The court clarified that debts linked to supply chain transactions are operational debts, not financial debts, thus rendering insolvency applications under Section 7 of the IBC non-maintainable.

ORDER

PER: MANNI SANKARIAH SHANMUGA SUNDARAM, MEMBER (J)

1. The present Company Application is filed by PRUDENT ARC LIMITED (‘Applicant’) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for brevity ‘the Code’) read with rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity ‘the Rules’) with the following prayer with a prayer to trigger Corporate Insolvency Resolution Process in respect of Respondent Company Karan Automotives Private Limited (‘Corporate Debtor’) for default in repayment of financial debt of Rs.3,17,64,312/- (Rupees Three Crores Seventeen Lakhs Sixty Four Thousand Three Hundred Twelve Only).

2. PRUDENT ARC LIMITED (PRUDENT TRUST 58/22) (hereinafter referred to as the ‘Financial Creditor’ / ‘Applicant’) is an Asset Reconstruction Company, a company incorporated under the Companies Act, 1956, and registered as Securitisation and Asset Reconstruction Company pursuant to Section 3 of SARFAESI Act, 2022 . The authorised officer of Financial Creditor Sh. Amar Jit Kochar has been empowered and authorised to sign, file and verify the present application vide Board Resolution dated 17.06.2021.

3. The Corporate Debtor i.e., Karan Automotives Private Limited having CIN: U34300DL200PTC118971 was incorporated on 14.02.2003 under the provisions of the Companies Act, 1956 having its registered office situated at H.No. 7, Ground Floor ,Vill. Tekhand Mavi Mohalla, 1 E, Campa Cola Factory New Delhi New Delhi 110020. Since the registered Page | 2 office of the Corporate Debtor is in New Delhi, this Tribunal having territorial jurisdiction over the NCT of Delhi is the Adjudicating Authority in relation to the prayer for initiation of Corporate Insolvency Resolution Process in respect of respondent corporate debtor under sub-section (1) of Section 60 of the Code.

4. Briefly stated facts of the case as mentioned in the Company Application, which are relevant to the issue in question, are as follows:-

a) That the present insolvency application is preferred by Prudent ARC Limited (hereinafter referred to as the "Financial Creditor" or "Assignee" or "applicant"), under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "Code"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Karan Automotives Private Limited. It is submitted that the Financial Creditor is a private limited company under the Companies Act, 2013 and is also registered as an Asset Reconstruction Company (ARC) under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act").

b) That UGRO Capital Limited (hereinafter referred to as "Ugro" or "Assignor") is a leading Non-Banking Financial Company (NBFC), which had originally sanctioned and disbursed the loan facility to the Corporate Debtor, pursuant to execution of various agreements, sanction letters and related documentation. That subsequently, by way of an Assignment Deed dated 29.09.2021, Page | 3 Ugro (Assignor) transferred and assigned the entire debt, along with all underlying rights, interests, entitlements and security documents, including the right to initiate legal proceedings and take all necessary actions in respect of recovery of the said financial debt from the Corporate Debtor, in favour of Prudent (Assignee).

c) The Applicant submitted that Ugro (Assignor), vide Sanction Letter dated 07.10.2019, sanctioned a loan facility with a credit limit of Rs. 2,00,00,000/- (Rupees Two Crores only) in favour of the Corporate Debtor, whereby the Corporate Debtor was entitled to