Rajesh Alfred Sole Proprietor Of Ms ... vs Ketsaal Retails Llp

(Arising against the impugned order dated 06.10.2023 passed by the Hon'ble National Company Law Tribunal, Allahabad Bench at Prayagraj, in CP (IB) No. 33/ALD/2023)

IN THE MATTER OF:

Rajesh Alfred Sole Proprietor of M/s Anand Enterprices Available At: 57, The Domes, Jaipur Road, Ajmer, Rajasthan-305001 ...Appellant Email: ralfred5520@gmail.com

Versus

Ketsaal Retail LLP Through it Designated Partner/ Authorized Representative Mr. Washim Raza Khan Registered Office At: B-71, Sector-80, Naida, Gautam Buddha Nagnr, UttarPradesh-2013016. ...Respondent

Email: finance.acc01@gmail.com

Present:

For Appellant: Mr. Sushant Singhal, Mr. Ajit Singh Johar & Mr. Manibhadra Jain, Advocates.

For Respondents: Mr. Raj Srivastava, Ms. Suchita Gautam, Mr. Akash Chowdhary, Mr. Divyanshu Saraswat, Advocates.

J U D G M EN T (3rd July, 2025)

INDEVAR PANDEY, MEMBER (T)

The present appeal has been filed under Section 61 of the Insolvency

and Bankruptcy Code, 2016 (in short 'Code'), arising from the Order dated

06.10.2023 passed by the National Company Law Tribunal, Allahabad Bench

(Adjudicating Authority), at Prayagraj, in CP (IB) No. 33/ALD/2023. The

Cont'd..../ -2-

said petition under Section 7 of the Code was filed by the Appellant - Rajesh

Alfred sole Proprietor of M/S Anand Enterprises, seeking initiation of

Corporate Insolvency Resolution Process (CIRP) against the Respondent--

M/s Ketsaal Retails LLP (Corporate Debtor) due to default in repayment of

a financial debt of Rs. 2,77,00,000/-, comprising capital investment and

assured returns. However, the Adjudicating Authority dismissed the petition

on the ground that the Appellant did not qualify as a 'Financial Creditor' and

the transaction in question did not amount to a 'Financial Debt' as defined

under Section 5(8) of the Code. Aggrieved by these findings, the Appellant has

approached this Appellate Tribunal.

Brief facts:

2. The brief facts of the case are as follows:

(i) M/s Ketsaal Retails LLP/ Respondent, was incorporated on

16.08.2017 under the Limited Liability Partnership Act, 2008, and

is engaged in the business of retail trade and related services.

(ii) On 07.12.2020, the Appellant, acting through his proprietorship

concern M/s Anand Enterprises, entered into a Reseller Agreement

with the Respondent, whereby the Appellant made a capital

investment of Rs. 20,00,000/- with a clear stipulation under Clause

4(m) of the Agreement that the Respondent would pay an assured

return of 7% per month on the said investment after an initial lock-

in period of three months, during which no return was to be paid.

(iii) A First Addendum Agreement was executed between the parties on

17.05.2021. Under the revised terms, the Appellant increased his

Company Appeal (AT) (Ins.) No. 1563 of 2023 -3-

investment from Rs. 20,00,000/- to Rs. 50,00,000/, and the

Respondent, in return, agreed to enhance the monthly assured

return from 7% to 9%, effective from August 2021 onwards.

(iv) In accordance with the original agreement, on 17.05.2021, the

Respondent paid the Appellant a sum of Rs. 1,40,000/-, calculated

as 7% return on Rs. 20,00,000/- (i.e., Rs. 20,00,000 x 7/100).

Payment for the same amount were made on 18.06.2021;

20.07.2021 and 20.08.2021.

(v) Thereafter, on 25.09.2021, the Respondent paid a higher return of

Rs. 4,50,000/-, corresponding to 9% of the revised investment

amount of Rs. 50,00,000/- (i.e., Rs. 50,00,000 x 9/100), as per the

First Addendum Agreement.

(vi) The parties executed a Second Addendum Agreement on

07.10.2021, through which the Appellant's capital investment was

further increased from Rs. 50,00,000/- to Rs. 1,00,00,000/-, and

the monthly assured return was enhanced from 9% to 12%, with

effect from January 2022. The return structure was to include 9%

paid monthly and the remaining 3% as annual cumulative

disbursement by March 31st of each year.

(vii) The Respondent again paid the Appellant a return of Rs. 4,50,000/-

on 02.11.2021, corresponding to 9% return on Rs. 50,00,000/-,

confirming compliance with the revised agreement terms.

Company Appeal (AT) (Ins.) No. 1563 of 2023 -4-

(viii) However, starting 01.12.2021, the Respondent defaulted in making

further payments. The assured return payable for November 2021

(due on 01.12.2021) was never paid. The Respondent failed to make

any subsequent monthly or annual payments thereafter.

