Direct Payment by Financiers to Suppliers Without Disbursement of Funds to CD Couldn’t Be Termed as Financial Debt

Case Details: Mudraksh Investfin Pvt. Ltd. Vs Brijesh Singh Bhaduriya - [2024] 159 taxmann.com 89 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Ashok Bhushan, Chairperson & Arun Baroka, Technical Member
  • Ms Varsha Banerjee, Adv. for the Appellant.
  • Abhishek Anand, Adv. for the Respondent.
  • Brijesh Singh Bhadauriya, Adv. for the Respondent.

Facts of the Case

In the instant case, the corporate debtor had purchased certain goods from one of its suppliers, BC Power. Since the corporate debtor did not have sufficient liquidity, the corporate debtor availed factoring services granted by financiers i.e., SBI and DBS bank, under Factoring Regulation Act, 2011.

They entered into entered into a Master Buyer Agreement dated with one Mynd Solutions Pvt. Ltd for availing facilities called M1 for discounting and re-discounting of trade receivables/invoices of suppliers from Buyer through financiers.

Meanwhile, financial debt owed by corporate debtor to financiers was assigned to the appellant. Thereafter, on an application filed by the operational creditor was admitted and, CIRP was commenced against the corporate debtor. The appellant submitted its claim in Form-C.

The Resolution Professional (RP) sought further documents from the appellant and categorized the appellant as an operational creditor.

The NCLT rejected said application on grounds that transactions between the corporate debtor and supplier were for the purchase of goods in the normal course of business of the corporate debtor and therefore was an operational debt within the meaning of section 5(21) of the Insolvency and Bankruptcy Code, 2016.

It was noted that no disbursement was made to the corporate debtor, hence, transactions could not be held to be a financial debt.

NCLAT Held

The NCLAT observed that since the transaction was that of discounting of invoices by Financiers and Financiers had made payment to Suppliers, no disbursement was made to the Corporate Debtor, hence, transactions could not be held to be a financial debt under the Insolvency and Bankruptcy Code, 2016.

List of Cases Reviewed

• • Standard Chartered Bank Singapore Ltd. v. RCI Industries and Technologies Ltd. [2024] 159 taxmann.com (NCLT – New Delhi)(Para 21) Affirmed See Annex.