In the matter of Fairdeal Supplies Limited

KOLKATA BENCH (COURT NO.-II) KOLKATA 3. BRIEF FACTS OF THE CASE i. M/s. R. Piyarellal Iron & Steel Private Limited availed financial services from MMTC Limited for importing 20,000 MT of LAM Coke from China. M/s. R.Piyarellal Iron & Steel Private Limited (hereinafter referred to as "RIPL") entered into a High Sea Sales Agreement dated 03.06.20081 for the purpose of selling 19,883.720 MT of LAM Coke to the Corporate Debtor along with a Deed of Pledge dated 03.06.20082 as the Corporate Debtor did not possess adequate liquidity of funds to meet its payment obligations. The Corporate Debtor failed to meet its payment obligations in terms of the High Sea Sales Agreement and the Applicant invoked the Arbitration Clause by letter dated 25.03.2011 to claim its dues. ii. The Arbitration Award dated 16.12.20193 was passed by the Arbitral Tribunal in favour of the Applicant. The Award held that the Applicant is entitled to a sum of Rs. 31,67,19,156/-from the Corporate Debtor being the price of goods sold and delivered along with interest on the said sum @12% p.a. from 14.03.2014 till 11.12.2019 and further interest @12% p.a. until payment alongwith costs assessed at Rs. 4 Lakhs plus a sum of INR 4,87,62,851/- towards expenses. iii. The Applicant also filed an Execution Proceedings being E.C. No. 176 of 2021 against the Corporate Debtor, its directors 1 Page No: 51-52 of the Rejoinder 2 Page No: 53-54 of the Rejoinder 3 Annexure- A (Page No: 55-56) I.A. (IB) No.1636/KB/2025 C.P. (IB) No.308/KB/2022

KOLKATA BENCH (COURT NO.-II) KOLKATA and its sister concern namely, M/s. Frontline Corporation Limited. In the meantime, pursuant to an application filed by State Bank of India being C.P. (IB) No. 82/KB/2021 was admitted by this Hon'ble Tribunal and Insolvency Proceedings against M/s. RIPL was initiated vide Order dated 19.01.20244 and appointed the Applicant as the Interim Resolution Professional. iv. CIRP in respect of the Corporate Debtor was initiated by this Hon'ble Tribunal vide Order dated 19.03.20245 wherein the Respondent was appointed as the Interim Resolution Professional. Form A inviting claims from the creditors of the Corporate Debtor was published by the Respondent on 22.03.2024. Last date for submission of claims was 02.04.2024. The CIRP Proceedings initiated against the Corporate Debtor was stayed by the Hon'ble National Company Law Appellate Tribunal, New Delhi pursuant to an appeal filed by the members of the suspended board of directors of the Corporate Debtor in Company Appeal (AT) (Ins) 648 of 2024 with effect from 08.04.20246 and 10.07.20247. v. The Applicant filed its claim on 02.04.20248 for a sum of Rs. 114,79,10,462/- by virtue of the arbitral award dated 16.12.2019 in "Form C". Mean while the stay was vacated by 4 Annexure- F (Page No: 199) 5 Annexure- G (Page No: 234) 6 Annexure- H (Page No: 237-238) 7 Page No: 255 8 Annexure- J (Page No: 296-302) I.A. (IB) No.1636/KB/2025 C.P. (IB) No.308/KB/2022