(ix) On 14.07.2022, the Appellant addressed a formal email to the

Respondent, exercising his right to a formal and final exit under

Clause 5 of the Second Addendum, and demanded refund of the

entire capital investment of Rs. 1,00,00,000/-, along with the

outstanding assured returns from November 2021 onwards.

(x) Clause 5 of the Second Addendum provided that upon such formal

exit being communicated by the Appellant, the Respondent was

obligated to refund the total capital invested within 90 days via direct

deposit, which the Respondent failed to comply with.

(xi) On 20.08.2022, the Corporate Debtor admitted its liabilities towards

the Financial Creditor under Notice Dated 20.08.2022 addressed to

the Financial Creditor.

(xii) On 05.11.2022, the Respondent issued another notice, admitting its

responsibility and liability towards the Appellant, stating that

operational failures had caused delays but confirming its intention

to fulfil its commitments and avoid evasion of liabilities.

(xiii) On 25.11.2022, the Corporate Debtor, vide letter dated 25.11.2022

addressed to the Financial Creditor, acknowledged the capital

investment and the liability to return amounts with returns.

Company Appeal (AT) (Ins.) No. 1563 of 2023 -5-

(xiv) Despite the Appellant's clear request for dissolution of agreement

and multiple acknowledgments from the Respondent, no repayment

of capital or accrued returns was made.

(xv) The Appellant thereafter, filed a petition under Section 7 of the Code

before the Adjudicating Authority on 24.03.2023, seeking initiation

of CIRP on account of default in repayment of a total financial debt

amounting to Rs. 2,77,00,000/-, which included a principal capital

investment of Rs. 1,00,00,000/- (Rs. One Crore) and accrued

assured returns from November 2021 till March 2023 amounting to

Rs. 1,77,00,000/- (Rs. One Crore Seventy-Seven Lakhs).

(xvi) On 08.06.2023, the Hon'ble NCLT issued notice to the Respondent

to appear and respond to the petition. As the Respondent failed to

appear despite valid service, it was set Ex-Parte by the NCLT vide its

Order dated 22.08.2023.

(xvii) However, during final arguments on 26.09.2023, Adjudicating

Authority allowed oral submissions to be made on behalf of the

Respondent, solely on the basis of Vakalatnama filed on the e-portal,

despite the Respondent being ex-parte and without any formal

application for setting aside the ex-parte order. No written reply or

affidavit was filed by the Respondent.

(xviii) The Adjudicating Authority on 06.10.2023 passed the impugned

order, whereby it dismissed the Section 7 Petition, holding that the

Appellant did not fall within the scope of 'Financial Creditor' and that

Company Appeal (AT) (Ins.) No. 1563 of 2023 -6-

the amounts invested and returns promised did not qualify as a

'Financial Debt' under Section 5(8) of the Code.

(xix) Aggrieved by the impugned order the Appellant has preferred the

present appeal before this Tribunal.

Submissions of the Appellant

3. Ld Counsel for the Appellant submitted that the impugned order dated

06.10.2023, wherein the Hon'ble NCLT, New Delhi Bench dismissed the

Section 7 Application filed by the Appellant on the ground that he is a

"speculative investor," is factually misconceived and legally untenable. The

Appellant did not invest with an intent to acquire any property or unit, nor is

he a homebuyer seeking resale profits. The Appellant had entered into a

purely financial arrangement with the Corporate Debtor, Ketsaal Retails Ltd.,

whereby he made capital investments amounting to a total of

Rs.1,00,00,000/-, in return for assured returns denominated as "Profit

Margins," as contractually provided under the Agreement dated 07.12.2020,

and reaffirmed in Addenda dated 17.05.2021 and 07.10.2021.

4. Ld. Counsel pointed out that the capital was deployed into the business

of the Respondent, and in lieu thereof, a fixed return of 7% per month was

contractually promised. The Appellant's status is fundamentally different

from that of a speculative homebuyer. By treating the Appellant as a

"speculative investor," the Hon'ble NCLT mixed distinct legal categories and

ignored the commercial nature of the transaction. The Appellant is, therefore,

not a speculative investor, but a financial creditor under Section 5(7) of the

Company Appeal (AT) (Ins.) No. 1563 of 2023 -7-

Code, having disbursed funds for a time-bound return as defined under

Section 5(8) of the Code.

5. Ld. Counsel for the Appellant submitted that the disbursement of

Rs.1,00,00,000/- by the Appellant was a capital investment, not an advance

or deposit for goods or services. The contractual documents--the main

Agreement dated 07.12.2020 and the Addenda dated 17.05.2021 and

07.10.2021--provide for monthly Profit Margins/Assured Returns, which

qualify as time value of money. Specifically, Clause 7 of the Agreement dated

07.12.2020 lays down the guaranteed monthly "Profit Margin" on the invested

capital, while Clause 4 of the Addendum dated 17.05.2021 and Clause 5 of

the Addendum dated 07.10.2021 reconfigure the return timelines, but

reaffirm the assured nature of the payments. The said clauses fix financial

liability on the Respondent and are neither contingent nor discretionary.

6. Ld. Counsel further submitted that the default on the part of the

Corporate Debtor is clearly established by documentary evidence. Bank

Account Statements show disbursement of investment funds and initial

returns, until the Respondent stopped honouring its obligations. The

Appellant issued Demand Notices dated 20.08.2022 and 05.11.2022. The

Respondent acknowledged receipt of funds and obligations in Letter dated

21.01.2023, and never denied liability in any reply. The email dated

14.07.2022 refers to the capital investment and overdue returns. The claim

amount thus exceeds the threshold of Rs.1 crore under Section 4 Code due to

accumulated unpaid returns. As per Section 3(12) of the Code, the non-

payment of assured financial obligations constitutes "default." The Appellant,

Company Appeal (AT) (Ins.) No. 1563 of 2023 -8-

therefore, fulfils every statutory requirement of a financial creditor entitled to

initiate CIRP under Section 7 of the Code.

7. Ld. Counsel for the appellant further submitted that the Hon'ble NCLT's

reasoning that the Appellant's investments were consideration for the sale of

goods is factually and legally erroneous. The Appellant never entered into any

sale transaction with the Respondent. The Agreement dated 07.12.2020, in

Clause 3, clearly stipulates that the investment shall remain with the

Respondent and in return, a monthly fixed return (Profit Margin) shall be paid.

The agreement does not define or refer to any goods, nor is any delivery

schedule, product specification, invoice, or price per unit annexed to or

referenced in the agreements. Even the Addenda dated 17.05.2021 and

07.10.2021 solely modify timelines and reaffirm fixed financial return,

without altering the essential nature of the transaction.

8. The Counsel further drew attention to the Respondent's conduct, which

repeatedly affirmed the existence of a financing arrangement. The Respondent

issued cheques, sent acknowledgment letters, and even responded to Demand

Notices without claiming any underlying goods transaction. The Bank

Statements contain entries for regular returns titled as margins, not for sale

proceeds. The email dated 14.07.2022, sent by the Appellant, specifically

demands returns under the investment contract, and the Respondent did not

contradict the nature of the demand. These returns were fixed percentages

and were paid consistently for a while, before being discontinued--an event

that directly triggered the default under the Code. There is no factual or

Company Appeal (AT) (Ins.) No. 1563 of 2023 -9-

documentary basis for the NCLT's finding that the transaction was in the

nature of goods sale.

9. Ld. Counsel for the Appellant argued that the impugned order fails to

apply the binding ratio of the Hon'ble NCLAT in 'Nikhil Mehta & Sons (HUF) v.

AMR Infrastructure Ltd.' [Company Appeal (AT)(Insolvency) No. 07 of 2017],

where it was held that a transaction involving disbursement of funds for

assured returns constitutes a financial debt under Section 5(8) of the Code.

In that case, like in the present one, the investor had no intention to occupy

or trade property, but had merely invested funds in the corporate entity for

fixed returns, and default thereof was held sufficient to invoke Section 7 of

the Code.

10. The counsel further relied on M/s Nikhil Mehta and Sons Vs. AMR

Infrastructure Ltd. (supra), where the Hon'ble Appellate Tribunal held that

structured returns on capital disbursed constitute a financial arrangement

and, in the event of default, confer a right to file a petition under Section 7.

The Appellant's case here stands on even stronger ground, given the explicit

documentation of the returns, bank statements, and undisputed notices. By

failing to consider these precedents or distinguish them, the Hon'ble NCLT

committed a grave legal error, resulting in a dismissal contrary to settled law.

11. Ld. Counsel submitted that the impugned order is vitiated by a material

breach of natural justice and procedural rules. The Respondent was

repeatedly shown to have evaded service, as recorded in the impugned order

itself, yet was permitted to enter appearance at the final stage of arguments

without following the mandatory process under Rule 49(2) of the NCLT Rules,

Company Appeal (AT) (Ins.) No. 1563 of 2023 -10-

2016. This rule clearly provides that a defaulting party must file a formal

application to recall an ex parte order and offer justification. The Respondent

neither filed such an application nor obtained a formal recall, and yet was

heard on merits, while the Appellant had no opportunity to counter the

submissions made ex post facto.

12. Counsel emphasized that this procedural irregularity caused

substantive prejudice. The Appellant, having proceeded ex parte initially, was

blindsided at the final hearing when the Respondent was allowed to make

submissions despite non-compliance with procedural norms. The Hon'ble

Tribunal thereby violated the settled principle of audi alteram partem, and

the impugned order dated 06.10.2023 is thus liable to be set aside on the

ground of procedural impropriety alone.

13. Counsel for the Appellant submitted that the entire transaction between

the parties was a structured financial investment backed by legally

enforceable agreements. The Agreement dated 07.12.2020, followed by

Addenda dated 17.05.2021 and 07.10.2021, establish a continuing

relationship of capital infusion and structured return. Clauses 1 and 3 of the

main agreement, and Clauses 4 and 5 of the Addenda, explicitly mention that

the Appellant shall invest funds with the Corporate Debtor and shall receive

fixed monthly margins or returns, unrelated to any actual profit or

performance. These are clear hallmarks of a financial arrangement under

Code.

14. Counsel highlighted that the Respondent's own conduct confirms the

financial character of the arrangement- issuance of cheques, payment of

Company Appeal (AT) (Ins.) No. 1563 of 2023 -11-

returns, acknowledgments in letter dated 21.01.2023, and bank entries

showing fixed margin payments. The Notices dated 20.08.2022 and

05.11.2022, and the email dated 14.07.2022, all reinforce the continuous and

acknowledged financial obligation. There was no sale of goods, no invoice, no

GST component, and no linkage to any commodity or service. The investment

was made purely for financial return, and the Respondent defaulted, thereby

giving rise to a valid claim under Section 7 Code. The Appellant is a financial

creditor and entitled to full protection under the Code. He prayed for setting

aside the impugned order dated 06.10.2023 and allow the Section 7

application.

Submissions of the Respondent

15. Per contra, Ld. Counsel for the Respondent stated that the impugned

order dated 06.10.2023, passed by the Hon'ble National Company Law

Tribunal, Allahabad Bench, is fully justified in law and does not suffer from

any infirmity. The Ld. Adjudicating Authority rightly held that the Appellant

is not a "Financial Creditor" under Section 5(7) of the Code, and the sum of

Rs. 2,77,00,000/- claimed by the Appellant does not constitute a "Financial

Debt" under Section 5(8) of the Code.

16. Counsel for the Respondent submits that for a debt to qualify as a

"financial debt", it must involve a disbursement against the "consideration for

time value of money", as held in the landmark judgment of the Hon'ble

Supreme Court in Anuj Jain, IRP of Jaypee Infratech Ltd. v. Axis Bank Ltd.,

(2020) 8 SCR 291. In the present case, no such element is present. The

Company Appeal (AT) (Ins.) No. 1563 of 2023 -12-

transaction was not a loan or financial assistance, but rather a business

transaction governed by commercial terms.

17. Counsel for the Respondent further submits that the agreement dated

07.12.2020, and the subsequent addendums dated 17.05.2021 and

07.10.2021, were entered into under the framework of a Reseller Agreement,

whereby the Appellant, through his proprietorship concern M/s Anand

Enterprises, agreed to act as a reseller of products supplied by the

Respondent. The parties agreed to sell the products on various e-commerce

platforms such as Amazon, and the so-called "assured returns" were nothing

but profit margins or commissions related to the commercial sale of goods.

18. The counsel further submitted that the entire control of the online seller

accounts, inventory management, coordination with platforms, and

operational execution was in the exclusive domain of the Respondent. The

Appellant was not a lender, but a commercial associate who shared in

business returns, which were never in the nature of debt obligations.

19. The counsel further contends that although the Appellant claims there

was a fixed monthly return on investment, the terms of the agreement show

that these returns were structured more like profit margins or business

incentives, and not interest payments on a disbursed loan. The absence of

any loan agreement, promissory note, fixed repayment schedule, or

acknowledgment of borrowing proves that no financial debt was ever created.

20. It is submitted by the Respondent's counsel that no valid demand notice

was ever served by the Appellant to the Respondent prior to the filing of the

Section 7 Petition. The Respondent has never acknowledged any debt owed to

Company Appeal (AT) (Ins.) No. 1563 of 2023 -13-

the Appellant in the nature of a financial debt. The so-called notices referred

to by the Appellant were part of ongoing business communications and not

legal acknowledgments under the law.

21. Counsel for the Respondent submits that the Appellant has deliberately

bypassed the dispute resolution mechanism provided in the agreements,

which clearly stipulate that any dispute arising between the parties must be

referred to arbitration. Instead, the Appellant wrongly invoked the Code

without exhausting the contractual remedies. Such conduct clearly amounts

to misuse of the Code as a tool for debt recovery, which has been strongly

deprecated by the Hon'ble Supreme Court in Pioneer Urban Land and

Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416.

22. The Respondent's counsel further stated that the cancellation of the

Respondent's GST registration, which the Appellant is relying upon, was duly

informed to the Appellant in writing. Despite this, the Appellant chose to

initiate insolvency proceedings, indicating a malicious intent and commercial

pressure tactic rather than a genuine case of financial default.

23. He further submitted that the Appellant has failed to prove any

contractual relationship establishing him as a financial creditor. There is no

evidence on record to show that the funds were disbursed as a loan with a

repayment obligation. There is also no mention of such a liability in the books

of accounts or balance sheet of the Respondent.

24. Ld. Counsel for the Respondent relies on the decision of this Tribunal

in 'Neeraj Jain v. Cloudwalker Streaming Technologies' [Comp. App. (AT) (Ins.)

Company Appeal (AT) (Ins.) No. 1563 of 2023 -14-

No. 1354 of 2019 decided on 24.02.2020], wherein it was held that if the

claimant fails to establish a financial debt with clear documents, and if no

valid demand notice is issued, the petition under Section 7 is liable to be

rejected. The facts of the present case fall squarely within this principle.

25. Ld. Counsel further submitted that this Tribunal in 'Ambica Enclave

Pvt. Ltd. v. Ashrae Baba Infra Projects Pvt. Ltd.' [Comp. App. (AT) (Ins.) No. 1034

of 2022 decided on 16.05.2024), reaffirmed that even where money is paid

under commercial terms, unless it is disbursed for time value of money, it

cannot be termed as a financial debt. The Appellant's claim suffers from the

same defect.

26. Counsel for the Respondent states that the Appellant has not pointed

out any specific error of law or fact in the findings of the Ld. Adjudicating

Authority. The appeal is based merely on a restatement of facts that were

already considered and rejected by the Tribunal. The Appellant's repeated

reliance on "assured returns" is misplaced and fails to override the legal test

laid down under Section 5(8) of the Code.

27. Summing up his arguments Ld. Counsel stated that the present appeal

is not maintainable either on facts or in law. The Appellant has approached

this Hon'ble Appellate Tribunal not for resolving insolvency, but for enforcing

a commercial investment through coercive legal means under the Code. Such

an approach is impermissible and has been consistently rejected by the

Hon'ble Supreme Court and this Tribunal. He, therefore, submitted that the

present company appeal be dismissed with costs.

Company Appeal (AT) (Ins.) No. 1563 of 2023 -15-

Analysis and findings

28. We have gone through the records and heard the submission of Learned

Counsels in detail. The counsels have also submitted their written

submissions.

29. Ld. NCLT in the impugned Judgment has held that the amount invested

by the appellant with Corporate Debtor did not fall in the category of financial

debt as the transaction does not have a consideration for the time value of

money, which is a substantive ingredient to be satisfied for fulfilling the

requirement of the expression "Financial debt".

30. The key issue for determination before us is whether the amount

claimed by appellant qualifies as a 'Financial Debt' under the Code. This issue

is critical as only a person to whom a Financial Debt is owed can be treated

as a Financial Creditor under Section 5 (7) of the Code. Only a Financial

Creditor is entitled to initiate Corporate Insolvency Resolution Process under

Section 7 of the Code. If the transaction does not meet the legal threshold of

a financial debt then the appellant would not have locus to maintain

proceedings under Section 7 of the Code and the petition is liable to be

dismissed at the threshold.

31. The appellant relies on Section 5 (8) of the Code which defines the

'Financial debt' and types of transactions which are classified as Financial

debt. The appellant in particular relies on Section 5 (8) (f) of the Code and

states that his transaction is covered by the aforesaid Section. The relevant

Section and sub-Sections are reproduced below:

Company Appeal (AT) (Ins.) No. 1563 of 2023 -16-

5 (8) 'Financial debt' means a debt alongwith interest, if any,

which is disbursed against the consideration for the time value

of money and includes-

(f) any amount raised under any other transaction, including any

forward sale or purchase agreement, having the commercial

effect of a borrowing

32. The Hon'ble Supreme Court in Anuj Jain, IRP of Jaypee Infratech Ltd. v.

Axis Bank Ltd. (supra) has explained the ingredients of Financial debt in

detail. The relevant paras of the Judgment are extracted below:

"The essentials for financial debt and financial creditor

43. Applying the aforementioned fundamental principles to

the definition occurring in Section 5(8) of the Code, we have not

an iota of doubt that for a debt to become financial debt for the

purpose of Part II of the Code, the basic elements are that it ought

to be a disbursal against the consideration for time value of

money. It may include any of the methods for raising money or

incurring liability by the modes prescribed in sub-clauses (a) to

(f) of Section 5(8); it may also include any derivative transaction

or counter-indemnity obligation as per sub-clauses (g) and (h) of

Section 5(8); and it may also be 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). The requirement of existence

of a debt, which is disbursed against the consideration for the

time value of money, in our view, remains an essential part even

in respect of any of the transactions/dealings stated in sub-

clauses (a) to (i) of Section 5(8), even if it is not necessarily stated

therein. In any case, the definition, by its very frame, cannot be

Company Appeal (AT) (Ins.) No. 1563 of 2023 -17-

read so expansive, rather infinitely wide, that the root

requirements of 'disbursement against the consideration for the

time value of money could be forsaken in the manner that any

transaction could stand alone to become a financial debt. In other

words, any of the transactions stated in the said sub-clauses (a)

to (i) of Section 5(8) would be falling within the ambit of 'financial

debt' only if it carries the essential elements stated in the

principal clause or at least has the features which could be

traced to such essential elements in the principal clause. In yet

other words, the essential element of disbursal, and that too

against the consideration for time value of money, needs to be

found in the genesis of any debt before it may be treated as

'financial debt' within the meaning of Section 5(8) of the Code.

