NCLAT: Fixed Returns And Profit-based Assured Compensation Do Not Qualify As 'Financial Debt' Under The IBC

The National Company Law Appellate Tribunal, Principal Bench, New Delhi ("NCLAT") in its decision dated July 3, 2025 in the matter of Rajesh Alfred v. Ketsaal Retail LLP, Company Appeal (AT) (Ins) No. 1563 of 2023, held that amounts advanced pursuant to a commercial arrangement providing for fixed returns or profit margin based compensation, do not qualify as a 'financial debt' under the Insolvency and Bankruptcy Code, 2016 ("Code"), if the essential ingredient of 'time value of money' is missing.

Factual Background

Messrs. Ketsaal Retail LLP ("Respondent") had entered into a reseller agreement with Mr. Rajesh Alfred (acting through his proprietorship Messrs. Anand Enterprises) ("Appellant"), whereby the Appellant initially made a capital investment of Rs. 20,00,000 (Rupees twenty lac) and the Appellant was entitled to 7% (seven percent) of the profit ("Reseller Agreement"). Thereafter, through addendums made to the Reseller Agreement, the capital investment