KOLKATA BENCH (COURT NO.-II) KOLKATA the Hon'ble National Company Law Appellate Tribunal, New Delhi vide Order dated 01.05.20259. Thereafter, the Respondent undertook verification of the claims. vi. The Applicant relying upon the judgements of Hon'ble Supreme Court of India and Hon'ble National Company Law Appellate Tribunal, New Delhi contended that an arbitral award constitutes an acknowledgement of debt and forms the basis of a Financial Debt and requested the Respondent to consider its debt in the category of Financial Debt10. vii. The RP vide email dated 02.05.202511 requested the Applicant to submit a revised claim in Form-B instead of Form-C on the ground that the claim arises out of an arbitral award and such award holder is not covered under the definition of financial creditor under section 5(7) and 5(8) of the IBC. viii. The RP has on non-receipt of any revised claim in Form B has admitted the claim submitted in Form C by the Applicant to its entirety amounting to INR 114,23,40,385.26 as the Operational debt12. Hence, this Application. 4. SUBMISSION ON BEHALF OF THE APPLICANT i. Learned Counsel appearing for the Applicant submitted that the present Application has been preferred challenging the decision of the Resolution Professional communicated through

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KOLKATA BENCH (COURT NO.-II) KOLKATA email dated 19.06.2025 whereby the Applicant's admitted claim amounting to ₹114,23,40,385.26 has been classified as an Operational Debt instead of a Financial Debt. It is contended that the Resolution Professional failed to appreciate that the claim emanates from a Money Arbitral Award dated 16.12.2019, which has attained the status of a deemed decree under Section 36 of the Arbitration and Conciliation Act, 1996. Reliance has been placed upon the judgment of the Hon'ble Supreme Court in Dena Bank v. C. Shivakumar Reddy & Anr., wherein it has been held that an unsatisfied arbitral award for payment of money would fall within the ambit of a financial debt under the Insolvency and Bankruptcy Code, 2016. ii. It is further submitted that, apart from the arbitral award, the underlying transaction itself satisfies the ingredients of a financial debt under Section 5(8)(f) of the Code. According to the Applicant, a conjoint reading of the arbitral award along with the documents and evidence relied upon therein clearly demonstrates that the transaction had the commercial effect of a borrowing and was not a mere transaction for sale and purchase of goods. iii. Learned Counsel submitted that the Corporate Debtor had raised finance through the Applicant for acquisition of approximately 19,883 metric tonnes of Lam Coke imported

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KOLKATA BENCH (COURT NO.-II) KOLKATA through MMTC Limited. Owing to the inability of the Corporate Debtor to make payment for the imported goods, two High Seas Sale Agreements and a Deed of Pledge, all dated 03.06.2008, were executed whereby the Applicant extended an interest-free credit period of 120 days. It is submitted that in the event of default, the Corporate Debtor was liable to bear the interest levied by MMTC Limited, while the imported goods valued at approximately ₹59 crores were hypothecated in favour of the Applicant, who in turn created a hypothecation in favour of MMTC Limited. iv. It is further submitted that since the Corporate Debtor failed to discharge its obligations under the High Seas Sale Agreements, a subsequent tripartite arrangement was entered into amongst the Applicant, the Corporate Debtor and MMTC Limited, whereby the sale proceeds of the imported consignment were agreed to be paid directly to MMTC Limited for release of the hypothecated goods. According to the Applicant, these arrangements establish that the transaction was fundamentally one involving financial accommodation and financing rather than an ordinary commercial sale. v. Learned Counsel contended that the arbitral award records the aforesaid admitted facts and clearly demonstrates that the parties were engaged in discharging the financed liability raised from MMTC Limited together with the applicable

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KOLKATA BENCH (COURT NO.-II) KOLKATA interest. It is, therefore, argued that the transaction squarely falls within the scope of Section 5(8)(f) of the Code as an amount raised under a transaction having the commercial effect of a borrowing. vi. It is further submitted that, apart from the financing relating to the import transaction, the Applicant had also extended an independent financial accommodation of ₹2.60 crores to the Corporate Debtor. Reliance has been placed upon the letter dated 13.10.2009 issued by the Corporate Debtor requesting such financial accommodation, which was secured by five post-dated cheques. It is submitted that the said transaction also finds due recognition in the arbitral award. vii. Learned Counsel further submitted that the Applicant had incurred additional expenditure on behalf of the Corporate Debtor towards wharfage charges, supervision charges, handling charges and other statutory liabilities. According to the Applicant, the Arbitral Tribunal awarded a sum of ₹4,87,62,851/- on account of such financial accommodations and reimbursements, apart from directing payment of the outstanding consideration relating to the imported Lam Coke together with interest. viii. It is submitted that the liability of the Corporate Debtor towards the balance consideration was further acknowledged by the Corporate Debtor through a Balance

