The Supreme Court elaborates on the criteria for categorizing debt as financial or operational under the IBC.
The Supreme Court, in the case of GLOBAL CREDIT CAPITAL LIMITED & ANR. versus SACH MARKETING PVT. LTD. & ANR., clarified that for a debt to be considered operational, it must have a connection to the service provided by the creditor to the debtor. This means that when a creditor claims a debt based on a written agreement for service provision, the debt will be operational only if it correlates with the service rendered.
In the case at hand, the creditor deposited Rs. 53,15,000 as a security deposit with the corporate debtor, alongside an obligation to promote the debtor's beer, for which the debtor had to pay Rs. 4,000 per month. The deposit was to be refunded with 21% interest. The Court upheld the National Company Law Appellate Tribunal's decision, ruling the security deposit as a financial debt, as it involved a refund obligation with interest, unlike the operational debt linked to service provision.
The Court established a test to discern financial debt from operational debt: examining the true nature of the transaction in the written agreement. If the debt is linked to services rendered, it's operational; otherwise, if it's akin to borrowing, it's financial.
The Court found that only the Rs. 4,000 monthly payment for service provision qualified as operational debt, while the security deposit functioned as financial debt due to its borrowing-like nature, as evidenced by the corporate debtor's treatment in its account statements.
Consequently, the Court dismissed the appeal, allowing the Resolution Professional to proceed with the Corporate Insolvency Resolution Process (CIRP), considering the security deposit as a financial debt.