NCLT: Financiers by Virtue of Discounting of Invoices of the Corporate Debtor become Operational Creditors
The National Company Law Tribunal (NCLT), Bengaluru by its division member bench of T. Krishnavalli (Judicial Member) and Shri Manoj Kumar Dubey (Technical Member), while adjudicating an application under Section 7 of Insolvency and Bankruptcy Code, 2016 (IBC, 2016) observed that by virtue of discounting of invoices of the Corporate Debtor would make the Financiers step into the shoes of the Corporate Debtor and make them Operational Debtors rather than Financial Creditors.
In the present case, the Corporate Debtor/Respondent- BNH Infra Projects (India) Private Limited approached KredX, a platform for online bill discounting seeking to enter into an invoice discounting arrangement with respect to invoices raised by the Corporate Debtor against Tata Projects Limited.
Further, a Tripartite Agreement/Bank Confirmation Agreement dated 2 March, 2019 was executed by and Respondent, Tata Projects Limited and KredX. The Respondent had listed Invoice dated 7 June, 2019 for Rs. 1,42,76,603.04 and Invoice Royalty dated 10 June, 2019 for Rs. 48,44,925, both raised by the Respondent on the Customer, on KredX’s platform for the purpose of discounting the Invoices. Thereafter, the 67 (sixty-seven) financiers including the Petitioners evinced their interest in discounting the Invoices.
Further, separate Agreement of Transfer of Rights (ATRs) were executed between the Financiers, the Respondent and KredX. It was submitted that KredX had executed the agreements in the capacity of an administrator/ facilitator. The Petitioners (“Financial Creditors”) disbursed Rs. 88,59,356 during June 2019 to the Corporate Debtor towards the invoices. The Financial Creditors were entitled to receive Rs. 91,72,726 from Tata Projects Limited as per the Agreements; however, Tata Projects Limited failed to pay the outstanding amount due under the invoices.
Thus, there was a material breach of the Agreements and the liability of restitution to the Petitioners fell upon the Corporate Debtor. Even the Corporate Debtor despite several reminders failed to pay the outstanding amount under the invoices.
The Corporate Debtor claimed that the amount claimed as due was actually fully paid; and nothing was outstanding. It is submitted that KredX never forwarded the payments it had received to the Financial Creditors who had initiated these proceedings at the behest of KredX.
Further it was contended that the amount claimed does not fall within the ambit of Financial Debt. The invoices were raised by the Corporate Debtor towards the works executed for Tata Projects Limited. The invoices that were uploaded on KredX portal were raised towards an Operational Debt which was owed towards the Corporate Debtor. This Operational Debt was transferred to the Petitioners when they paid for the invoices on the web portal.
The NCLT observed that upon discounting of the invoices, the amount of the Petitioners was deposited in escrow accounts maintained by KredX and this amount was disbursed to the Corporate Debtor in lieu of transfer of the right to receive the amount under the invoices in favor of the Petitioners.
It noted that at no point of time the amount in question was disbursed to the Corporate Debtor as a loan to pay of the debts of the Seller rather the petitioners took the invoices of the seller at a discounted price and had stepped into shoes of the respondent who was an operational creditor.
In this regard, the bench referred the decision passed by the National Company Law Appellate Tribunal (NCLAT), in case of Minions Ventures Pvt. Ltd vs. TDT Copper Ltd, (2022) wherein it was held that by discounting the invoices of the seller, the Financiers enter into the shoes of the seller to become Operational Creditors.
Accordingly, the bench dismissed the petition filed under Section 7 of the IBC, 2016.