NCLAT: TReDS Invoice Discounting Does Not Create Financial Debt; Canbank Factors Held Operational Creditor

NCLAT: TReDS Invoice Discounting Does Not Create Financial Debt; Canbank Factors Held Operational Creditor

Introduction

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, in Canbank Factors Ltd. v. Brijesh Singh Bhaduria & Ors., (2026) ibclaw.in 73 NCLAT, dismissed an appeal challenging the rejection of the appellant’s claim as a financial creditor in the CIRP of RCI Industries and Technologies Ltd. The Tribunal held that receivables acquired through invoice discounting and factoring on the TReDS platform retain their character as operational debt and do not become financial debt merely because they are assigned to a financer.

Factual Background

The appellant, Canbank Factors Ltd., an RBI-registered NBFC engaged in factoring business, participated as a financer on the M1 (TReDS) platform operated by Mynd Solutions Pvt. Ltd. The corporate debtor, RCI Industries and Technologies Ltd., had entered into a Master Buyer Agreement with Mynd Solutions to enable discounting of trade receivables. Under this arrangement, suppliers uploaded invoices for goods supplied to the corporate debtor, and the appellant discounted eight such invoices by paying the suppliers upfront. Upon assignment of receivables, the corporate debtor became liable to repay the appellant the invoice amounts on due dates. However, the corporate debtor failed to make payment, leading to default. Thereafter, CIRP was initiated against the corporate debtor on an application filed by another creditor, and the appellant submitted its claim of ₹6.35 crore in Form C asserting status as a financial creditor.

Procedural Background

The Resolution Professional rejected the appellant’s claim as a financial creditor and advised it to submit the claim in Form B as an operational creditor, since the underlying debt arose from supply of goods. Instead of refiling its claim in the operational category, the appellant filed an application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 before the NCLT seeking recognition as a financial creditor. The NCLT dismissed the application, relying on its earlier decision in Mudraksh Investfin Pvt. Ltd., which had been upheld by the NCLAT and had held that invoice discounting transactions on TReDS give rise to operational debt. Aggrieved by the dismissal, the appellant filed the present appeal under Section 61 of the Code before the NCLAT.

Issues

1. Whether receivables acquired through TReDS invoice discounting constitute “financial debt” under Section 5(8) of the IBC?

2. Whether the appellant was entitled to be treated as a financial creditor despite the RP’s classification of the claim as operational debt?

3. Whether reclassification of the claim was permissible after approval of the resolution plan by the Committee of Creditors (CoC)?

Contentions of the Parties

The appellant contended that it is a financial institution engaged in factoring and therefore qualifies as a financial creditor under Section 5(8) of the Code. It argued that the form in which a claim is submitted is directory and not mandatory, placing reliance on the Supreme Court’s judgment in Greater Noida Industrial Development Authority v. Prabhjit Singh Soni (2024) 6 SCC 767. According to the appellant, once a claim is submitted with supporting proof, the Resolution Professional is duty-bound to verify and admit it in the correct category, irrespective of the form used. It further submitted that the NCLT erred in rejecting its claim solely on classification grounds and that its status should be determined based on substance rather than procedural technicalities.

On the other hand, the Resolution Professional and the Successful Resolution Applicant contended that the underlying transaction arose from supply of goods in the ordinary course of business and therefore squarely fell within the definition of operational debt under Section 5(21). They emphasized that no funds were disbursed to the corporate debtor; instead, the appellant paid the suppliers and merely stepped into their shoes through assignment of receivables. They argued that there was no element of “time value of money,” which is essential for classification as financial debt under Section 5(8). It was further submitted that the issue was already settled by the NCLAT in Mudraksh Investfin Pvt. Ltd., and that the resolution plan had already been approved by the CoC with 98.05% voting share. Entertaining reclassification at this stage would disrupt the time-bound resolution process mandated under the Code.

Reasoning and Analysis

The bench of Mr. Justice N. Seshasayee (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Indevar Pandey (Technical Member) examined the substance of the transaction and reiterated that classification of debt depends on its intrinsic nature and not on the identity or status of the claimant. The Tribunal observed that the debt originated from trade payables arising out of supply of goods in the ordinary course of business, and that the appellant had merely purchased receivables from suppliers without disbursing any loan or financial assistance directly to the corporate debtor. It held that Section 5(8) of the Code requires disbursement against consideration for the time value of money, an element absent in the present case.

The Tribunal reaffirmed its earlier ruling in Mudraksh Investfin Pvt. Ltd., holding that participation in TReDS invoice discounting does not alter the operational character of the debt.

While acknowledging the Supreme Court’s observation that claim forms are directory, the Bench clarified that this principle does not permit recharacterization of a debt contrary to statutory definitions. The Tribunal further noted that since the resolution plan had already been approved by the CoC and was pending approval under Section 30, reclassification at such a belated stage would undermine the time-bound framework of the IBC and prejudice other stakeholders.

Decision

The NCLAT held that the receivables acquired through TReDS factoring constitute operational debt under Section 5(21) of the Code and that the appellant cannot be treated as a financial creditor under Section 5(8). Finding no infirmity in the NCLT’s order, the Tribunal dismissed the appeal and affirmed the impugned order.

In this case the appellant was represented by Ms. Radhika Gupta and Mr. Saket Verma, Advocates. Meanwhile the respondent was represented by Mr. Abhishek Anand, Mr. Karan Kohli, Ms. Palak Kalra, Mr. Rajat Gupta and Mr. Swapnil Gupta, Advocates.