NCLT Holds a Cloud Storage Sale and Leaseback Is a Financial Lease and Therefore Financial Debt Under Section 5(8)(d) of the IBC
Background and Facts
The National Company Law Tribunal at Allahabad has admitted a corporate debtor into insolvency on the footing that a pair of linked agreements over cloud storage capacity amounted to a financial lease, and so gave rise to financial debt. The order in Achhru Ram Jindal and Others v. M/s Zebyte Rental Planet Private Limited was passed on August 20, 2026 and has been reported this week.
Twenty six individuals entered into two agreements. Under an Asset Sale and Partner Programme Agreement they purchased one terabyte cloud storage units, described as Particles, from Vuenow Marketing Services Limited against a one time payment. Under an Asset Monetizing Program Agreement they then leased those same units to Zebyte Rental Planet Private Limited for monthly rentals over a fixed term of 120 months, with a guaranteed minimum return.
Payments stopped after September 2024 and the applicants pleaded default from October 31, 2024. They claimed Rs 1,63,99,544.77 and applied under Section 7 of the Insolvency and Bankruptcy Code, 2016. The corporate debtor's answer was that the applicants were lessors under an ordinary operating lease, which would make the arrears an operational claim rather than financial debt.
Key Legal Issue
Everything turned on Section 5(8)(d) of the Code, which brings within financial debt
"the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed". The clause imports an accounting test into a statutory definition, so the question was whether these two agreements, read together, produced a finance lease.
The Tribunal's Ruling
The bench of Praveen Gupta, Judicial Member and Ashish Verma, Technical Member held that the two agreements constituted a financial lease and that the resulting liability was financial debt. The Section 7 application was admitted, the corporate insolvency resolution process was commenced and Dharmendra Kumar Bhasin was appointed interim resolution professional. In the Tribunal's words,
"the ASA and AMPA, being a financial lease as explained above, is covered within clause (d) of subsection (8) of Section 5 of IBC, 2016".
The Two Agreements Were Read as One Arrangement
The corporate debtor's case depended on treating the sale and the leaseback as separate transactions with separate counterparties. The Tribunal did not accept that separation. The seller of the units was an associate company of the lessee, so the economic substance of the arrangement was that money went out from the applicants and came back as a fixed monthly return over a defined term, with the assets remaining inside the same corporate group throughout.
Where the Risks and the Rewards Actually Sat
Applying the risks and rewards analysis under Ind AS 116, the Tribunal looked at the clauses rather than the labels. On risk, the sale agreement obliged the seller to maintain, keep up and insure the units through the lease period, and that seller was an associate of the lessee, so the burdens of ownership never moved to the applicants. On reward, the leaseback agreement barred the applicants from accessing the units or the data stored on them, and they expressly gave up information rights over the hosted content. The Tribunal found that they had given up their rights over the underlying assets while the corporate debtor enjoyed the economic benefit.
Lease Term Against Economic Life
The second limb was the relationship between the lease term and the economic life of the asset. The stated server life of the units was ten years and the lease term was ten years, fixed by clauses in both agreements that prevented early termination. A lease running for the major part of the economic life of the underlying asset is a classic indicator of a finance lease, and here the two periods were the same. The Tribunal recorded that the applicable paragraphs of Ind AS 116, being paragraphs 62 and 63(c), were satisfied.
Practice Notes
In practice, the order is a reminder that Section 5(8)(d) is a substance test rather than a labelling exercise:
For investors in yield products: Arrangements marketed as asset purchases with a guaranteed monthly return frequently have the commercial effect of lending. Where the accounting characterisation is a finance lease, the investor is a financial creditor with the standing that follows, including a seat in the class of financial creditors.
For companies raising money this way: Structuring the sale through an associate and the leaseback through the operating company does not insulate the arrangement. The Tribunal read the linked agreements together and looked at where the risks and rewards came to rest.
For drafting: The clauses that decided this case were unglamorous ones. Who maintains and insures the asset, whether the counterparty can access it, whether information rights are waived, and whether the term can be cut short are the provisions that determine characterisation.
For resolution professionals: Claims arising from lease-style arrangements need to be classified against Section 5(8)(d) and the accounting standards, not by the description in the agreement. A misclassification affects the composition of the committee of creditors.
On the threshold: The claim here comfortably exceeded the minimum default of one crore rupees specified under the proviso to Section 4 of the Code by notification S.O. 1205(E) dated March 24, 2020. A smaller book of investors on the same structure would not reach the threshold individually, which is why the applicants came jointly.
Key Provisions Discussed
Section 4 of the IBC, 2016: Minimum amount of default, specified as one crore rupees by notification S.O. 1205(E) dated March 24, 2020.
Section 5(8)(d) of the IBC, 2016: Liability under a lease or hire purchase contract deemed a finance or capital lease under the Indian Accounting Standards is financial debt.
Section 7 of the IBC, 2016: Initiation of the corporate insolvency resolution process by a financial creditor, and the adjudicating authority's obligation under Section 7(5) to admit or reject.
Ind AS 116: Classification of leases by the transfer of substantially all the risks and rewards incidental to ownership, with a lease term covering the major part of the economic life of the asset as an indicator of a finance lease.
Case Details
Case: Achhru Ram Jindal and Others v. M/s Zebyte Rental Planet Private Limited
Court: National Company Law Tribunal, Allahabad Bench
Date of Order: August 20, 2026
Bench: Praveen Gupta, Judicial Member, and Ashish Verma, Technical Member
Amount Claimed: Rs 1,63,99,544.77, with default pleaded from October 31, 2024
Outcome: Section 7 application admitted, corporate insolvency resolution process commenced and an interim resolution professional appointed.
Sources and References
Cloud Storage Sale-and-Leaseback Qualifies As Financial Lease Under IBC: NCLT Allahabad
Insolvency and Bankruptcy Code, 2016, Sections 4, 5(8)(d) and 7
Ind AS 116 on Leases
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.
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