Financial assistance given by Adhunik Corporation ltd can be treated as Financial Debt citing Element of Commercial Effect of Borrowing: NCLT [Read Order]

The Kolkata bench of the National Company Law Tribunal (NCLT) has held that financial assistance given by Adhunik Corporation Ltd can be treated as financial debt, citing the element of Commercial Effect of borrowing.

Petition has been taken out for a fresh hearing on remand from NCLAT vide its order dated 19.02.2025. It is further submitted that a total financial debt of INR 42,47,32,067.00 (Rupees Forty Two Crore Forty-seven Lakh Thirtytwo Thousand and Sixty-seven only) is due and payable by Corporate Debtor to the Financial Creditor Adhunik Corporation Limited .

Bank account statements of the SBI account of Corporate Debtor ( CD) clearly shows that only a sum of Rs. 2,95,37,441.38 (Indian Rupees Two Crore Ninety Five Lakh Thirty Seven Thousand Four Hundred and Forty-one and Thirty-eight paisa only) was received by the Financial Creditor towards sales commission in terms of the Agreement dated 23rd June, 2020 as under (Bank Statements of

Financial Creditor.

The Appellate Tribunal clearly observed that “there is sufficient material on record to prove that there was disbursal of funds by the Appellant to the Corporate Debtor in their account. The bank transaction details are placed on pages 248-284 of the Appeal Paper Book ("APB") to substantiate their contention that money was actually disbursed to the Corporate Debtor, which was in dire financial straits, towards working capital to make the Corporate Debtor operational.

It was evident that Financial Debt has crossed the threshold limit prescribed under Section 4 of the 1 & B Code, 2016 and is well above the threshold of INR 1 Crore. Accordingly, the present petition under Section 7 of the I & B Code, 2016 is maintainable and in view of the failure of Corporate Debtor to repay the financial debt, the present petition is liable to be admitted.

It is undisputed that CD was in a poor financial condition and was unable to pay the electricity bills to continue operations and consequently, the plant was closed for 6 months. In view of the poor financial condition of CD, Financial Creditor agreed to extended financial assistance to CD on interim basis. It was duly understood and agreed to between the parties that the said financial debt was to be refunded by the CD to the Financial Creditor on demand .

The Financial Creditor recalled the financial assistance extended to CD and forthwith demanded repayment of the financial debt by its notice dated 11th October 2021. As CD failed to repay the financial debt owed to Financial Creditor in terms of the notice, the date of default in making repayment towards the financial debt is 11th October.

It is urged that the Corporate Debtor, having failed to repay the financial debt, has committed default under the I & B Code, 2016 and consequently is liable to undergo CIRP. It is trite law that non-payment of even a part of debt when it becomes due and payable will amount to default on the part of a Corporate Debtor. In such a case, an order of admission under Section 7 of I & B Code, 2016 must follow.

There is nothing on record to show that the Financial Creditor has got its entire loan satisfied from commission out of sales. The Corporate Debtor has not produced sufficient bank statements to show that the commission earned by the Financial Creditor from sales meets the entire loan disbursed and cost of raw materials supplied by the Financial Creditor. H

It transpired at hearing that NCLAT has already given its finding that “the financial assistance given by the appellant” Adhunik

Corporation Limited, the Financial Creditor in CP(IB)No. 323/KB/2021 “has a clear element of a commercial effect of borrowing and therefore qualifies to be treated as financial debt and the appellant is a Financial Creditor in terms of statutory provisions of IBC”.

Thus, the exercise that had to be undertaken by this Adjudicating Authority is only to determine , whether default has occurred, whether the “debt which was due and payable” has remained unpaid and whether the “financial debt has crossed the threshold limit. The Financial Creditor submitted that there are two components to the debt, one being financial assistance and the other being supply of raw materials. The financial assistance is of Rs. 34 Crores. This Adjudicating Authority in its order dated 11.10.2023 has already held that there is a debt and default but it found that the debt was not a financial debt.

The NCLAT has discarded the finding of this Adjudicating Authority and hold that the debt is a financial debt. The findings of NCLAT on being challenged before the Apex Court, the challenge to the findings met with dismissal and hence have attained a finality. Counsel appearing for the Corporate Debtor submitted that after invoking the arbitration Clause, the Financial Creditor had filed this Section 7 Petition. As already noted, it does not impose a bar in considering a Petition filed under Section 7 of the Code.

The two member bench of Bidisha Banerjee , Member (Judicial) and Siddharth Mishra, Member (Technical) allowed the application bearing Company Petition (IB) No. 323/KB/2021 filed under Section 7 of the I&B Code, and accordingly, we order the initiation of Corporate Insolvency Resolution Process (CIR Process) in respect of the Corporate Debtor.

Further held that there shall be a moratorium under Section 14 of the IBC. The moratorium shall have effect from the date of the Order till the completion of the CIRP or until this Adjudicating Authority approves the resolution plan under sub-section (1) of section 31

of the IBC or passes an order for liquidation of Corporate Debtor under section 33 of the IBC.

The Financial Creditor shall deposit a sum of Rs. 3,00,000/- (Rupees Three Lakh only) with the IRP to meet the expenses arising out of issuing public notice and inviting claims. These expenses are subject to approval by the Committee of Creditors (CoC). In terms of section 7(5)(a) of the Code, Court Officer of this Court is hereby directed to communicate this Order to the Financial Creditor, the Corporate Debtor and the IRP by Speed Post and email immediately, and in any case, not later than two days from the date of this Order.

The Resolution Professional shall conduct CIRP in a time-bound manner as per Regulation 40A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016.

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