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KOLKATA BENCH (COURT NO.-II) KOLKATA Confirmation/Acknowledgment of Accounts dated 05.10.2010, which formed one of the foundations for the passing of the arbitral award. ix. Learned Counsel further submitted that the Corporate Debtor had also issued thirty-five post-dated cheques aggregating to ₹22.10 crores in favour of MMTC Limited, which were subsequently substituted in favour of the Applicant. It is submitted that the hypothecated goods were released by MMTC Limited only upon receipt of payments in accordance with the agreements between the parties, thereby demonstrating the financing structure underlying the transaction. x. On the basis of the aforesaid facts, Learned Counsel submitted that the Applicant had arranged finance, raised funds and provided financial accommodation for and on behalf of the Corporate Debtor for import of Lam Coke and had additionally extended loans and financial assistance to discharge the Corporate Debtor's statutory and commercial liabilities. Accordingly, it is contended that the underlying transaction constitutes a financial debt and not an operational debt. xi. In support of the aforesaid submissions, reliance has also been placed upon the decision of the Hon'ble National Company Law Appellate Tribunal in Syed Najam Ahmed v. National Agricultural Cooperative Marketing Federation of India Ltd.

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KOLKATA BENCH (COURT NO.-II) KOLKATA (NAFED), wherein it has been held that where an arbitral award arises out of a loan transaction, the decree-holder would be entitled to be treated as a Financial Creditor. xii. Reliance has further been placed upon the judgment of the Hon'ble NCLAT in Rakesh Kumar Jain v. ADTV Communications Pvt. Ltd., wherein, following the judgment of the Hon'ble Supreme Court in Dena Bank v. C. Shivakumar Reddy, it was held that a decree-holder is not precluded from being recognised as a Financial Creditor where the underlying transaction satisfies the requirements of a financial debt under the Code. xiii. Learned Counsel further submitted that the audited financial statements of the Corporate Debtor for the financial year 2010-11 disclose unsecured loans aggregating to ₹2,74,11,201/-, which, according to the Applicant, include the financial accommodation of ₹2.60 crores extended by the Applicant together with accrued interest. It is contended that such disclosure constitutes an unequivocal acknowledgment by the Corporate Debtor that the said amount was treated as an unsecured loan in its books of account. xiv. It is further submitted that the audited financial statements of the Corporate Debtor for the financial year 2019-20 also disclose the Applicant's claim as a contingent liability amounting to ₹63,70,72,441.65, comprising the awarded amount

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KOLKATA BENCH (COURT NO.-II) KOLKATA together with accrued interest. According to the Applicant, notwithstanding the note regarding settlement, the disclosure itself constitutes acknowledgment of the subsisting liability. It is also submitted that although the Corporate Debtor reflected its alleged counterclaim in the financial statements, such counterclaim had already been rejected by the Arbitral Tribunal. xv. Learned Counsel lastly submitted that the Applicant has consistently reflected the sum of ₹2.60 crores in its own audited financial statements under the head "Short Term Loans and Advances to Body Corporates", thereby consistently treating the transaction as a loan. It is contended that the accounting treatment adopted by both the Applicant and the Corporate Debtor unequivocally demonstrates that the transaction has throughout been regarded as one of financial accommodation. xvi. On the strength of the aforesaid submissions, Learned Counsel prayed that the Resolution Professional be directed to reclassify the Applicant's admitted claim from an Operational Debt to a Financial Debt and consequently recognise the Applicant as a Financial Creditor with all consequential rights, including voting rights in the Committee of Creditors.

