{"id":252205,"date":"2021-08-03T18:00:15","date_gmt":"2021-08-03T12:30:15","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=252205"},"modified":"2021-08-03T18:57:35","modified_gmt":"2021-08-03T13:27:35","slug":"working-capital-and-financial-debt","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2021\/08\/03\/working-capital-and-financial-debt\/","title":{"rendered":"NCLT Decodes | Whether working capital provided by an investor to run a restaurant would come under the ambit of Financial Debt?\u00a0"},"content":{"rendered":"

National Company Law Tribunal (NCLT): <\/strong>Coram of H.V. Subba Rao (Judicial Member) and Chandra Bhan Singh (Technical Member) held that \u2018Working Capital\u2019 provided by an investor cannot be considered as \u2018Financial Debt\u2019.<\/p>\n

Instant company petition was filed seeking to initiate Corporate Insolvency Resolution Process against the Corporate Debtor alleging that the Corporate Debtor committed default in making payment to the Financial Creditor.<\/p>\n

Petition was filed by invoking the provisions of Section 7 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.<\/p>\n

Since the Corporate Debtor failed to make payment of a sum of Rs 7,02,682, a petition was filed before the Adjudicating Authority.<\/p>\n

Financial Creditor submitted that a Restaurant Operation and Services Agreement (ROSA) was signed between the parties on, as per which the investor would finance furnish and equip restaurants whereas the respondent operating partner was to provide day to day Operations and Management Services for the running of the business.<\/p>\n

Analysis, Law and Decision<\/u><\/span><\/h3>\n

Bench noted that the total claim of the petitioner was based on Article 2 Section 4 of the Agreement regarding working capital.<\/p>\n

Article 2, Section 4: Capital Expenditure<\/strong><\/p>\n

\u201c…The Capital Expenditure to be incurred by the Investor with respect to each of the Restaurants is capped at Rs. 35,00,000\/-, excluding goods and service tax. Provided however, the Operating Partner shall use reasonable endeavours to minimize the actual Capital Expenditure for each Restaurant. In the event the Capital Expenditure exceeds the aforesaid amount, the Investor may, at its discretion, approve and incur the same…\u201d<\/em><\/p>\n

\u00a0<\/em>Financial Creditor submitted that it provided a loan of Rs 7.02 lakhs.<\/p>\n

Bench noted that all the three premises from where the restaurants were operating was rented in the name of the Financial Creditor under Leave and License Agreement and the Corporate Debtor was not a party.<\/p>\n

Further, the total claim mentioned was a claim to Rent Commission and Maintenance, none of which amounted to a Financial Debt.<\/p>\n

Adding to the above, Tribunal noted that there was no disbursement to the respondent and all the payments were related to the third party.<\/p>\n

Hence, no money was received by the Corporate Debtor in its account. The Petitioner failed to produce any bank statement showing that the said amount had gone into the respondent\u2019s account.<\/p>\n

Therefore, about Rs. 7.02 lakhs did not come into the account of the Corporate Debtor but were paid by the Financial Creditor.<\/p>\n

Bench even opined that Article 2 Section 4 never mentions that it is a working capital loan, it only says that in the event of Operating Partners requires the Working Capital for the initial period till a Restaurant has achieved break even, the Investor shall provide the same in a manner as may be mutually agreed between the parties.<\/p>\n

Hence, the Tribunal stated that,<\/p>\n

\u201c\u2026it was not a loan and till the achievement of the \u2018break even\u2019 the investor was to provide the Working Capital.\u201d<\/em><\/p>\n

\u00a0<\/em>Further, it was also noted that the petitioner was trying to make out a case not as an Investor in the restaurant project but as a creditor which was contrary to the documents executed between the parties.<\/p>\n

Corporate Debtor clearly brought out that the said restaurants never \u2018broke even\u2019 and therefore, there was no obligation on the part of the respondent to pay an amount which had been provided by way of working Capital.<\/strong><\/p>\n

Therefore, while concluding the matter, Bench held that the amount which was being claimed as Financial Debt was not a Debt at all and at best was a payment due after the restaurant business \u2018breaks even\u2019.<\/p>\n

Hence, the amount claimed of Rs 7,02,682\/- does not qualify as a Financial Debt under Section 5(8) of the Code and is not default under Section 3(12) of the Code. [Plutusone Hospitality (P) Ltd. v. Busabong & Co. (P) Ltd., CP No. 4395\/IBC\/MB\/2019, decided on 26-7-2021]<\/p>\n

\n

Advocates before the Tribunal:<\/strong><\/p>\n

For the Applicant:<\/span> Mr Shyam Kapadia, Advocate<\/p>\n

For the Respondent:<\/span> Mr Nausher Kohli, Advocate<\/p>\n","protected":false},"excerpt":{"rendered":"

National Company Law Tribunal (NCLT): Coram of H.V. Subba Rao (Judicial Member) and Chandra Bhan Singh (Technical Member) held that \u2018Working Capital\u2019 <\/p>\n","protected":false},"author":8808,"featured_media":162604,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,11],"tags":[30596,31422,6121,42756,29785,12521,46649,29967],"class_list":["post-252205","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-tribunals_commissions_regulatorybodies","tag-corporate-debtor","tag-financial-debt","tag-insolvency","tag-investor","tag-law","tag-nclt","tag-restaurant","tag-working-capital"],"yoast_head":"\nNCLT Decodes | Whether working capital provided by an investor to run a restaurant would come under the ambit of Financial Debt?\u00a0 | SCC Times<\/title>\n<meta name=\"description\" content=\"Working Capital and Financial Debt\" \/>\n<meta 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Nallasenapathy, Member (Technical) allowed a petition filed by TJSB Sahakari Bank (\"the Bank)\u00a0for admission of an application\u00a0under Section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"National Company Law Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":264487,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/03\/26\/national-company-law-tribunal-orders-insolvency-proceedings-against-supertech\/","url_meta":{"origin":252205,"position":5},"title":"National Company Law Tribunal orders insolvency proceedings against Supertech: Indebted and defaulted repayment of loan","author":"Bhumika Indulia","date":"March 26, 2022","format":false,"excerpt":"National Company Law Tribunal, New Delhi: The Coram of P.N. Prasad, Judicial Member and Rahul Bhatnagar, Technical Member, declared insolvency proceedings against the builder Supertech Limited. An application was filed to initiate the Corporate Insolvency Resolution Process against Supertech Limited under Section 7 of the Insolvency and Bankruptcy Code 2016\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"National Company Law Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/252205","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/8808"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=252205"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/252205\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/162604"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=252205"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=252205"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=252205"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}