Global Credit Capital Limited and Ors. Vs. Sach Marketing Pvt. Ltd. and Ors. (Neutral Citation: 2024 INSC 340) - (Supreme Court) (25 Apr 2024)

Amounts covered by security deposits under the agreements constitute financial debt

MANU/SC/0348/2024

Insolvency

Present appeals take exception to judgments and orders passed by the National Company Law Appellate Tribunal (NCLAT). The issue involved is whether the first Respondent is a financial creditor within the meaning of Sub-section (7) of Section 5 of the Insolvency and Bankruptcy Code, 2016 (IBC).

Present Court have no hesitation in concurring with the NCLAT's view that, the amounts covered by security deposits under the agreements constitute financial debt. As it is a financial debt owed by the first Respondent, Sub-section (7) of Section 5 of the IBC makes the first Respondent a financial creditor.

There cannot be a debt within the meaning of Sub-section (11) of Section 5 of the IB Code unless there is a claim within the meaning of Sub-section (6) of Section 5 of thereof. The test to determine whether a debt is a financial debt within the meaning of Sub-section (8) of Section 5 is the existence of a debt along with interest, if any, which is disbursed against the consideration for the time value of money. The cases covered by categories (a) to (i) of Sub-section (8) must satisfy the said test laid down by the earlier part of Sub-section (8) of Section 5.

While deciding the issue of whether a debt is a financial debt or an operational debt arising out of a transaction covered by an agreement or arrangement in writing, it is necessary to ascertain the real nature of the transaction reflected in the writing. Where one party owes a debt to another and when the creditor is claiming under a written agreement/ arrangement providing for rendering 'service', the debt is an operational debt only if the claim subject matter of the debt has some connection or co- relation with the 'service' subject matter of the transaction.

The view taken by the NCLAT under the impugned judgments and orders is correct and will have to be upheld. Therefore, present Court confirms the impugned judgments. The Resolution Professional shall continue with the CIRP process in accordance with the impugned judgments. Appeals dismissed.

Tags : FINANCIAL CREDITOR PROVISION APPLICABILITY