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TMI Blog2020 (1) TMI 1488X X X X Extracts X X X X X X X X Extracts X X X X ..... y Act, 1986 and the 'Rules' framed thereunder. It appears that in England there is no exclusive element of disbursement of debt laced with the consideration for the time value of money. However, forward sale or purchase agreement as contemplated by section - 5(8)(f) may or may not be regarded as a financial transaction. A forward contract to sell product at the end of a specified period is not a financial contract. It is essentially a contract for sale of specified goods. It is true that some time financial transactions seemingly restructured as sale and repurchase. Any repurchase and reverse repo transaction are sometimes used as devices for raising money. In a transaction of this nature an entity may require liquidity against an asset and the financer in return sell it back by way of a forward contract. The difference between the two prices would imply the rate of return to the financer - in the present case, it is not possible to conclude that any loan was advanced with interest. Certainly, there was no element of time value for money. The respondent has made categorical assertion which goes unrebutted establishing that no element of time value for money is attrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he registered office of the respondent corporate-debtor is situated at 2nd Floor, WZ-278, Inderpuri, New Delhi-110012. 3. Facts which are material to the controversy raised may first be noticed. The pleaded case of the Petitioner is that it is an RBI registered Non-Banking Financial Company and is engaged in the business of granting loans and financing facilities. In the month of May, 2016, the Respondent approached the Petitioner for seeking certain unsecured loans. After verifying the financial health of the Respondent, the Petitioner agreed to advance a loan. Thereafter on 17-5-2016, the Petitioner advanced a sum of ₹ 1,15,00,000/- as an unsecured loan to the Respondent on specific terms that the loan would be paid on demand along with interest @ 12% per annum. 4. It was then submitted that despite specific understanding that the interest payment was to be paid on time, the Respondent failed to pay interest over the said loan. 5. The Petitioner, through its counsel, sent a written demand notice dated 6-5-2019 at the registered office address of the Respondent recalling the financial facility and called upon it to refund the monies paid by it along with interest @ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the parties to pay any interest on the amount given to the Corporate Debtor as it was profit sharing basis. 9. Thereafter the Respondent placed on record a balance sheet for the financial year 2016-2017. As per the said balance sheet the principal amount of ₹ 1,15,00,000/- given by the Petitioner is depicted under the heading long-term borrowings and classified as Business Development Loan. It has then placed reliance on a confirmation of accounts from 1-4-2017 to 31-3-2018 showing the aforesaid amount of ₹ 1,15,00,000/- as bed debts. The reason showing the said amount as bed debts is that as the present petition has been filed after more than 3 years i.e. beyond the limitation period as specified in the limitation act and due to said fact the same has been depicted as bad debt. 10. The Petitioner has filed rejoinder to controvert the aforesaid assertion of the respondent-Corporate Debtor. It has been highlighted that there has been an oral contract upon the Corporate Debtor having approached the Petitioner for seeking an unsecured loan, which was granted because of trust. The said loan was not just a business advance, it was a financial loan through proper ..... 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Part, unless the context otherwise requires- 7. financial creditor means any person to whom a financial debt is owed and includes a person to whom such debts has been legally assigned or transferred to; (8) financial debt means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes-- (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pression 'Financial Creditor' would show that it refers to a person to whom a Financial debt is owed and includes even a person to whom such debt has been legally assigned or transferred to. In order to understand the expression financial Creditor', the requirements of expression 'financial debt' have to be satisfied which is defined in section 5(8) of the IBC. The opening words of the definition clause would indicate that a financial debt is a debt along with interest which is disbursed against the consideration for the time value of money and it may include any of the events enumerated in sub-clauses (a) to (i). Therefore, the first essential requirement of financial debt has to be met viz. that the debt is disbursed against the consideration for the time value of money and which may include the events enumerated in various sub-clauses. A Financial Creditor is a person who has right to a financial debt. The key feature of financial transaction as postulated by section 5(8) is its consideration for time value of money. In other words, the legislature has included such financial transactions in the definition of 'Financial debt' which are usually for a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quoted verbatim in preceding para No. 8, the respondent has made categorical assertion which goes unrebutted establishing that no element of time value for money is attracted and it is a simple friendly loan. There is no document on record to prove the element of interest. Therefore, such a transaction would not acquire the status of a 'financial debt' as the transaction does not have consideration for the time value of money, which is a substantive ingredient to be satisfied for fulfilling requirements of the expression 'Financial Debt'. 16. It is also relevant to note that under section 7(3)(c) of the Code, 2016 at the time of filing an application by the Financial Creditor before this Tribunal, along with such application the applicant is required to furnish any other information as may be specified by the IBBI. The Ministry of Corporate Affairs has framed Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 where under the form to be adopted by different categories of creditors have been specified and in relation to a Financial Creditor the form prescribed is form 1. A perusal of clause 5 of part V of form 1 shows that the Financi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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