GLOBAL CREDIT CAPITAL LIMITED vs. SACH MARKETING PVT. LTD.
Civil Appeal 1143 of 2022
Facts:
1.Agreement dated1st April 2014 and 1st April 2015 was executed between the Mount Shivalik Industries Limited (“Corporate Debtor”) and the first respondent. The agreements were in the form of letters addressed by the corporate debtor to the first respondent. By the agreement/letter dated 1st April 2014, the Corporate Debtor appointed the first respondent as a ‘Sales Promoter’ to promote beer manufactured by the corporate debtor at Ranchi (Jharkhand) for twelve months. One of the conditions incorporated by the corporate debtor in the said letter/agreement was that the first respondent should deposit a minimum security of Rs.53,15,000/- with the corporate debtor, which will carry interest @21% per annum.
2.The letter provided that the corporate debtor will pay the interest on Rs.7,85,850/- @21% per annum. Another Agreement dated 1st April 2015 carried same terms. The only difference is that under the second agreement/letter, the corporate debtor was to pay the interest on Rs.32,85,850/- @21% per annum.
3. Section 7 application was filed against the Corporate Debtor which was admitted by the NCLT vide order dated 12th June 2018. Initially, the first respondent filed a claim with the second respondent as an operational creditor. The claim was withdrawn, and on 19th September 2018, the first respondent filed a claim with the second respondent as a financial creditor. By a communication dated 7th October 2018, the second respondent informed the first respondent that the first respondent’s claim was accepted partly as an operational debt and partly as a financial debt.
4. After the first respondent submitted Form-B, the second respondent rejected the claim on the ground that the first respondent could not be considered a financial creditor. Therefore, an application was moved before the NCLT under sub-section (5) of Section 60 of the IBC by the first respondent seeking a direction to the second respondent to admit the first respondent’s claim as a financial creditor.
5. During the pendency of the said application before the NCLT, the Committee of Creditors approved a resolution plan submitted by M/s. Kals Distilleries Pvt. Ltd. The second respondent applied to the NCLT to approve the resolution plan based on the approval. On 18th January 2021, the NCLT rejected the application made by the first respondent. Appeal was filed against the order before NCLAT which allowed the appeal and held that the first respondent was a financial creditor and not an operational creditor.
6. Appeal is filed against the above order of NCLAT.
Issue: Whether the respondent is a financial creditor ?
Arguments:
Appellant:
1. Counsel submitted that first respondent is an operational creditor going by the Agreement Dated 1st April 2014 and 1st April 2015 as agreements indicate that the corporate debtor appointed the first respondent to render services to promote the beer manufactured by the corporate debtor. He submitted that both the agreements provided for paying a minimum security deposit by the first respondent as a condition for being appointed as Sales Promoter of the corporate debtor. He submitted that there was no intention on the part of the corporate debtor to avail any financial facility from the first respondent.
2. Counsel submitted that the payment of the security deposit by the first respondent is a condition precedent for being appointed as a Sales Promoter of the corporate debtor. The intent of the agreements is to appoint the first respondent as the Sales Promoter and not to avail any financial facilities from the first respondent. The amount paid by the first respondent does not constitute financial facilities extended to the corporate debtor.
Respondent:
1. Counsel submitted that the true nature of the agreements will have to be examined for deciding the nature of the debt. He submitted that the three criteria, namely, disbursal, time value of money and commercial effect of borrowing, are satisfied in the case of the present transaction.
2. He submitted that it was very clear from the terms of the agreement that the money was repayable after a fixed tenure without a deduction or provision for forfeiture. An interest @21% per annum was the consideration for the time value of money.
Decision: Supreme Court upheld the order of NCLAT and held that respondent is a Financial Creditor.
Rationale:
1. Supreme Court noted that Where one party owes a debt to another and when the creditor is claiming under a written agreement/arrangement providing for rendering ‘service’, the debt is an operational debt only if the claim subject matter of the debt has some connection or co-relation with the ‘service’ subject matter of the transaction.
2. Hon’ble SC held that Since the security deposit payment had no correlation with any other clause under the agreements, as held by the NCLAT, the security deposit amounts represent debts covered by subsection (11) of Section 3 of the IBC.
3. It held that in the case of a contract of service, there must be a correlation between the service as agreed to be provided under the agreement and the claim. The reason is that the definition uses the phraseology “a claim in respect of the provision of goods or services”.
4. It noted that there cannot be a debt within the meaning of subsection (11) of section 5 of the IB Code unless there is a claim within the meaning of sub-section (6) of section 5 of thereof;. The test to determine whether a debt is a financial debt within the meaning of sub-section (8) of section 5 is the existence of a debt along with interest, if any, which is disbursed against the consideration for the time value of money. The cases covered by categories (a) to (i) of sub-section (8) must satisfy the said test laid down by the earlier part of sub-section (8) of section 5;.
Order:
