Varun Gupta vs Isinox Limited & Ors

1

NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI Comp. App. (AT) (Ins) No. 430 of 2023 & I.A. No. 1429, 1430, 1431 of 2023 & 2005 of 2024 IN THE MATTER OF: Varun Gupta ...Appellant Versus ISINOX Pvt. Ltd. Through the IRP Mr. Manishkumar R. Patel & Ors. ...Respondents Present: For Appellant : Mr. Shaunak Kashyad, Mr. Ahmar Shad, Ms. Ragini Singh & Ms. Priya Rai, Advocates. For Respondent : Mr. Rishi Kumar Singh Gautam, for R-1/IRP. Mr. Gautam Singhal, Mr. Rajat Chaudhary & Ms. Kanika Balhara, for R-2 to 46.

JUDGMENT

Per: Justice Rakesh Kumar Jain:

This appeal has been filed under Section 61 of the Insolvency and

Bankruptcy Code, 2016 (in short 'Code') by the suspended director of ISINOX

Pvt. Ltd. (Corporate Debtor) against the order dated 17.03.2023 passed by the

National Company Law Tribunal, Mumbai by which CP (IB) No. 216 of 2022

filed by Somesh A Naik & Ors. (Financial Creditors) under Section 7 of the

Code has been admitted and Manish Kumar R. Patel, a registered insolvency

resolution professional was appointed as Interim Resolution Professional

(IRP).

2. In brief, the petition under Section 7 of the Code was filed by Somesh A

Naik & 44 others claiming an amount of Rs. 4,37,14,449/- out of which Rs.

Comp. App. (AT) (Ins) No. 430 of 2023 2

2,34,17,965/- is the principal amount whereas rest of the amount is the

interest.

3. The petition filed under Section 7 of the Code was filed on printed

Performa on 30.12.2021 in which in part IV the date of default has been

mentioned as 31.10.2021.

4. Case of the Financial Creditors is that the Corporate Debtor used to

purchase goods (i.e. raw material) from Manohar Manak Alloys Pvt. Ltd.

(Manohar Alloys). Manohar Alloys sold its unpaid invoices, which were to be

paid at a future date, to KredX/Minion Ventures Pvt. Ltd. for facilitating quick

recovery of funds. KredX is an online platform managed by Minion Ventures

Pvt. Ltd. which provides invoice discounting facilities. KredX provides a

market/platform for business owners to sell and investors to purchase

invoice. It facilitates invoice discounting and reverse invoice discounting. The

parties agreed to list the invoices on the platform. Manohar Alloys i.e. the

seller discounted the invoices of CD after the execution of the CoR agreement

and deposited the amount in an escrow account maintained by KredX with

Yes Bank.

5. The Financial Creditors were lending money through Cred against the

bills to various parties. The bills so assigned to the Financial Creditors and

the amounts against such bills was disbursed. In the process of transactions,

the Applicants stated to have paid a sum of Rs. 2,34,17,965/- on various

dates i.e. 13.08.2019, 23.08.2019, 03.09.2019 and 04.09.2019. The CD was

to repay the amount within 60 days from the date of disbursement.

Comp. App. (AT) (Ins) No. 430 of 2023 3

6. The Financial Creditors entered into an agreement for creation of rights

(COR) dated 13.08.2019 amongst Manhar Alloys Pvt. Ltd. (the seller), the

Financial Creditors, the Corporate Debtor (buyer) and Million Ventures Pvt.

Ltd. (Platform provider).

7. The Financial Creditors claimed the said amounts as financial debt

whereas the CD has alleged that it was an operational debt, therefore, the

application was not maintainable.

8. The Tribunal has observed that there is no dispute that the CD had

availed the facility of bill purchase of the invoices raised for supply of goods

by it to the CD through Cred/Million Ventures, a fintech company and while

interpreting Section 5(8)(e) of the Code held that transaction is in the nature

of receivables sold or discounted as contemplated in clause (e) of Section 5(8)

of the Code and as such the application filed under Section 7 was

maintainable and since the application could have been maintained by all the

financial creditors together in view of Section 7(1) of the Code and that the

amount involved is more than 1 Cr., beyond the threshold provided under

Section 4 of the Code, admitted the application and appointed the IRP besides

imposing moratorium.

9. At the time of preliminary hearing in this appeal on 11.04.2023, this

Court had passed the following order:-

"Learned counsel for the Appellant submits that Section 7 application on behalf of Respondent No. 2 to 46 has been admitted who had purchased the invoices from the platform which invoices were provided by the seller who was not party to the proceedings. It is submitted that there was no financial debt on which Section 7 application could have admitted. Learned counsel placed reliance Comp. App. (AT) (Ins) No. 430 of 2023 4

on judgment of this Appellate Tribunal in "Company Appeal (AT) (Ins.) No. 572 of 2022, Minions Ventures Pvt. Ltd. vs. TDT Copper Ltd.". Issue notice. Requisites alongwith process fee be filed within three days. Respondents may file reply within three weeks. List this Appeal on 23.05.2023. In the meantime, order dated 17.03.2023 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench shall remain stayed. Rejoinder before the date fixed."

10. The appellant has relied upon a decision of this Court rendered in the

case of Minions Ventures Pvt. Ltd. Vs. TDT Copper Ltd., CA (AT) (Ins) No. 572

of 2022 to contend that in the said case also the controversy between the

parties were exactly the same and this Court has held that the financers

would enter into shoes of the seller in terms of Section 5(20) and 21(5) and

Section 5(7) and 5(8)(e) of the Code would not apply. It was thus held that the

application having been filed under Section 7 was not maintainable but the

financers were relegated to avail their remedy under Section 9 of the Code.

11. Counsel for Respondent has argued vehemently that the transaction

between the parties is in the nature of a financial debt, therefore, there is no

error in the impugned order but no judgment in support was referred to.

12. We have heard Counsel for the parties and perused the record.

13. The facts enumerated hereinabove are not in dispute and the only issue

which requires to be adjudicated upon is as to whether in the given facts and

circumstances the financers / alleged financial creditors can maintain the

application under Section 7 of the Code or it is a transaction of an operational

debt for which an application under Section 9 is maintainable. In this regard,

it would be suffice to note that a similar controversy has been decided by this

Court earlier in the case of Minions Ventures Pvt. Ltd. (Supra) in which exactly

Comp. App. (AT) (Ins) No. 430 of 2023 5

the same issue was raised and this Court categorically held that the case

would not be covered by Section 5(8)(e) rather it shall be covered by Section

5(20) and 21(5) of the Code and hence the application filed under Section 7 is

not maintainable. However, at the same time, the financers were not left

remediless as they are relegated to avail their remedy to file an appropriate

application in accordance with law under Section 9 of the Code.

14. Thus, in view of the law laid down in the case of Minions Ventures Pvt.

Ltd. (Supra) we find merit in the present appeal and hence, the same is hereby

allowed and the impugned order is set aside but at the same the Respondents

/ alleged financers are relegated to their remedy to file an application under

Section 9 of the Code, if so adviced, in accordance with law. No costs.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

New Delhi 16th December, 2024 Sheetal

Comp. App. (AT) (Ins) No. 430 of 2023