Promoters’ intent to provide working capital constitutes financial debt, not operational debt: NCLAT

Rajeev Kumar Jain Vs Uno Minda Limited (NCLAT Delhi)

Introduction: In a pivotal decision, the National Company Law Appellate Tribunal (NCLAT), Delhi, delineated the contours of ‘financial debt’ under Section 5(8) of the Insolvency & Bankruptcy Code, 2016 (IBC), in the case of Rajeev Kumar Jain vs Uno Minda Limited. This case sheds light on the nuanced interpretation of financial transactions that qualify as financial debts under the IBC, marking a significant moment for corporate insolvency proceedings in India.

Detailed Analysis: The appeal was lodged by Mr. Rajeev Kumar Jain, an ex-director and shareholder of Unicast Autotech Private Limited (the ‘Corporate Debtor’), challenging the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor as sanctioned by the National Company Law Tribunal (NCLT), New Delhi. The crux of the dispute revolved around whether the financial assistance provided by Uno Minda Limited to the Corporate Debtor, specifically for procuring raw materials and fulfilling working capital requirements, constituted a ‘financial debt’ as per the IBC’s definition.

Key aspects of the case include:

Please become a Premium member. If you are already a Premium member, login here to access the full content.