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KOLKATA BENCH (COURT NO.-II) KOLKATA 5. SUBMISSION ON BEHALF OF THE RESPONDENT i. Learned Counsel appearing for the Resolution Professional ("RP") submitted that the claim of the Applicant has been rightly classified as an Operational Debt in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016. It is submitted that Section 5(21) of the Code defines an "Operational Debt" and Regulation 7(2) of the Insolvency Resolution Process for Corporate Persons Regulations, 2016 specifically contemplates that an operational creditor may rely upon an order of a court or tribunal adjudicating upon the non-payment of a debt while submitting its claim before the Resolution Professional. ii. Learned Counsel further submitted that the reliance placed by the Applicant upon the judgment of the Hon'ble Supreme Court in Dena Bank v. C. Shivakumar Reddy is misplaced. According to the Respondent, the said judgment has subsequently been interpreted by the Hon'ble National Company Law Tribunal, Mumbai Bench in HPCL-Mittal Pipelines Limited v. Coastal Marine Construction and Engineering Limited, wherein it has been observed that the underlying transaction in Dena Bank was financial in nature and, therefore, the decree therein constituted a financial debt. It is submitted that where the original transaction is not financial in nature, an I.A. (IB) No.1636/KB/2025 C.P. (IB) No.308/KB/2022

KOLKATA BENCH (COURT NO.-II) KOLKATA application under the Code would not be maintainable merely because an arbitral award or decree has been passed. iii. Learned Counsel also placed reliance upon the judgment of the Hon'ble National Company Law Appellate Tribunal in National Agricultural Cooperative Marketing Federation Limited (NAFED) v. Synergy Products Private Limited, wherein it has been observed that while considering the effect of the decision in Dena Bank, the nature of the underlying transaction is the determinative factor for classifying the debt. iv. It is further submitted that the Resolution Professional is under a statutory obligation to independently verify and classify the claims received during the Corporate Insolvency Resolution Process. In this regard, reliance has been placed upon the judgment of the Hon'ble National Company Law Appellate Tribunal in Umesh Kumar v. Narendra Kumar Sharma, Resolution Professional of Indirapuram Habitat Centre Pvt. Ltd., wherein it has been held that the Resolution Professional is expected to exercise due diligence while verifying claims and cannot mechanically accept the classification suggested by the claimant. v. Learned Counsel submitted that upon verification of the claim and the supporting documents, the entire claim of the Applicant has been admitted by the Resolution Professional. However, considering that the underlying transaction pertains

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KOLKATA BENCH (COURT NO.-II) KOLKATA to the sale of goods under the High Seas Sale Agreements, the claim has rightly been admitted under the category of Operational Debt. It is further submitted that since the Applicant holds more than ten per cent of the operational debt, it has been invited to attend the meetings of the Committee of Creditors in accordance with the provisions of the Code. vi. Learned Counsel further submitted that the statement of claim filed by the Applicant before the learned Arbitral Tribunal itself demonstrates that the principal claim pertained to the unpaid price of goods sold and delivered together with legal expenses, other incidental expenses and interest thereon. It is submitted that the ledger accounts relied upon by the Applicant also record receipts towards security deposit, godown insurance, licence fees, various incidental expenses and payments received against the materials supplied. According to the Respondent, the amount claimed represents the shortfall in the sale consideration of the materials supplied, which ultimately formed the basis of the arbitral award. vii. It is further submitted that the High Seas Sale Agreement dated 03.06.2008 is, in substance, a contract for the sale of Low Ash Metallurgical Coke containing the usual commercial terms relating to payment, delivery and other contractual

