Disbursal Of Funds Under Funding Agreement With Guaranteed Return Amounts To Financial Debt U/S 5(8) IBC: NCLT

The NCLT, Mumbai Bench, has held that a disbursal of funds under a funding agreement with guaranteed return amounts to financial debt under section 5(8) of the IBC, 2016. The bench of Judicial Member Nilesh Sharma and Technical Member Sameer Kakkar observed, “It can be said that the Applicants have invested funds under the Funding Agreement, and as per the terms of the agreement, the Applicants were promised to get the principal amount along with profit at 45% p.a., which the CD failed to pay the Applicants, and therefore, the funds take the course of debt under Section 5(8) of the Code.” The applicants (Sunil Tulsidas Gadekar & Anr.) provided funds to the corporate debtor (Vindhyawasani Marine Services Private Limited) under the Funding Agreement. It was agreed between the parties that the revenue will be shared in a ratio of 22.5% by each applicant and 55% by the corporate debtor from the business of charting of Chenab. The corporate debtor was also supposed to transfer 30% ownership in Chenab to the applicants. The corporate debtor started diverting funds for the purchase of new vessels, which was against Clause 14(c) of the Funding Agreement. As per the clause, complete transparency with the applicants was required in respect to the business revenue generated from chartering of Chenab. Thereafter, the corporate debtor stopped making payment to the applicants, leading the applicants to file a petition under Section 9 of the Arbitration and Conciliation Act, 1996, where the Hon'ble Bombay High Court appointed a sole arbitrator. The arbitration award was passed in favor of the applicants, holding that the corporate debtor had to pay the applicants a sum of Rs. 23,75,000/- and Rs. 21,45,000/- debt along with interest of 45% p.a. from the date of execution of the funding agreement, i.e., 16.08.2016, until payment/realization. Considering the award passed by the arbitral tribunal, the NCLT held that there was an outstanding debt payable by the corporate debtor. The corporate debtor argued that the funding agreement doesn't exist, as it was neither registered nor duly notarized. However, the NCLT observed that the corporate debtor has participated in the arbitral proceedings, where it was not able to prove the invalidity of the funding agreement. A Final and Unsatisfied Arbitral Award Creates a Fresh Cause of Action The corporate debtor also pleaded that the arbitral proceeding was for breach of contract and not for recovery of any financial debt, and the jurisdiction of the NCLT has been invoked by the applicants for execution of the arbitral award. Considering this contention, the NCLT referred to the cases of Kotak Mahindra Bank Limited vs. A. Balakrishnan and Anr., (2022) 9 SCC 186 and Dena Bank (Now Bank of Baroda) vs. C. Sivakumar Reddy, (2021) 10 SCC 330, where it was held that a liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within the meaning of clause (8) of Section 5 of the IBC. Therefore, the applicants has the fresh cause of action to file the present section 7 application, as the arbitral award has attained finality and the payments have not been made by the corporate debtor, the bench observed. Funding Agreement Disbursal with Guaranteed Return is Financial Debt. Further, the corporate debtor contended that the transaction doesn't qualify as a financial debt and there was no borrower-lender relationship between the parties. The NCLT observed that there might not be any explicit terms in the funding agreement with regard to interest, which would give a commercial effect of borrowing or time value of money under Section 5(8) of the Code. However, under the funding agreement, the applicants were promised the profit at 45% p.a., which the CD failed to pay the applicants, and therefore, the funds take the course of debt under Section 5(8) of the Code. To conclude this, the NCLT relied on the ruling of Adhunik Corporation Limited vs. Shivam India Limited in Company Appeal (AT) (Insolvency) No. 1427 of 2023. Accordingly, the application was admitted by the NCLT. Case Name: Sunil Tulsidas Gadekar v. Vindhyawashini Marine Services Private Limited Case No.: C.P. (IB)/282(MB)2025 Coram: Judicial Member Nilesh Sharma and Technical Member Sameer Kakkar Financial Creditor: Adv. Ms. Pooja Batra, Adv. Mr. Rajesh Dubey. Corporate Debtor: Adv. Mr. Adeel Parkar Order Date: 14.10.2025Click Here To Read/Download The Order

Disbursal Of Funds Under Funding Agreement With Guaranteed Return Amounts To Financial Debt U/S 5(8) IBC: NCLT

Mohd.Rehan Ali

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