The Principal Bench of the NCLAT in New Delhi ruled that the sale consideration specified in a sale agreement does not qualify as "financial debt" under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC).
Gujarat State Financial Corporation (GSFC), Gujarat Industrial Investment Corporation (GIIC), Bank of Baroda, and Dena Bank provided term loans totaling Rs. 1.23 crores to M/s Ganpati Pulp and Paper Ltd. (GPPL) in Bavla, Ahmedabad, which resulted in GPPL creating a charge on its immovable assets. Following GPPL's default, GSFC took possession of the assets and issued a sale notice under Section 29 of the State Financial Corporation Act, 1951. Shree Industries Limited (SIL) subsequently proposed Rs. 3.88 crores for the purchase of these assets, formalized in an agreement with GSFC that included a down payment of Rs. 50 lakhs and the remainder payable in 20 quarterly installments.
After SIL was declared a sick industrial company in 1997, GSFC filed a Special Civil Application with the Gujarat High Court for asset recovery, which was dismissed. A one-time settlement (OTS) was later reached between GSFC and SIL, but the guarantors of GPPL contested it through a writ petition, which was also dismissed, leading to the transfer of winding-up proceedings to the NCLT in Ahmedabad.
Bank of Baroda assigned its debt to ASREC (India) Ltd., which prompted SIL to submit an OTS proposal for Rs. 5.50 crores that was not accepted, resulting in ASREC issuing a notice of default. ASREC then filed a Section 7 application with the NCLT, claiming over Rs. 92 crores. SIL contended that the debt was not financial but a sale consideration, having already paid over Rs. 3 crores. The NCLT initially ruled the transaction constituted a financial debt, admitting the insolvency application.
On appeal, the NCLAT focused on whether the transaction dated November 27, 1990, was indeed a financial debt under the IBC. The tribunal highlighted that "financial debt" refers to debts disbursed with the expectation of repayment. After reviewing the relevant documents, including a letter from GSFC and the Deed of Guarantee, the NCLAT determined that the transaction was a sale of assets, not a loan.
The Appellate tribunal concluded that subsequent letters could not redefine the original transaction, ultimately allowing the appeals and overturning the NCLT's order, affirming the transaction's true nature as a sale.
Sandeep Mittal vs. M / s ASREC (India) Ltd. & Ors.
Company Appeal (AT) (Insolvency) No. 37 & 573 of 2024
Opmerkingen