This debt may be of any nature but a part of it is always required

to be carrying, or corresponding to, or at least having some traces

of disbursal against consideration for the time value of money.

44. As noticed, the root requirement for a creditor to become

financial creditor for the purpose of Part II of the Code, there must

be a D financial debt which is owed to that person. He may be

the principal creditor to whom the financial debt is owed or he

may be an assignee in terms of extended meaning of this

definition but, and nevertheless, the requirement of existence of

a debt being owed is not forsaken.

45. It is also evident that what is being dealt with and described

in E Section 5(7) and in Section 5(8) is the transaction vis-à-vis

the corporate debtor. Therefore, for a person to be designated as

a financial creditor of the corporate debtor, it has to be shown

Company Appeal (AT) (Ins.) No. 1563 of 2023 -18-

that the corporate debtor owes a financial debt to such person.

Understood this way, it becomes clear that a third party to whom

the corporate debtor does not owe a financial debt cannot become

its financial creditor for the purpose of Part II of the Code.

47. A conjoint reading of the statutory provisions with the

enunciation of this Court in Swiss Ribbons (supra), leaves

nothing to doubt that in the scheme of the Code, what is intended

by the expression financial creditor' is a person who has direct

engagement in the functioning of the corporate debtor, who is

involved right from the beginning while assessing the viability of

the corporate debtor, who would engage in restructuring of the

loan as well as in reorganisation of the corporate debtor's

business when there is financial stress. In other words, the

financial creditor, by its own direct involvement in a functional

existence of corporate debtor, acquires unique position, who

could be entrusted with the task of ensuring the sustenance and

growth of the corporate debtor, akin to that of a guardian. In the

context of insolvency resolution process, this class of

stakeholders namely, financial creditors, is entrusted by the

legislature with such a role that it would look forward to ensure

that the corporate debtor is rejuvenated and gets back to its

wheels with reasonable capacity of repaying its debts and to

attend on its other obligations. Protection of the rights of all other

stakeholders, including other creditors, would obviously be

concomitant of such resurgence of the corporate debtor.

[Emphasis supplied]

Company Appeal (AT) (Ins.) No. 1563 of 2023 -19-

33. It is clear from the above that time value of money is one of the key

ingredients for a debt to be treated as 'Financial debt'. It also comes out clearly

that the Financial Creditor is one who is involved with the Corporate Debtor

since the beginning and who also acts as a mentor of the Corporate Debtor

during the setting up of the business and also during re-organization of

Corporate Debtor during Financial stress.

34. In this background to understand the commercial transactions between

the appellant and the respondent we take a look at the 'Reseller Agreement'

which is the key document on the basis of which the transactions between

the two parties took place. The relevant clauses of the Reseller Agreement are

extracted below:

"KETSAAL(R) RESELLER AGREEMENT

This Reseller Agreement (the "Agreement") is signed on

07th December 2020

BY AND BETWEEN

KETSAAL RETAILS LLP, having its office at BH-133,

SECTOR 70, NOIDA-201307 INDIA (Hereinafter called

"Ketsaal" Which expression unless repugnant to the

context shall mean and include its subsidiaries, and its

successors and assigns), through its Authorized Person Mr.

Akshay Vohra.

AND

M/S ANAND ENTERPRISES, having its office at 57, The

Domes Jaipur Road, Ajmer, Rajasthan 305001.

Company Appeal (AT) (Ins.) No. 1563 of 2023 -20-

(Hereinafter called "Reseller" Which expression unless

repugnant to the context shall mean and include its

subsidiaries, and its successors and assigns) through its

Authorized Person Mr. Rajesh Alfred

RECITALS

A. Our parent company has developed a brand name

"Ketsaal" as a seller on Amazon.

B. Many of the products are best seller on Amazon and

holds Top ranking in their Category.

C. Our parent company KETSAAL RETAILS LLP owns the

Trademark "Ketsaal" and other trademarks used in

connection with the operation of KETSAAL Retails LLP as

a seller on Amazon & Mall.

