Conversion Of Partner's Dues Into Loan Does Not Qualify As Financial Debt U/S 5(8) Of IBC: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that conversion of partners' dues against the partnership firm into a loan cannot become a financial debt merely because the dues were assigned at the time the partnership firm was converted and registered as a Limited Liability Partnership (LLP). It further held that at the time the debt arose, it was not a financial debt within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (Code) Brief Facts: This Appeal has been filed against the order dated 20.12.2024, by which the application filed under Section 7 of the Code by Gogia Leasing Ltd. (Appellant) was dismissed. The Appellant claims to be an assignee from two individuals who were earlier partners of a firm that later got registered as an LLP. Subsequently, the partners converted their dues into a loan to the firm, which loan is now claimed to be assigned to the Appellant. The Appellant submitted that the Appellant is only assigner and the time when assignment was made, the LLP was already registered, hence, the Appellant could have initiated the proceeding under Section 7 for its due. Observations: The Tribunal observed that the present case involves partners of a firm who had certain dues against the partnership firm, which they later converted into a loan. However, at the time the debt arose, i.e., as a loan to the partnership firm, it did not qualify as a financial debt within the meaning of Section 5(8) of the Code. Based on the above, it held that the mere fact that the debt was assigned to the Appellant at the time the LLP was constituted does not render it a financial debt under Section 5(8) of the Code. Accordingly, the present appeal was dismissed. Case Title: Gogia Leasing Ltd. Versus Sunanda Polymers LLP Case Number: Company Appeal (AT) (Insolvency) No. 405 of 2025 Judgment Date: 08/04/2025 For Appellant : Mr. Prithu Garg, Mr. Ashutosh Arvind Kumar and Mr. Shivam Singh, Advocates For Respondent : Click here to download Order/Judgement

Conversion Of Partner's Dues Into Loan Does Not Qualify As Financial Debt U/S 5(8) Of IBC: NCLAT

Mohd Malik Chauhan

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