Case Note & Summary
The appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 arises from the order of the NCLT, Allahabad Bench dated 06.10.2023 dismissing the Appellant's petition under Section 7 of the Code for initiation of Corporate Insolvency Resolution Process against the Respondent. The Appellant, a sole proprietor, had entered into a Reseller Agreement and subsequent Addenda with the Respondent, a limited liability partnership engaged in retail trade. Under these agreements, the Appellant made capital investments totaling Rs. 1,00,00,000 in return for assured monthly returns ranging from 7% to 12% per month. The Respondent paid some returns initially but defaulted from November 2021 onwards. The Appellant demanded repayment and dissolution, but the Respondent failed to comply despite acknowledgment of liability. The Appellant filed a Section 7 petition claiming a total financial debt of Rs. 2,77,00,000. The NCLT dismissed the petition, holding that the Appellant was not a Financial Creditor and the transaction did not amount to a Financial Debt. The Appellant appealed, arguing that the investment with assured returns constitutes a financial debt under Section 5(8), relying on the precedent of Nikhil Mehta & Sons v. AMR Infrastructure Ltd. and asserting that the NCLT erred in treating the arrangement as a speculative investment or sale of goods. The Appellant also contended that the NCLT violated natural justice by allowing oral submissions for the Respondent without setting aside the ex-parte order. The NCLAT's judgment, as partially reported, sets out the facts and submissions but does not contain the analysis or final decision.
Issue of Consideration
Whether the Appellant qualifies as a 'Financial Creditor' and the transaction constitutes a 'Financial Debt' under Sections 5(7) and 5(8) of the Insolvency and Bankruptcy Code, 2016; and whether the Adjudicating Authority violated principles of natural justice by permitting oral submissions on behalf of the Respondent without setting aside the ex-parte order.
Case Details
2024 LawText (NCLAT) (01) 99
Company Appeal (AT) (Ins) No. 1563 of 2023
Indevar Pandey, Member (T)
Mr. Sushant Singhal, Mr. Ajit Singh Johar, Mr. Manibhadra Jain, Mr. Raj Srivastava, Ms. Suchita Gautam, Mr. Akash Chowdhary, Mr. Divyanshu Saraswat
Rajesh Alfred Sole Proprietor of M/s Anand Enterprises
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Nature of Litigation
Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 against dismissal of Section 7 petition for initiation of Corporate Insolvency Resolution Process.
Remedy Sought
Appellant sought initiation of CIRP against the Respondent for default in repayment of financial debt of Rs. 2,77,00,000.
Filing Reason
The Adjudicating Authority dismissed the Section 7 petition on the ground that the Appellant was not a Financial Creditor and the transaction did not amount to a Financial Debt.
Previous Decisions
The Adjudicating Authority (NCLT, Allahabad Bench) dismissed CP (IB) No. 33/ALD/2023 on 06.10.2023.
Issues
Whether the Appellant qualifies as a 'Financial Creditor' and the transaction constitutes a 'Financial Debt' under Sections 5(7) and 5(8) of the Insolvency and Bankruptcy Code, 2016.
Whether the Adjudicating Authority violated principles of natural justice by permitting oral submissions on behalf of the Respondent without setting aside the ex-parte order.
Submissions/Arguments
The Appellant was not a speculative investor but a financial creditor; the investment was for assured returns, which is time value of money, constituting a financial debt.
The NCLT erroneously treated the transaction as a sale of goods, whereas the agreements only provided for financial returns with no goods involved.
The Respondent repeatedly acknowledged the debt and liability, and default is clearly established by documentary evidence.
The impugned order failed to apply the binding precedent of Nikhil Mehta & Sons v. AMR Infrastructure Ltd., which held that assured returns on capital constitute financial debt.
The NCLT violated natural justice by allowing oral submissions for the Respondent despite being ex-parte and without any application for setting aside the ex-parte order.
Judgment Excerpts
the Adjudicating Authority dismissed the petition on the ground that the Appellant did not qualify as a 'Financial Creditor' and the transaction in question did not amount to a 'Financial Debt' as defined under Section 5(8) of the Code.
the disbursement of Rs.1,00,00,000/- by the Appellant was a capital investment, not an advance or deposit for goods or services.
The Appellant’s status is fundamentally different from that of a speculative homebuyer.
Procedural History
The Appellant filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 on 24.03.2023 before the NCLT, Allahabad Bench. The NCLT issued notice on 08.06.2023. The Respondent failed to appear and was set ex-parte on 22.08.2023. During final arguments on 26.09.2023, the Adjudicating Authority allowed oral submissions on behalf of the Respondent solely on the basis of a vakalatnama filed on the e-portal, without setting aside the ex-parte order. No written reply or affidavit was filed by the Respondent. On 06.10.2023, the NCLT dismissed the petition. The Appellant then filed the present appeal under Section 61 of the IBC before the NCLAT.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: 5(7), 5(8), 7, 3(12), 4, 61
- Limited Liability Partnership Act, 2008:
