In Brief
The Supreme Court determined whether security deposits under service agreements constitute financial debt under the Insolvency and Bankruptcy Code. A beer company appointed a sales promoter under agreements requiring a large security deposit carrying 21% interest, while compensation for actual promotional services was only Rs.4,000 monthly. The Court held that the security deposit, being unrelated to service performance and treated as a long-term liability by the company, constituted financial debt. The substance of the transaction—borrowing money against time value of money—was determinative, not its contractual label. The security deposit holder was therefore a financial creditor, entitled to participate in insolvency proceedings.
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