D. Our parent company has granted you the right to

sublicense the right to sell just some of the products under

the brand name KETSAAL on Amazon. Apart from the

products mentioned in this agreement, you are not

authorized to sell any other products by name of Ketsaal

E. You desire to sell products and operate under the brand

name KETSAAL and we, in reliance on your

representations, have approved your application

In consideration of the foregoing and the mutual covenants

and consideration below, you and we agree as follows:

1. DEFINITIONS

Company Appeal (AT) (Ins.) No. 1563 of 2023 -21-

For purposes of this Agreement, the terms below have the

following definitions:

E "Reseller" is the second party who is purchasing products

from Ketsaal with only purpose to resell them on Amazon

2. BASIS OF THE AGREEMENT

The relationship between the parties shall be that of seller

and buyer and not that of principle and agent and the

transaction is on principle to principle basis not

withstanding anything to the contrary that may be

contained in this agreement or any correspondence or

letters between the parties hereto. Accordingly, the

RESELLER shall at no point hold himself out as an agent

of Ketsaal and Ketsaal shall not be responsible for any act

omission or commission on the part of the RESELLER

5. PAYMENT

I. The reseller agrees to pay the consideration amount of

Rs 20,00,000/-, at the time of signing this agreement the

reseller paid Rs. 20,00,000/- via NEFT Rs. 9,00,000/- Ref.

ID DCBLR52020120700007401, Rs. 9,00,000/- Ref. ID

DCBLH20342007347, Rs. 2,00,000/- Ref ID.

DCBLH20342475023 in favor of company.

II. The sale of the goods by Ketsaal shall be on advance

payment by RTGS/Demand Draft/cheque/NEFT/IMPS

against supplies made as may be required by Ketsaal from

Company Appeal (AT) (Ins.) No. 1563 of 2023 -22-

time to time. The discretion of Ketsaal on choice of mode of

payment shall be final and binding upon the RESELLER

III The reseller has to agree to re-invest the amount for

first six months which he gets from the Amazon subject to

amazon payment cycle, with Ketsaal under this

agreement. Thereafter, the reseller can take out 7% profit

amount. The capital investment can also be increased or

decreased by the reseller.

IX The RESELLER shall give advance payment to

Ketsaal and Ketsaal will dispatch goods within 15

days will be the dispatch time either complete

shipment or in parts after receiving the payment

from the RESELLER. For regular update of stock, reseller

will be informed.

18 ARBITRATION

If any of the dispute arose between both the parties so that

both parties agrees upon that dispute resolve by the sole

arbitrator. The seat or legal place of arbitration shall be in

New Delhi, India. The language of the arbitral proceedings

shall be in the English language. The award of the

arbitrators shall be final and binding upon the Parties. The

costs of the arbitration shall be borne by the Party whose

contention was not upheld, unless otherwise provided in

the arbitration award.

(Emphasis supplied)

Company Appeal (AT) (Ins.) No. 1563 of 2023 -23-

35. The key elements of the Reseller Agreement dated 07.12.2020 are as

given below:

(i) It's an agreement between Ketsaal Retails LLP (Corporate Debtor) and

M/s Anand Enterprises through its authorised person Mr. Rajesh Alfred

(Appellant);

(ii) The appellant is a Reseller of products of Corporate Debtor;

(iii) Corporate Debtor has a brand name 'Ketsaal' as a seller on Amazon;

(iv) Corporate Debtor has granted the right to sell to the appellant, some

of the products of under brand name Ketsaal on Amazon;

(v) The Appellant who is reseller is defined as the second party who is

purchasing products from Ketsaal with only purpose to resell them on

Amazon.

(vi) The relationship between the parties shall be that of seller and buyer

and not that of principle and agent;

(vii) The reseller agrees to pay the consideration amount of Rs. 20 lakhs at

the time of signing the agreement;

(viii) The sale of the goods by Ketsaal shall be on advance payment by

RTGS/Demand Draft/cheque/NEFT/IMPS against supplies made as

may be required by Ketsaal from time to time;

(ix) The reseller has to agree to re-invest the amount for first six months

which he gets from the Amazon subject to amazon payment cycle, with

Ketsaal under this agreement;

(x) The reseller can take out 7% profit on Rs. 20 lakhs after 6 months;

(xi) The reseller has to make advance payment to Ketsaal and Ketsaal will

dispatched goods within 15 days; and

Company Appeal (AT) (Ins.) No. 1563 of 2023 -24-

(xii) There is a arbitration agreement for any dispute between the Ketsaal

and Reseller

36. The basic agreement clearly shows that this is a commercial agreement

under which the appellant was to procure the Ketsaal branded products from

the Respondent and sell it on the Amazon. For this the payment was to be

made on advance for procuring the goods that would be subsequently resold

by the appellant. There is no mention in the agreement of any lending

relationship, interest payments, re-payment schedules or Acknowledgment of

any debt obligations, instead the agreement clearly indicated that the

transaction was structured as a commercial partnership, wherein the

appellant was to get a share in the revenue or profit generated through resell

of goods.

