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JC - Insights - Claims under High Sea Sales Agreements are not Financial Debts


02 Jun 2021

Claims under High Sea Sales Agreements are not Financial Debts


Claims under a High Sea Sales Agreement (“HSSA”) cannot be Financial Debts, having arisen from commercial sale and purchase transactions.

This was held by the Hon’ble NCLT, Chennai Bench (“NCLT”) vide its order dated 27th April 2021 in the matter of Shakti International Pvt. Ltd. v. Pandi Oil Pvt. Ltd. The NCLT observed that the HSSA was a commercial agreement for purchase of goods in import. It follows from the usual trade practice in import trades to save the local Sales Tax/GST and avoid double taxation in the downstream commercial transaction.

The NCLT observed that the party claiming to be a Financial Creditor under the HSSA had in fact sold the goods to the Corporate Debtor and transferred the title in the goods from itself to the Corporate Debtor while the goods were in transit by means of the HSSA. For the purposes of this a margin of 1.25 % was added to the costs and freight value of the goods as consideration.

In view of the above, the NCLT held that, given the nature and characteristics of the transactions governed by the HSSA, debts thereunder cannot be classified as Financial Debts.


For any further information, please contact Mr. Shubhabrata Chakraborti (shubhabrata.chakraborti@jclex.com) or Mr. Dhruv Malik (dhruv.malik@jclex.com).