Inter-Corporate Deposits and Financial Debt: A Study of NCLAT’s Interpretation
An In-depth Analysis of the Case: Ansal Housing Ltd. vs. Samyak Projects Pvt. Ltd.
This article provides a detailed examination of the complex interpretation of financial debt under the Insolvency and Bankruptcy Code (IBC), with a specific focus on joint venture scenarios. The case of “Ansal Housing Ltd. vs. Samyak Projects Pvt. Ltd.,” adjudicated by the National Company Law Appellate Tribunal (NCLAT), New Delhi in 2023, is used as a reference point for this analysis.
I. The Concept of Inter-Corporate Deposits (ICDs)
Inter-Corporate Deposits (ICDs) are unsecured loans that are typically short-term and are extended between corporate entities. These instruments are frequently used for addressing short-term financing needs. While ICDs are common in business transactions, they fall under a complex legal framework, especially when viewed in the context of financial debts under the IBC.
II. The Insolvency and Bankruptcy Code (IBC) and Its Take on Financial Debt
The IBC, which was enacted in 2016, is a comprehensive law that consolidates the regulations relating to insolvency and bankruptcy. Its primary aim is to resolve insolvencies in a time-bound manner, maximize the value of assets, and balance the interests of all stakeholders. The IBC defines financial debt in Section 5(8) as a debt, along with any interest, which is disbursed against the consideration for the time value of money1.
Section 5(7) of the IBC defines a ‘financial creditor’ as a person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred2. This section is vital in determining the status of a party as a financial creditor in insolvency proceedings2.
III. Case Review: Ansal Housing Ltd. vs. Samyak Projects Pvt. Ltd.
The case centered around the question of whether an Inter-Corporate Deposit (ICD) by Ansal Housing Ltd. to Samyak Projects Pvt. Ltd. for a joint real estate project could be classified as a financial debt under the IBC. Ansal Housing Ltd. contended that the ICD should be classified as a financial debt, while Samyak Projects Pvt. Ltd. disputed this classification.
IV. The NCLAT’s Verdict and Its Rationale in Financial Debt
The NCLAT ruled that Ansal Housing Ltd., as an appellant, did not qualify as a Financial Creditor as per Section 5(7) of the IBC. As a result, the application under Section 7 of the IBC was deemed not maintainable2. The NCLAT’s decision was based on the definition of ‘financial debt’ under Section 5(8) of the IBC1. It highlighted that the primary objective of the IBC is the resolution of the Corporate Debtor, not debt recovery1.
The NCLAT noted, “In so far as the findings of the Adjudicating Authority are concerned that both the parties being joint venture partners, there was no financial debt in terms of c and hence the application under Section 7 of the IBC could not be entertained.” Further, the judgment states, “We hold that the Appellant is not a Financial Creditor in terms of Section 5(7) of IBC and the application under Section 7 at the instance of the Appellant was not maintainable and hence the same has been rightly rejected by the Adjudicating Authority.” The Tribunal observed the broader perspective of the IBC, emphasizing, “It may also not be out of place to mention here that the primary intent and object of the IBC is the resolution of the Corporate Debtor and not the recovery of a debt of the creditor.”
V. The Impact of the Verdict
This verdict provides clarity on the treatment of ICDs in joint ventures, particularly in the real estate sector, under the IBC. The case sets a precedent for how ICDs in joint ventures are interpreted under the IBC, influencing future insolvency proceedings and the financial structuring of joint ventures.
IBC Financial Debt Conclusion
The NCLAT’s decision in “Ansal Housing Ltd. vs. Samyak Projects Pvt. Ltd.” represents a significant interpretation of the IBC in relation to Inter-Corporate Deposits in joint ventures. This verdict provides clarity on the classification of financial debts and emphasizes the primary objective of the IBC – resolution over recovery. As jurisprudence evolves, this case will serve as a key reference point.