37. There is a stipulation in the agreement that any proceeds received from

Amazon in the first six months were to be re-invested with Ketsaal. It's only

after the six-months period that the reseller could take out the 7% profit

margin. Such a clause in the agreement is inconsistent with a debt or lending

arrangement and rather it is a characteristic of commercial collaboration

wherein both the parties share business risk and benefits. The so called

assured return are nothing more than profit margins arising from business

activities and not interest payable on loan. This commercial structure lacks

the essential ingredients of a financial debt as defined under Code.

38. This would further be clear from the fact that the Appellant has claimed

that he was promised fixed monthly return of 7% when the investment was

Rs. 20 lakhs, revised to 9% by the first addendum agreement, when the

investment rose to Rs. 50 lakhs, and further revised upwards to 12% by the

Company Appeal (AT) (Ins.) No. 1563 of 2023 -25-

second addendum agreement, when the investment was raised to Rs. 1 crore.

As we know that a 12% monthly return amounts to interest rate of 144% per

annum, even without compounding. It is beyond comprehension that any

commercial entity would ever borrow a sum at 144% annual interest rate.

Such returns can only be possible in commercial ventures and not from

financial deposits/ investments. We are therefore clear that the aforesaid

profit margin under the reseller agreement lacks the essential ingredients of

financial debt as claimed by the appellant under Section 5 (8) (f) of the Code.

39. In many commercial transactions, particularly in distributorship,

reseller agreement or joint ventures the parties agree to fixed return or margin

based compensation. However, such arrangements do not fall under the scope

of financial debt under the Code unless they are predicated on disbursement

of money that carries the 'time value of money' as an essential ingredient. This

Appellate Tribunal in Ambica Enclave Pvt. Ltd. v. Ashrae Baba Infra Projects

Pvt. Ltd. (supra) has held that and advanced payment made for commercial

purposes, even if it includes clauses relating to fixed returns, will not

constitute a financial debt unless it was clearly structured as a loan or

borrowing.

40. Similarly, this Appellate Tribunal in Neeraj Jain v. Cloudwalker

Streaming Technologies (supra) held that contributions made by individuals

or entities as part of business partnership or collaborations without the clear

intention of re-payment with interest, do not qualify as Financial debt. In the

present case also the appellant was not lending money to the Corporate

Debtor with an obligation of repayment over a specified period with interest,

rather he was engaged in a revenue sharing model based on re-selling goods

Company Appeal (AT) (Ins.) No. 1563 of 2023 -26-

on online platform Amazon. The promise returns were conditional and

contingent upon business outcomes. Hence, the essential requirement of time

value of money is found absent, therefore, the said transaction cannot be

classified as Financial debt.

41. The Appellant has relied on certain emails and correspondences in

which the Respondent acknowledges receipt of funds and mentions some

unpaid amounts. However, such communications cannot have the effect of

converting a commercial transaction into a financial debt. Mere

acknowledgement of financial liability is not sufficient and the nature and

purpose of original transaction has to be examined to determine whether it

meets the criteria of Financial debt.

42. We have also seen that the books of accounts of the respondent do not

acknowledge the appellant as a Creditor there is no entry treating the amount

as a loan or borrowing in the balance sheet. This further collaborates the

findings that the transaction was never intended to be a loan. The emails may

create a basis for commercial or civil dispute resolution, but they do not

satisfy the requirements of the Code for establishing the transactions between

the parties as a Financial debt.

43. It is also seen from the Clause 18 of the Reseller Agreement that for all

disputes arising out of the agreement shall be resolved through arbitration.

This clearly indicates that parties had mutually agreed to a dispute resolution

mechanism in case of any disputes arising out of the agreement. In view of

existence of such arbitration clause in the agreement the appellant should

have gone for the arbitration instead of filing CIRP petition. In our view it is

an abuse of CIRP process by the appellant.

Company Appeal (AT) (Ins.) No. 1563 of 2023 -27-

44. Finally, we have seen from the records that the Appellant did not

disburse funds to Respondent as a loan or borrowing. The Reseller Agreement,

the only document showing the nature of transaction between the parties also

does not reflect any element of time value of money in any of the clauses. The

transaction was in essence a commercial arrangement governed by the

Reseller Agreement provided for profit margins, not interest. The exchange of

correspondence between the parties also does not in any way convert the

commercial nature of transaction into a financial debt. The existence of an

arbitration clause further reinforces the view that the dispute should have

been adjudicated through the mutually agreed dispute resolution mechanism

of arbitration rather than trying to invoke CIRP process under the Code.

45. In view of the above, we hold that the debt in question is not a financial

debt as defined under the Code. Therefore, the appellant does not qualify as

'Financial Creditor' under the Code and hence cannot invoke insolvency

proceedings.

46. We concur with the findings of Adjudicating Authority. The appeal is

dismissed. There would be no order as to costs. Pending I.As if any are closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

SA/Pragya (LRA)

Company Appeal (AT) (Ins.) No. 1563 of 2023