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Global Capital Market Limited v. Narayan Securities Limited (Company Petition No. (IB)-856(ND/2022)

CORAM: SH. Ashok Kumar Bhardwaj, Hon’ble Member (Judicial) and SH. L.N. Gupta, Hon’ble Member (Technical)


The National Company Law Tribunal, New Delhi (“NCLT”) in the present case clarified whether a claim arising out of a Trading Member and Clearing Member Agreement will construe a financial debt or not.


The facts of the present matter are such that Global Capital Market Limited (“Applicant”) a clearing member of the National Securities Clearing Corporation Limited has made an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) to initiate the Corporate Insolvency Resolution Process (“CIRP”) against Narayan Securities Limited (“Respondent”) a trading member of the currency derivatives segment of National Stock Exchange of India Limited. A Trading Member and Clearing Member Agreement (“Agreement”) for the currency derivative segment was entered into between the Applicant and the Respondent. In accordance with the agreement the Applicant had to pay to the Respondent certain fee, charges, brokerage, commission etc., for the services rendered.

Subsequently, the Respondent committed a default through the non-payment of a composite sum of INR 13,08,04,389.69 (Rupees Thirteen Crores Eight Lakhs Four Thousand Three Hundred Eighty-Nine and Sixty-Nine Paise Only) including the interest for the services rendered by the Applicant. Thus, in light of the above facts, the Applicant approached NCLT for initiation of CIRP.


Whether or not the debt claimed by the Applicant is a Financial Debt.


In terms of the Agreement, the dispute relating to the default by the Applicant was referred to Arbitration where the Arbitral Tribunal held that the Applicant is liable to pay a composite sum of INR 13,08,04,389.69 (Rupees thirteen crore eight lakhs four thousand three hundred eighty-nine and sixty-nine paise). Accordingly, the NCLT analyzed whether this award of the Arbitral Tribunal can be under the ambit of Financial Debt.

For the Section 7 application, NCLT noted the case of Dena Bank (now Bank of Baroda) v. Shivakumar Reddy​1 where it was held that,

“… judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years from the date of the judgment and/or decree.”

But it has to be noted that the mere fact that the decree/award is in favour of the Applicant will not decide the nature of the debt of the Applicant. The nature of the debt was analysed in light of Section 3(10) (definition of “creditor”) and 5(8)(g) (definition of “financial debt”) of IBC to hold that the Arbitral Award was passed for the claim arising out of the Trading Agreement dated August 28, 2008, which was executed with respect to Currency Derivative Segments. For a derivative transaction to qualify as a financial debt it must be entered into in connection with protection against or benefit from fluctuation in any rate or price.​2 The present transaction is outside the purview of Section 5(8)(g) of IBC. Thus, the composite sum cannot be treated as a financial debt.

Additionally, the claim from the present transaction fails to have any commercial effect of borrowing​3 as it has arisen from a trading agreement. Pursuant to the same, it was the duty of the Applicant to pay the fee and charges. The Court further analysed that the applications under Sections 7, 9 and 10 of IBC can be filed only against a corporate person under Section 3(7) of IBC. This definition does not include a financial service provider such as the Applicant.


The Court held that the claim arising out of the Agreement cannot be said to be a financial debt and thus, the Section 7 application was dismissed. The present claim amount fails to carry neither the commercial effect of borrowing nor the time value of money. The amount excluding the fees and brokerage can be treated as damages for breach of contract.

1.Civil Appeal No. 1650 of 2020.
2.Insolvency and Bankruptcy Code, 2016, Section 5(8)(g).
3.Pioneer Urban Land and Infrastructure and Anr. v. Union of India and Ors. W.P. (Civil) No. 43 of 2019.