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KOLKATA BENCH (COURT NO.-II) KOLKATA obligations. The Respondent submits that the Deed of Pledge executed on the same date merely secured the payment of the sale consideration and facilitated the implementation of the High Seas Sale Agreement by providing a credit period of 120 days for realization of the sale proceeds. According to the Respondent, the execution of the Deed of Pledge did not alter the fundamental nature of the transaction from one of sale of goods to one of financial accommodation or borrowing. viii. Learned Counsel further submitted that the arbitral award itself records that the Applicant was held entitled to recover the outstanding price of the goods sold and delivered together with certain incidental expenses. It is contended that the additional expenses incurred by the Applicant were merely ancillary to and in furtherance of the sale transaction and cannot alter the operational character of the underlying debt. ix. On the basis of the aforesaid submissions, Learned Counsel contended that the underlying transaction between the parties has, from its inception, remained one for the sale and supply of goods and, therefore, the Resolution Professional has rightly classified the Applicant's claim as an Operational Debt. It is accordingly prayed that the present application, being devoid of merit, be dismissed.

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KOLKATA BENCH (COURT NO.-II) KOLKATA 6. ANALYSIS AND FINDINGS i. We have heard the Ld. Counsel appearing for the Applicant and Respondent and pursued the documents on reocrd and rival contentions made by the parties. ii. It is an undisputed fact that the Corporate Debtor was admitted into the CIRP by order dated 19.03.2024, pursuant to which the Resolution Professional issued a public announcement on 22.03.2024 inviting claims from creditors on or before 02.04.2024. In response thereto, the Applicant filed its claim on 02.04.2024 as a Financial Creditor for an amount of Rs. 114,79,10,462/-. However, the Resolution Professional rejected the claim as a financial debt and took the view that the claim was in the nature of an operational debt and admitted claim of Rs. 114,23,40,385.26. Since the Applicant's request for classification of the claim as a financial debt was not accepted, the present application came to be filed before this Adjudicating Authority. iii. Primarily, the question which begs for an answer in this case is as to “Whether the claim amount, in respect of which the present Petition has been filed, is a financial debt or Operational debt”. iv. Before adverting to the issue under consideration, it is considered appropriate to briefly recapitulate the relevant facts and findings recorded by the Arbitral Tribunal in its I.A. (IB) No.1636/KB/2025 C.P. (IB) No.308/KB/2022

KOLKATA BENCH (COURT NO.-II) KOLKATA Award dated 16.12.2019, as the same are material for the proper adjudication of the issues arising in the present proceedings:

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KOLKATA BENCH (COURT NO.-II) KOLKATA v. From the material available on record, it is observed that the Applicant entered into two Associateship Agreement in or about April, 2008 with MMTC Ltd., a Government of India undertaking for importing 20,000 MT of Low Ash Metallurgical (“LAM”) Coke from China. Subsequently, two separate High Seas Sale Agreement dated 02.06.2008 was executed between the Applicant and the MMTC Ltd., to facilitate such import. vi. The records further indicate that on 03.06.2008, the Applicant and the Respondent executed two agreements, namely a High Sea Sale Agreement and a Deed of Pledge. Under the High Sea Sale Agreement, the Applicant agreed to sell 19883.72 MT of the imported LAM Coke to the Respondent. Simultaneously, under the Deed of Pledge, the goods purchased

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KOLKATA BENCH (COURT NO.-II) KOLKATA by the Respondent were pledged in favour of the Applicant, with the stipulation that the pledged goods would be released only upon payment of the equivalent value of the goods released. vii. Further, the records reveal that the Applicant raised demands upon the Respondent seeking payment according to the agreement. Upon failure by the Corporate Debtor to discharge its obligations, the Applicant invoked the arbitration clause contained in the Agreement. The dispute culminated in an arbitral award dated 16.12.2019, whereby the Respondent was directed to pay an amount aggregating to Rs. 36,54,82,007/-to the Applicant. viii. A careful consideration of these arrangements, we observe that the main purpose of the transaction was the import and sale of LAM coke. The Applicant's role was essentially confined to facilitating the import and thereafter selling the imported product to the Respondent. The contractual framework demonstrates a commercial trading arrangement rather than a financial arrangement involving lending or borrowing of money. ix. Particular significance must be attached to the High Sea Sale Agreement dated 03.06.2008, which expressly contemplated the transfer of ownership in the imported Product from the Applicant to the Respondent against payment of a specified

