The National Company Law Appellate Tribunal ("NCLAT"), New Delhi Bench, through its judgment dated 03.07.2025 in Akzo Nobel India Ltd. v. Stan Cars Pvt. Ltd.1 held that unadjusted trade advance would amount to financial debt under Section 5(8) of IBC.
In the present case, the parties entered into an agreement wherein Akzo Nobel India Ltd. ("Akzo") and Stan Cars Pvt. Ltd ("Stan") entered into an agreement wherein Akzo extended trade advance to Stan. As per the agreement between the parties' trade advance remaining shall be deemed to be loan extended by Akzo to Stan in respect of which an interest @ 1% per month shall be paid by Stan to Akzo.
The NCLAT held that as per the agreement between the parties the trade advance gets converted into a debt with time value of money in case of default by Stan, so the underlying agreement between the parties shows that the time value of money ingrained in the debt in case of default by Stan.
Footnote
1 Company Appeal (AT) (Insolvency) No. 1294 of 2023.
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