NCLT recognizes US-Based Drip Capital Inc. as Financial Creditor, Initiates CIRP Against Sumarrow Impex LLP [Read Order]

In a recent ruling, the National Company Law Tribunal (NCLT), Ahmedabad Bench, allowed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, initiating the Corporate Insolvency Resolution Process (CIRP) against Sumarrow Impex LLP based on a petition filed by the US-based financial creditor, Drip Capital Inc.

The application was filed by Drip Capital Inc., the financial creditor a USA based company engaged in the business of acquisition of receivables from assignor/ corporate debtor by accepting assignment of such receivables or financing such receivables on recourse basis.

The financial creditor and the Corporate Debtor had entered into Receivables Purchase Agreement dated 13.06.2023 for availing export factory facility from the financial creditor. It is submitted that the upper limit of the facility is that the corporate debtor would be eligible for USD 150,000/- which after mutual discussions was later increased to USD 400,000/- and the maximum credit tenor for each invoice was 120 days from the date of bill of CP(IB) lading.

The application was to recover a defaulted amount of USD 211,346 arising from a Receivables Purchase Agreement dated 13.06.2023. Pursuant to this agreement, the financial creditor had disbursed an aggregate amount of USD 256,932 to the corporate debtor for the purchase of export receivables on a full recourse basis.

Sumarrow Impex LLP contested the petition, raising several objections. They argued that Drip Capital was not a "financial creditor" under the IBC as it lacked RBI approval. The debtor further contended that the agreement, governed by Delaware law, contained an arbitration clause that barred the NCLT's jurisdiction, and that the transaction was operational in nature rather than financial. Other objections included alleged suppression of facts regarding payments received, improper stamping of the agreement, and the pendency of parallel proceedings under the Negotiable Instruments Act.

Drip Capital countered these arguments, asserting that the transaction, being the discounting of receivables on a recourse basis, squarely falls within the definition of "financial debt" under Section 5(8)(e) of the IBC.

The NCLT bench, comprising Mrs. Chitra Hankare (Member, Judicial) and Dr. Velamur G Venkata Chalapathy (Member, Technical), analyzed the contentions. The Tribunal held that the definition of a financial creditor under the IBC includes entities involved in discounting receivables, and the absence of RBI approval does not, per se, affect the maintainability of a Section 7 petition.

It further ruled that the arbitration clause in the agreement does not oust the NCLT's jurisdiction, given the overriding effect of Section 238 of the IBC. The Tribunal found the other objections regarding suppression of facts, stamping, and parallel proceedings to be without merit.

Consequently, the NCLT found the existence of a financial debt and default, admitted the application, and ordered the initiation of CIRP against Sumarrow Impex LLP.

The Tribunal appointed Primus Insolvency Resolution & Valuation Pvt. Ltd. as the InterimResolution Professional (IRP) and declared a moratorium on the corporate debtor's assets. The financial creditor was directed to deposit Rs. 2 lakhs with the IRP to cover initial CIRP costs.

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