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KOLKATA BENCH (COURT NO.-II) KOLKATA consideration. The inclusion of a trading margin as part of the sale price further reinforces the commercial nature of the transaction and reflects that the parties intended to structure their relationship as one of buyer and seller. x. The nature of the Deed of Pledge executed between the parties indicates that the pledged goods were the very same goods that had been sold by the Applicant to the Respondent under the High Sea Sale Contract. The pledge was therefore intended only to secure payment of the sale consideration and cannot be construed as evidence of a loan transaction, financial accommodation, or disbursal of funds by the Applicant. Rather, it constituted a security arrangement ordinarily adopted in commercial transactions involving the sale of goods. xi. The effect of the arbitral award dated 16.12.2019 also requires consideration. The award merely crystallized the liability arising from the Respondent's failure to discharge its contractual obligations under the transaction. It did not create a fresh or independent financial relationship between the parties. Consequently, the nature of the debt continued to be governed by the underlying transaction from which the liability originated. Relevant extract of the arward is reproduced herein below:

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KOLKATA BENCH (COURT NO.-II) KOLKATA “In the Facts and circumstances, the claimant is entitled to Rs. 31,67,19,156/- for price and of goods sold and delivered and remaining outstanding. The claimant is also entitled to sum of Rs. 4,87,62,851/-for various sums paid by the claimant on behalf of the respondent towards expenses. Thus the aggregate sum is Rs. 36,54,82,007/-.” xii. At no point in time the applicant has given any loan or made any financial accommodation to be called as financial creditor. In other words, none of the ingredients mentioned in Section 5(8) of IBC which deals with “financial debt” are present in the transactions between the Applicant and Respondent. In this context, we would refer Section 5(8) of the IBC, reproduced verbatim as: “(8) “financial debt” means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes– (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;

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KOLKATA BENCH (COURT NO.-II) KOLKATA (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; [Explanation. -For the purposes of this sub-clause, - (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;” xiii. Under Section 5(8) of IBC, a financial debt necessarily requires a disbursal of money against consideration for the time value of money. The agreements and supporting documents placed on record do not disclose any arrangement whereby I.A. (IB) No.1636/KB/2025 C.P. (IB) No.308/KB/2022

KOLKATA BENCH (COURT NO.-II) KOLKATA money was advanced or lent by the Applicant to the Corporate Debtor for repayment over a period of time. Instead, the liability arose on account of unpaid consideration for the purchase of imported goods. The essential ingredients necessary for classifying the claim as a financial debt are therefore absent. xiv. Further, the Applicant has claimed that since the claim has culminated into the award, it should be treated as a financial debt in the light of the law laid down Dena Bank Vs. C. Shivakumar Reddy and others reported at (2021) 10 SCC 330 whereby it was held that decree of any court or tribunal or any arbitral award for payment of money would be fall within the ambit of financial debt. xv. However, the aforesaid proposition of law, put forward by the Counsel for the Applicant, does not appear to be a correct one. In this connection a reference can be made to the law laid down in Sushil Ansal Vs. Ashok Tripathi and others reported at (2020) Ibclaw.in 43 NCLAT whereby it was held that mere holding of a decree/award per se by an individual will not make it debt fall within the ambit of financial debt. Relevant portion of the order are extracted below: “20. A ‘decree-holder’ is undoubtedly covered by the definition of ‘Creditor’ under Section 3(10) of the ‘I&B Code’ but would not fall within the class of creditors

