2024 (1) TMI 304 - AT - Insolvency and Bankruptcy

Nature of transactions entered between the parties - Whether any financial debt was owned to the Appellant in the facts of the present case? - - HELD THAT - In the present case, trade receivables by the Suppliers were discounted by the Financers and liability arose to the Corporate Debtor to pay the Financers as per Agreement and as per transactions carried on M1 Platform - the averments made by the Appellant noticed, 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 - there are no financial transaction between the parties. In the case of M/S. ORATOR MARKETING PVT. LTD. VERSUS M/S. SAMTEX DESINZ PVT. LTD. 2021 (8) TMI 314 - SUPREME COURT , it was held that Section 5 (8) does not expressly exclude an interest free loan. The above judgment of the Hon ble Supreme Court was on entirely different facts, where Lender had advanced a loan without any interest - The present is not a case of financing any loan, rather present is a case of transaction of M1 Platform, on which Platform, both Seller, Buyer and Financers are registered and transaction takes place for sale and purchase of goods and discounting of invoices, payments and recoveries of payment by Financers. The transaction emanates from sale and purchase of goods in the present case. No disbursement was made to the Corporate Debtor, hence, the transactions cannot be held to be a financial debt - there are no error in the order of the Adjudicating Authority agreeing with the view of the RP that claim of the Appellant is only an operational debt . There are no ground to interfere with the impugned order. There is no merit in the Appeal - appeal dismissed.

Summary

Issues Involved:
1. Whether the debt owed to the Appellant qualifies as a 'financial debt' under the Insolvency and Bankruptcy Code, 2016.
2. Whether the Appellant should be recognized as a 'Financial Creditor' or 'Operational Creditor'.

Summary:

Issue 1: Financial Debt Qualification
The primary issue to be determined in this appeal is whether the debt owed to the Appellant qualifies as a 'financial debt' under the Insolvency and Bankruptcy Code, 2016. The Appellant argued that the transactions between the Corporate Debtor and the Financer had a commercial effect of borrowing, thus qualifying as a financial debt within the meaning of Section 5(8)(f) of the Code. The Appellant contended that the reverse factoring services availed by the Corporate Debtor should be recognized as financial debt.

The Respondent, represented by the Resolution Professional (RP), countered that the Corporate Debtor had incurred an operational debt (trade payables) towards the Supplier, which was later assigned to the Financers. The RP maintained that the original liability arose from the purchase of goods, making it an operational debt, and any subsequent assignment of this debt does not alter its nature.

The Tribunal examined the nature of the transactions, noting that the Supplier sold goods to the Corporate Debtor, and the invoices were discounted by the Financers. The Corporate Debtor did not receive any disbursement from the Financers; rather, the Financers paid the Suppliers directly. The Tribunal held that the transactions arose from the sale and purchase of goods, and the discounting of invoices by the Financers did not constitute a financial debt.

Issue 2: Recognition as Financial Creditor or Operational Creditor
The Appellant sought recognition as a Financial Creditor based on the assignment of debts from the original Financers. The RP categorized the Appellant as an Operational Creditor, arguing that the debt originated from operational transactions (purchase of goods).

The Tribunal upheld the RP's categorization, stating that the original transaction was for the sale and purchase of goods, and the subsequent assignment did not change the nature of the debt. The Tribunal referenced Section 5(21) of the Code, which defines 'operational debt' as a claim in respect of the provision of goods or services.

The Tribunal also considered the exclusion clause in Section 5(8)(e) of the Code, which excludes receivables sold or discounted on a non-recourse basis from being classified as financial debt. The Tribunal concluded that the discounting of invoices on the M1 Platform was without recourse, thus falling under the exclusion clause.

Conclusion:
The Tribunal found no merit in the Appellant's claim and upheld the RP's categorization of the debt as operational. The appeal was dismissed, and the Tribunal affirmed that the Appellant is an Operational Creditor, not a Financial Creditor. The Tribunal's decision emphasized that the nature of the original transaction (sale and purchase of goods) determines the classification of the debt, and subsequent assignments do not alter this classification.