NCLT New Delhi Rules, Paying “Advance” Against Property Is A Commercial Transaction, Qualifies As Financial Debt U/S 5(8)(f) IBC
Pranav B Prem
The National Company Law Tribunal, New Delhi Bench-IV, comprising Member (Judicial) Manni Sankariah Shanmuga Sundaram and Member (Technical) Atul Chaturvedi, has admitted an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, filed by Kaliber Associates Pvt. Ltd., initiating the Corporate Insolvency Resolution Process (CIRP) against J.R. Modi Associates Pvt. Ltd. The Tribunal held that an “advance against property” constitutes a financial debt under Section 5(8)(f) of the Code, having the commercial effect of borrowing.
Background of the Case
Kaliber Associates Pvt. Ltd., acting through its liquidator Mr. Mohan Lal Jain, filed the application under Section 7 of the IBC seeking initiation of CIRP against J.R. Modi Associates Pvt. Ltd., citing default in repayment of ₹9.05 crore. Kaliber Associates is undergoing liquidation in terms of an earlier NCLT order dated 02.01.2020, and was granted permission to initiate legal proceedings on behalf of the company. It was contended by the applicant that the ₹9.05 crore was part of a larger disbursement of ₹29.05 crore made to the corporate debtor as short-term advances. Despite multiple demand notices—including those issued on 31.01.2019, 10.05.2019, 18.07.2019, and 20.07.2020—the amount remained unpaid. To support the claim, Kaliber relied upon various documents including its bank statements, the audited financials of both parties, a record of default registered with NeSL, and legal notices served on the corporate debtor.
Contentions of the Corporate Debtor
The respondent, J.R. Modi Associates Pvt. Ltd., opposed the admission of the application and contended that no loan or financial facility was ever availed from Kaliber Associates. The respondent further submitted that there was no loan agreement or related documentation, and that the amount reflected in the books was only an advance against property. The audited balance sheet of the corporate debtor, as on 31.03.2018, recorded the ₹9.05 crore as an “Advance Against Property from Kaliber Associates Pvt. Ltd.” Similarly, Kaliber’s audited financials reflected the same amount as “Short Term Loans and Advances.”
Adjudicating Authority’s Observations
The Tribunal acknowledged that the disbursal of the amount was undisputed and in fact stood admitted in the financial statements of the corporate debtor. Referring to Section 5(8)(f) of the Code, which includes any transaction having the “commercial effect of borrowing” within the scope of financial debt, the Tribunal emphasized that the essential elements of such debt are disbursal and the time value of money.
The Tribunal relied on the ruling in Alliance Broadband Services Pvt. Ltd. V. Manthan Broadband Services Pvt. Ltd. [MANU/NC/7518/2019], where it was held that an advance against property qualifies as financial debt under Section 5(8) of the Code. Additional reliance was placed on the NCLAT’s ruling in Black Soft Tech Pvt. Ltd. v. Quinn Logistics India Ltd [ Company Appeal (AT) (Insolvency) No. 43 of 2017], wherein it was observed that an investment made with a view to deriving commercial benefits satisfied the test of time value of money and therefore constituted financial debt.
The Tribunal also cited the Supreme Court’s judgment in Orator Marketing Pvt. Ltd. v. Samtex Desinz Pvt. Ltd. [Civil Appeal No. 2231 of 2021], which clarified that a financial debt can exist even in the absence of interest, so long as the transaction carries the commercial effect of borrowing.
Verdict
Upon considering the documents and legal precedents, the Tribunal held that the ₹9.05 crore disbursed by Kaliber to J.R. Modi Associates was indeed a financial debt. The Tribunal further observed that the application was filed within the limitation period, as the date of default was recorded as 18.01.2019 and the application was filed on 18.12.2020.
Accordingly, the petition was admitted under Section 7 of the IBC. The CIRP was initiated against J.R. Modi Associates Pvt. Ltd. and Mr. Rajiv Bajaj was appointed as the Interim Resolution Professional (IRP). A moratorium was also declared under Section 14 of the IBC, prohibiting institution or continuation of suits, transfer of assets, and recovery proceedings against the corporate debtor. The Tribunal directed the IRP to carry out the duties mandated under the Code and further instructed the financial creditor to deposit ₹2 lakh with the IRP for expenses. A public announcement regarding initiation of CIRP was also ordered under Section 13(2) of the Code.
Appearance
For Applicant: Mr. Anirban Bhattacharya and Mr. Rajeev Chowdhary, Advocates
For Respondent: Ms. Nishtha v. Mr. Tushar, Advocates
Cause Title: M/s. Kaliber Associates Private Limited (through its Liquidator Mr. Mohan Lal Jain) V. M/s. J.R. Modi Associates Private Limited
Case No: Company Petition No. (IB)-1122(ND)/2020
Coram: Manni Sankariah Shanmuga Sundaram [Member-Judicial], Atul Chaturvedi [Member-Technical]