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KOLKATA BENCH (COURT NO.-II) KOLKATA classified as ‘Financial Creditor’ unless the debt was disbursed against the consideration for time value of money or falls within any of the clauses thereof as the definition of ‘financial debt’ is inclusive in character. A ‘decree’ is defined under Section 2(2) of the Code of Civil Procedure, 1908 (“CPC” for short) as the formal expression of an adjudication which conclusively determines the rights of the parties with regard to the matters in controversy in a lis. A ‘decree-holder’, defined under Section 2(3) of the same Code means any person in whose favour a decree has been passed or an order capable of execution has been made.******” (Emphasis Added) xvi. The above cited case was upheld by the Hon’ble Supreme in the matter of Mansi Brar Fernandes Vs. Shubha Sharma and Anr., reported at (2025) ibclaw.in 353 SC and held that the decision in Sushil Ansal was correct on its own facts. xvii. In Cholamandalam Investment and Finance Company Limited Vs. Navrang Roadlines Private Limited, reported at 2022 ibclaw.in 331 HC, the Hon’ble High Court of Madras held that a decree/award of the court or tribunal is a measure of debt and mere holding of a decree per se by an individual will not make its debt fall within the ambit of financial debt. It was I.A. (IB) No.1636/KB/2025 C.P. (IB) No.308/KB/2022

KOLKATA BENCH (COURT NO.-II) KOLKATA further held that it is the underlying claim under a decree that will decide the nature of the debt whether it is financial or operational. Relevant portion of the order are extracted below: “12. A mere perusal of the above observations of the Hon’ble Supreme Court in the decisions cited supra, shows that the liability in respect of a claim arising out of a recovery certificate issued by the DRT would be considered as “financial debt” within the ambit of Section 59(8) of Insolvency and Bankruptcy Code, 2016. It has also held that the underlying claim of the Bank/Claimant under the lending documents would have to be categorised as a “financial debt” under Insolvency and Bankruptcy Code, 2016. Therefore, a recovery certificate issued in respect of the same claim, which is essentially a crystallization of the claim through the process of adjudication, had also be classified as a “financial debt” under Insolvency and Bankruptcy Code, 2016. Consequently, the nature of the underlying claim of the creditor, would determine the categorisation of the amount payable under the final decree passed adjudication of the same claim. The liability arising out of an arbitral award or a court decree would be categorised as either financial or operational debt

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KOLKATA BENCH (COURT NO.-II) KOLKATA depending on the nature of the underlying claim which stands crystallised through the arbitral or court proceedings.” (Emphasis Added) xviii. Undisputedly, the claim on the basis of which arbitral proceedings were initiated by the Applicant emanated from a sale contract which originally was at best an operational debt and as per the law laid down in the afore cited cases, the nature of debt would not change with the passing of a decree or an award and, therefore, simply because an award was passed in respect of an operational claim, it will not by itself metamorphose into a financial debt. xix. So far as the law laid down in Dena Bank Vs. C. Shivakumar Reddy and others (Supra) is concerned, in this case also the proceedings were initially pending before DRT for recovery of financial debt in respect of which a certificate for recovery was issued. Thus, the nature of the debt from the very beginning involved in the said case was a financial debt. 7. Therefore, in light of the foregoing discussion, the claim asserted by the Applicant cannot be brought within the ambit of a financial debt as defined under Section 5(8) of IBC. The liability emanates from a commercial transaction involving the import and sale of goods and consequently bears the character of an operational debt. The decision of the I.A. (IB) No.1636/KB/2025 C.P. (IB) No.308/KB/2022

KOLKATA BENCH (COURT NO.-II) KOLKATA Resolution Professional in rejecting the Applicant's claim as a Financial Creditor, therefore warrants no interference. 8. In view of the above discussion, the present application being I.A. (I.B) No. 1636/KB/2025 is dismissed and disposed of. 9. Certified copies of this order, if applied, be supplied to the parties upon compliance with all requisite formalities.

(Rekha Kantilal Shah) (Labh Singh) Member (Technical) Member (Judicial)

Order signed on the 6th day of August, 2026 S.T. (LRA)

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