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TMI Blog2024 (1) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... y which can be in several forms, other than pure payment of interest. It further emerges that disbursal of fund is required but the definition does not use the expression that disbursal should be made to the Corporate Debtor only. Hence, it can be implied that any disbursal made on behalf of the Corporate Debtor or at the instructions of the Corporate Debtor may also tantamount to disbursal made to the Corporate Debtor - In the present case undisputedly, the Corporate Debtor used to procure raw material from vendors for which payments were made by the Respondent No. 1, at the instructions of the Corporate Debtor and therefore it assume the character of financial debt. The intent between the Promoters Group including the Appellant, the Corporate Debtor and the Respondent No. 1 was clear i.e., to provide the working capital to the Corporate Debtor in various forms including for making payments of raw material on behalf of the Corporate Debtor. Raw material is obviously is to be treated as part of working capital and any financial assistance towards working capital cannot be treated as operational debt and has to be taken only as financial debt. From the various clauses of BSA, SPA an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the Appellant herein approached the Respondent No. 1 with an offer to sale 100% stake in the Corporate Debtor along with the only asset if the Corporate Debtor situated at Narsapura Unit. It is the case of the Appellant that and after discussions, the Respondent No. 1 made a Non-Binding Offer (in short NBO ) dated 15.02.2021 to the Corporate Debtor. 5. The Appellant submitted that there were some failures on the part of the Corporate Debtor and the Corporate Debtor decided to terminate the said NBO. The Appellant brought out that the Respondent No. 1, subsequently started talk with one Sandhar Technology Limited, which later withdrew its offer and therefore the Corporate Debtor and the Promoters including the Appellant herein again approached the Respondent No. 1 expressing their desire to discuss for sale of stake in the Corporate Debtor which was agreed by the Respondent No. 1 through fresh NBO dated 15.04.2021. The Appellant and other Promoters of the Corporate Debtor agreed to transfer the Corporate Debtor along with Narsapura Unit for Rs. 3 Crores against its outstanding dues. 6. The Appellant submitted that in furtherance of the NBO, the Corporate Debtor and its Promoters, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f BSA along with interest @ 18% per annum. 11. The Appellant admitted that they could not reply such notice of the Respondent No. 1 however, on 10th June, 2022 the Corporate Debtor paid Rs. 24 Lakhs and were trying to find to repay the entire money. However, the Respondent No. 1 issued a legal notice on 08.10.23021 for invoking guarantee furnished by the Promoters groups and calling them to pay outstanding dues of Rs. 1,28,94,205/- and finally on 06.12.2021 the Respondent No. 1 filed the application under Section 7 of the code which was admitted by the Adjudicating Authority vide Impugned Order dated 08.07.2022. 12. It is the case of the Appellant that the Impugned Order is illegal as there was no financial debt against the Corporate Debtor and at the best the money owed to the Respondent No. 1 could have been treated as operational debts. 13. The Appellant referred to definition of financial debt under Section 5(8) of the code and stated that since the present case do not fall strictly in the ambit of such definition the same cannot be considered as financial debt. 14. The Appellant conceded that there was a debt but argued that it was more in nature of operational debt rather tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce no disbursement was made by the Respondent No. 1 to the Corporate Debtor. It is the case of the Respondent No. 1 that the Appellant never disputed the execution of the BSA and also not denied that borrowers received the amount from the Respondent No. 1. The Respondent No. 1 stated that default was committed in making repayment to the Respondent No. 1 is undisputed fact. He referred to recital D, Clause 2.4, 2.5 and 3.2 of the BSA dated 17.04.2021 and similarly referred to recital A clause 1.1, Clause 2 and Clause 18.7 of the deed of pledge dated 14.05.2021, in support of his arguments that there was clear financial debt not operational debt. 23. It is the case of the Respondent No. 1 that the debt and the liability of the borrowers is admitted position between parties and once default takes place it is right of the financial creditors to approach the Adjudicating Authority, who after being satisfied himself about default, is obligated to admit the application under Section 7 of the Code. 24. In this connection, the Respondent No. 1 cited judgment of the Hon ble Supreme Court of India i.e., Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, Shailesh Sangani v. Joel Card ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Corporate Debtor refused to sign the cheque to be issued in favour of the Respondent No. 1 towards repayment of the financial debt. 30. Concluding his arguments, the Respondent No. 1 requested this Appellate Tribunal to dismiss the appeal with exemplary costs. Findings 31. From the averments of the parties, it becomes clear that the main issue is regarding the character of the debt given by the Respondent No. 1 to the Corporate Debtor i.e., whether this is a financial debt or a operational debt. On one hand, the Appellant has submitted that no financial debt was given to the Corporate Debtor but only to the suppliers of goods on behalf of the Corporate Debtor and as such it should be treated operational debt and not financial debt. He also referred to various clauses of BSA, SPA and debt of guarantee. On the other hand, on the same issue, regarding character of the debt, the Respondent No. 1 submitted that the Respondent No. 1 was providing working capital required for raw material to the Corporate Debtor and on behalf of the Corporate Debtor and at his instruction the Respondent No. 1 was making payments, as such it was clearly financial debt. 32. The Respondent No. 1 stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and any other monies payable thereon by the Borrower to the Lender, the Pledgors hereby pledge Specified Percentage of Shares of the Borrower, and more particularly described in the Schedule II hereto in favour of the Lender. Clause 18.7 - The liability of Borrower and each of the Pledgor under this deed shall be joint and several. Deed of Guarantee dated 14.05.2021 (Corporate Guarantee and Promoter Guarantee) Secured Obligations shall mean at any time all the amounts payable or obligations to be performed by the Borrower and each Obligor to the Lender (i) the total amount of the principal and interest on the Financial Assistance Clause 2.1 - Notwithstanding anything contained herein, the Lender shall have the sole discretion to make disbursements of the Financial Assistance to the Borrower under or in pursuance of the Financing Document /Business Support Agreement Clause 2.2 - The Borrower shall duly and punctually pay to the Lender, the Secured Obligations in accordance with the Financing Documents and perform and comply with all the other terms, conditions and covenants contained in the Financing Documents. (Emphasis Supplies) 34. We will also like to refer to Section 3(6), 3(8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of money which can be in several forms, other than pure payment of interest. 36. It further emerges that disbursal of fund is required but the definition does not use the expression that disbursal should be made to the Corporate Debtor only. Hence, it can be implied that any disbursal made on behalf of the Corporate Debtor or at the instructions of the Corporate Debtor may also tantamount to disbursal made to the Corporate Debtor. We note that it is the Corporate Debtor who was beneficiary of such disbursal. In the present case undisputedly, the Corporate Debtor used to procure raw material from vendors for which payments were made by the Respondent No. 1, at the instructions of the Corporate Debtor and therefore it assume the character of financial debt. 37. Arguments of the Appellant that disbursals were not made in the accounts of the Corporate Debtor is not of much credence. Further the arguments of the Appellant that at the best such financial assistance by the Respondent No. 1 to the Corporate Debtor should be treated as operational debt because it was regarding supply of the material is also not convincing. The Respondent No. 1 was not supplier of the raw material an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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