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2021 (1) TMI 271 - Tri - Insolvency and BankruptcyCIRP Proceedings - Operational Debts or Financial Debts - The IRP however, was of the opinion that the Corporate Debtor being a financial guarantor owed a financial debt to the Respondent Nos. 2 and 3. Thus the Respondent Nos. 2 & 3 would have to be regarded as Financial Creditors of the Corporate Debtor. - HELD THAT:- Forward Purchase Agreement may or may not be regarded as a financial transaction for it to be a financial debt. It must have the commercial effect of a borrowing. The recitals of the Forward Purchase Agreement indicated above do not envisage the financial transactions in the nature of financial debt as defined under section 5(8) of the Code. The Agreements do not satisfy the parameters discussed in the cited precedent supra. A forward contract to sell a product at the end of a specified period cannot be regarded as a financial contract. Both the FPAs indicate that they were essentially forward contracts for supply of specified goods (products). The Corporate Debtor or for that matter the purchaser under the Agreement dated 29.09.2018 has not raised any amount thereunder. Under the Agreements they agreed to purchase certain products and pay therefor. The Corporate Debtor executed deeds of guarantee binding itself to pay any shortfall in case of default. Such transactions accordingly may at best amount to an operational debt in terms of section 5(21) of the Code for provision of goods and services and payment in respect thereto. Therefore, the FPAs dated 29.09.2018 and 28.12.2018 cannot be regarded as financial transactions in which a debt was raised or payment was made against the consideration for the time value of money which also had the commercial effect of borrowing - the transactions were essentially simple agreements of sale and purchase. The same would not come within the definition of ‘financial debt’ under section 5(8)(f) of the Code. The principal agreements not being financial transactions and the amount of any liability in respect of the guarantee contemplated under section 5(8)(i) of the Code, would accordingly not come within the purview of the financial debt. The guarantee essentially was for payment against default in the sale consideration of the products agreed to be purchased respectively from Respondent Nos. 2 and 3. The guarantees being not a liability arising out of the transaction in terms of section 5(8)(f) of the Code, would not come within the purview of the financial debt. The Respondent No 2 and Respondent No 3, accordingly cannot find a place in the CoC - decision of the Respondent No. 1 admitting the claims of Respondent Nos. 2 and 3 as financial creditors is set aside - Application is allowed in part on contest.
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