of the IBC who would be entitled to initiate the CIRP.
WHETHER THE NATURE OF THE TRANSACTION BETWEEN THE PARTIES QUALIFY TO BE TREATED AS A 'FINANCIAL DEBT' AS DEFINED UNDER SECTION 5(8) OF INSOLVENCY AND BANKRUPTSY CODE, 2016?
Supreme Court while hearing appeals challenging the orders of the NCLAT and the NCLT considered the matter in issue and discussed the meaning of financial debt and collusive transactions.
It was held by the apex court that collusive or sham transactions with a corporate debtor will not amount to "financial debt" within the meaning of the Insolvency and Bankruptcy Code 2016(IBC).
Phoenix Arc Private Limited vs. Spade Financial Services Limited and Ors. (01.02.2021 - SC) : MANU/SC/0045/2021
WHETHER STATUTORY DUES OF INCOME TAX, VALUE ADDED TAX ETC. ARE 'OPERATIONAL DEBTS' UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016?
The NCLAT held that statutory dues of income tax, value added tax etc. are 'operational debts' under the Insolvency and Bankruptcy Code 2016. Consequently, it held that Income Tax Department, Sales Tax Department of states etc., who are entitled to such dues, are 'operational creditors'.
Pr. Director General of Income Tax (Admn. and TPS) and Ors. vs. Synergies Dooray Automotive Ltd. and Ors. (20.03.2019 - NCLAT) : MANU/NL/0113/2019
WHETHER MERE RECEIPT OF A LOAN CAN BE TREATED TO BE AN OPERATIONAL/ FINANCIAL OR UNSECURED/SECURED DEBT?
The NCLAT observed that in absence of any record to show that the loan was borrowed by the "Corporate Debtor" for its business, we cannot consider the amount as financial debt by stating that he had already paid back the dues. In case there being a dispute about debt, the question of default does not arise. There is no evidence placed on record to suggest that any financial debt is due to the appellant.
Aditya Enterprises vs. Rajratan Exim Pvt. Ltd. (06.07.2018 - NCLAT) : MANU/NL/0142/2018
Whether the Insolvency and Bankruptcy Code, 2016 can be invoked in respect of an operational debt where an Arbitral Award has been passed against the operational debtor, which has not yet been finally adjudicated upon?
Under this Code, insofar as an operational debt is concerned, all that has to be seen is whether the said debt can be said to be disputed, and we have no doubt in stating that the filing of a Section 34 petition against an Arbitral Award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an Award, continues even after the Award, at least till the final adjudicator process Under Sections 34 & 37 has taken place. We may hasten to add that there may be cases where a Section 34 petition challenging an Arbitral Award may clearly and unequivocally be barred by limitation, in that it can be demonstrated to the Court that the period of 90 days plus the discretionary period of 30 days has clearly expired, after which either no petition Under Section 34 has been filed or a belated petition Under Section 34 has been filed. It is only in such clear cases that the insolvency process may then be put into operation.
K. Kishan vs. Vijay Nirman Company Pvt. Ltd. (14.08.2018 - SC) : MANU/SC/0872/2018
What is an operational debt?
a) It is a claim in respect of provision of goods or services including dues on account of employment or a debt in respect of repayment of dues arising under any law for the time being in force and payable to Centre or State Government or local authority. It is thus clear that debt may arise out of provision of goods or services or dues arising out of employment or dues arising under any law for time being in force and payable to the Centre/State Government.
Vinod Awasthy vs. AMR Infrastructures Ltd. (20.02.2017 - NCLT - Principal Bench) : MANU/NC/0443/2017.
Does interest/assured returns fall within the purview of financial debt?
a) Merely because an assured amount of return has been promised, which is termed as interest under Section 194A of the I.T. Act, for the period till the property is developed and handed over, it would not acquire the status of a financial debt as it is not money loaned to be recovered with interest.
Devesh Singh vs. Mega Soft Infrastructure (P.) Ltd. (08.05.2017 - NCLT - New Delhi) : MANU/NC/0569/2017.
Whether unsecured loan taken without any interest is a 'financial debt' within the meaning of sub-section (8) of Section 5 of the Code?
Financial creditor failed to show that the amount of loan treated to have been given to the Corporate Debtor were disbursed against the consideration for the time value of money. In absence of any such evidence on record to suggest that the amount was disbursed against the consideration for the time value of money and was borrowed by the corporate debtor against the payment of interest, the financial creditor do not come within the meaning of 'financial creditor'.
Vishwa Nath Singh Vs. M/s. Visa Drugs & Pharmaceuticals Pvt. Ltd., NCLAT MANU/NL/0211/2017
Whether the amount invested by flat buyers come within the meaning of 'Financial Debt', as defined in Section 5(8) (f) of the Code?
Corporate Debtor treated the appellants as 'investors' and borrowed the amount pursuant to sale purchase agreement for their 'commercial purpose' treating the amount at par with loan in their return. Thereby, the amount invested by appellants come within the meaning of 'Financial Debtor', as defined in Section 5(8) (f) of the Code, subject to satisfaction as to whether such disbursement against the consideration is for time value of money. Appellants have successfully proved that the money disbursed by them is against the consideration for the time value of money and for all purpose, they come within the meaning of 'Financial Creditor' as defined in Section 5(7) of the Code.
Anil Mahindroo & Anr. Vs. Earth Iconic Infrastructure (P) Ltd., NCLAT MANU/NL/0055/2017