Amount given by Financial Creditor as Investment for Joint Venture to Corporate Debtor is not Financial Debt under IBC: NCLT

The Guwahati Bench of the National Company Law Tribunal ruled that the amount given by financial creditor as investment for joint venture to corporate debtor is not financial debt under the Insolvency and Bankruptcy Code, 2016 (IBC).

The present application was filed by the Financial Creditor- Chiragsala Sales Pvt. Ltd. under section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, to initiate Corporate Insolvency Resolution Process in the matter of Vaishno Devi Traders Private Limited.

The Corporate Debtor herein approached the Financial Creditor for the purpose of obtaining financial loan for the participation in the e-Auction held by Canara Bank for sale of land standing in the name of Prism Alloys Pvt. Ltd. Out of the total sale consideration of the Rs. 6,11,00,000.00 (Rupees Six Crore Eleven Lakh Only) Rs. 3,00,00,000.00 was paid by the Financial Creditor, which was disbursed in 5 tranches.

Out of the aforesaid sum of Rs. 3,00,00,000.00, the Corporate Debtor had repaid to Financial Creditor Rs. 50,00,000.00 on 30.05.2020, balance amount due Rs. 2,50,00,000.00 (Rupees Two Crore Fifty Lakh Only) (Principal) as on 30.10.2022 along with interest @8% till 31.10.2022 i.e., Rs. 60,32,904.00 (Rupees Sixty Lakh Thirty-Two Nine Hundred Four Only).

The petitioner denied the said sum was a loan advanced by the Petitioner Company to the Respondent. The Petitioner has falsely alleged that the amount of Rs. 3,00,00,000.00 (Three Crore Only) was an advance by way of a loan and that the same was repayable on demand along with interest at the rate of 8% per annum.There was no document to show that any loan was given by the Petitioner Company to the Respondent Company. Furthermore, there was no agreement or basis which evidences that the transaction is a Loan Transaction.

A Two-Member Bench of the Tribunal comprising Satya Ranjan Prasad, Member (Technical) and H.V. Subba Rao, Member (Judicial) observed that “Therefore, it is very clear from the plain reading of the above definition of financial debt as well as the business arrangement between the parties under the above MoU that the above amount of Rs. 3 Crore given by the Financial Creditor to the Corporate Debtor by way of an investment and not towards any loan as rightly argued by the Counsel appearing for the Corporate Debtor and the above amount shall not be considered as a financial debt.”

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