Collusive commercial arrangement between creditors and corporate debtor wouldn't constitute a financial debt, rules SC

  • Corporate Law
  • knowledge
  • financeseva

In given case, the NCLT had excluded AAA and Spade from Committee of Creditors (CoC) formed in relation to corporate insolvency resolution process (CIRP) initiated against corporate debtor and NCLAT affirmed said order. However, an appeal was filed by appellant-financial creditors stating that though NCLAT correctly dismissed appeal filed by Spade and AAA,holding that they were related parties of corporate debtor and were, hence, to be excluded from CoC but there was an erroneous finding that they were financial creditors. 

Since commercial arrangements between Spade AAA and corporate debtor were collusive in nature, they would not constitute a "financial debt pursuant to section 5(8) And, therefore, Spade and AAA were not financial creditors of corporate debtor but decision of NCLAT, as much as it referred to Spade and AAA as related parties to corporate debtor under section 5(24) and excluded Spade and AAA from CoC in accordance with first proviso to section 21(2) was affirmed.