Case Overview

The application, C.P. (IB) 638/ND/2022, was filed by SBI Global Factors Ltd. (Applicant/Financial Creditor), an RBI-registered NBFC, under Section 7 of the Insolvency and Bankruptcy Code, 2016. It sought the initiation of the Corporate Insolvency Resolution Process (CIRP) against AKS Electricals & Electronics Pvt. Ltd. (Respondent/Corporate Debtor) for a default of ₹1,19,00,502.34.

The debt originated from a Domestic Factoring Facility provided by SBI Global to PSR Metals Pvt. Ltd. since May 2019. Through a Deed of Assignment dated 07.01.2020, PSR assigned trade receivables worth ₹2.22 crore from AKS Electricals to SBI Global. The core dispute was whether this assigned debt constituted a 'financial debt' under the IBC, making SBI Global a 'financial creditor' of AKS Electricals.

The Respondent contended that the application was not maintainable. Their primary argument was that the factoring was done on a 'recourse' basis, meaning SBI Global's exposure, as per RBI guidelines, should be reckoned against the assignor (PSR Metals) and not the debtor (AKS Electricals). They also argued that no disbursal was made directly to them against the time value of money, a key ingredient for a financial debt. Furthermore, they raised a technical objection regarding the affidavit filed under the repealed Indian Evidence Act.

The Adjudicating Authority had initially dismissed the application on 16.02.2023, relying on an RBI circular. However, the NCLAT, in Appeal No. 664 of 2023, set aside this order on 07.08.2025 and remanded the case back for fresh consideration based on a review of the contractual documents.

Findings and Analysis

The Tribunal meticulously examined the contractual agreements, including the Global Account Receivables Management Agreement and the Deed of Assignment. It noted that the relationship between PSR Metals and AKS Electricals was fundamentally that of a supplier and buyer of goods. The invoices assigned to SBI Global arose from this supply relationship.

The Tribunal relied heavily on the precedent set by the NCLAT in Canbank Factors Ltd. vs. Brijesh Singh Bhaduria & Ors. (CA (AT) (Insolvency) No. 742 of 2025), which dealt with an identical situation. The NCLAT in that case had held that where a financer merely discounts invoices and no disbursement is made to the corporate debtor (the buyer of goods), the debt remains an 'operational debt' under Section 5(21) of the Code. The subsequent assignment of these trade receivables does not transform their fundamental nature from operational to financial.

The Tribunal concluded that SBI Global had disbursed funds to PSR Metals (the supplier) and not to AKS Electricals (the buyer). Therefore, the essential element of disbursement against the time value of money to the corporate debtor was absent. The debt owed by AKS Electricals was for the supply of goods, making it an operational debt. Consequently, SBI Global, as an assignee of this operational debt, could not be considered a financial creditor of AKS Electricals.

Final Outcome

The application under Section 7 of the IBC was dismissed for being non-maintainable. The NCLT held that the Applicant failed to establish the existence of a financial debt or its status as a financial creditor of the Corporate Debtor, which is a fundamental jurisdictional requirement for initiating CIRP under Section 7.

Topics: Insolvency Law, Debt Classification, Factoring Regulation