Provision of advance against business dealings is not 'Financial Debt': NCLAT

Provision of advance against business dealings is not 'Financial Debt'

The National Company Law Appellate Tribunal (NCLAT) has ruled that "providing advance against business dealings" is not covered under 'Financial Debt' and hence Section 7 of Insolvency and Bankruptcy Code, 2016 (I&B Code) cannot be invoked for such transactions.

A bench headed by Acting Chairperson Justice Bansi Lal Bhat gave this ruling while hearing a case in which the Appellant claimed that it had extended an unsecured loan of more than Rs. 20 lacs to the Respondent and is aggrieved as the Appellant had not been considered as a Financial Creditor under the I&B Code by the Adjudicating Authority.

As per section 5(8) of the I&B Code, 2016, 'Financial Debt' means a 'Debt' alongwith interest, if any which is disbursed against the consideration for the time value of money.

The NCLAT held that, the Appellant was advancing the money to the Respondent which were 'Commercial Advances' during their business dealings. The tribunal added, "As far as I&B Code, 2016 is concerned "providing advance against business dealings" is not covered under 'Financial Debt' and hence Section 7 of I&B Code, 2016 cannot be invoked for such transactions."

The NCLAT agreed with the Adjudicating Authority that the case is devoid of merit both on facts and law and hence, dismissed the appeal.

The appellate authority added that this order will not preclude the Appellant to take action for recovery of money under the relevant laws.