Paying “Advance” Against Property Is A Commercial Transaction, Qualifies As Financial Debt U/S 5(8)(f) IBC: NCLT New Delhi

Background of the Case

The applicant, Kaliber Associates Pvt. Ltd., was undergoing liquidation and filed the section 7 IBC application to initiate CIRP of J.R. Modi Associates Pvt. Ltd. for non-payment of Rs. 9.05 Cr.

The applicant contended that the amount was part of a large short-term loan disbursed to the corporate debtor. The loan remained unpaid even after issuing several demand notices to the corporate debtor. However, the corporate debtor contended that the alleged transaction was merely an “advance against property” and doesn't qualify as financial debt.

Contention of the Respondent

The respondent submitted that it has never availed any loan facility from the financial creditor, and no agreement was signed between them with regard to any loan. It argued that as per the audited accounts, there is an advance against property, which has been received by it at arm's length price for the transfer of property.

The corporate debtor also argued that the independent auditor's report of its balance sheet highlights the sum of Rs. 9.05 Cr. as 'advance against property of Kaliber Associates Pvt. Ltd.' It also highlighted that the independent auditor's report of the financial creditor's balance sheet reflects a sum of Rs. 9.05 Cr. as 'short-term loans and advances.'

Observations of the Adjudicating Authority

The NCLT observed that the disbursal is not disputed; instead, it has been acknowledged by the corporate debtor in the financial statements.

Relying on the ruling of the NCLT, Kolkata Bench, in the case of Alliance Broadband Services Private Limited vs. Manthan Broadband Services Private Limited, MANU/NC/7518/2019, the bench held that an “advance against property” constitutes a financial debt within the meaning of Section 5(8) of the IBC, 2016.

The adjudicating authority cited the Hon'ble Supreme Court's ruling in the case of M/s Orator Marketing Pvt. Ltd. v. M/s Samtex Desinz Pvt. Ltd., Civil Appeal No. 2231 of 2021, and discussed that even an interest-free advance can qualify as financial debt if the transaction bears the commercial effect of borrowing.

Referring to the NCLAT's decision in the case of Black Soft Tech Pvt. Ltd. vs. Quinn Logistics India Ltd., it was held that investments or advances made with an element of commercial return or benefit satisfy the test of "time value of money" and qualify as financial debt under the Code.

The NCLT admitted the Section 7 application and initiated CIRP against the corporate debtor.

Case Title: M/s. Kaliber Associates Private Limited (through its Liquidator Mr. Mohan Lal Jain) v. M/s. J.R. Modi Associates Private Limited

Case Number: Company Petition No. (IB)-1122(ND)/2020

For Applicant: Mr. Anirban Bhattacharya and Mr. Rajeev Chowdhary, Advocates

For Respondent: Ms. Nishtha v. Mr. Tushar, Advocates

Bench: Manni Sankariah Shanmuga Sundaram (Member-Judicial) and Atul Chaturvedi (Member-Technical)

Order Date: 10.07.2025

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