Loan Amount Acknowledged As “Long-Term Borrowings” Has Commercial Effect And Covered U/S 5(8) Of IBC: NCLT Mumbai

The National Company Law Tribunal, Mumbai Bench, comprising Ms. Lakshmi Gurung, Member (Judicial) & Sh. Charanjeet Singh Gulati (Technical), while adjudicating an application under Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”) in the case of Metamorphosis Trading LLP vs Membrane Filters (India) Private Limited has held that the loan amount acknowledged in the books of the Corporate Debtor as “Long-term Borrowings” is a loan having commercial effect of borrowing and is therefore, covered under section 5(8) of the I&B Code as financial debt. Background Facts Mr. Dhinal Shah (“Liquidator”) issued a public notice inviting bids for sale of certain claims/transferred assets of M/s Innoventive Industries Ltd. (“Financial Creditor”). Metamorphosis Trading LLP (“Applicant”) won the bid and so a Deed of Assignment was executed between the Liquidator and Applicant. The assets acquired by the Applicant as a result of the deed includes the financial debt of 3,54,17,724/- which is payable by M/s Membrane Filters (India) Private Limited (“Corporate Debtor”). The promoters of Financial Creditor had a 30% shareholding in the Corporate Debtor. The Applicant issued a legal notice to the Corporate Debtor to pay the said amount. It was argued by the Corporate Debtor that the documents relied on by the Petitioner do not serve as evidence that the alleged debt is financial debt. It was further contended that the Process Memorandum as well as the Deed of Assignment does not prove the debt or its nature as a financial debt. Further, it was contended that the default is not established. NCLT Verdict It was observed by the Tribunal that it is clear that there exists an “unsecured loan” of Rs. 3,54,17,724/- as stated in the Balance Sheet. It was also observed that the amount given by Financial Creditor in its Financial statement is shown as “Non-Current Liabilities: Long Term Borrowings: Unsecured Loans – From Others. Thus, it was held that” “The said loan amount of Rs. 3,54,17,724/- acknowledged in the books of the Corporate Debtor as “Long-term Borrowings” is a loan having commercial effect of borrowing and is therefore, covered under section 5(8) of the I&B Code as financial debt.” With the aforesaid observations, the Tribunal admitted the petition. Case:Metamorphosis Trading LLP vs Membrane Filters (India) Private Limited Case No. ;C.P.(IB)-880(MB)/C-III/2022 Counsels for the Applicant;Adv. Kacheria Counsel for the Respondent ;Adv. Omkar V Deosthale i/b Regulus Advocates and Consultants Click Here to Read/Download Order

Loan Amount Acknowledged As “Long-Term Borrowings” Has Commercial Effect And Covered U/S 5(8) Of IBC: NCLT Mumbai

Aditi Gupta

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