2017 (8) TMI 1525 - AT - Insolvency and Bankruptcy

Corporate insolvency process - delay in giving possession of flat by builder - cancel the allotment and refund agreed by builder but not initiated - who can claim to be an Operational Creditor - whether a person who has entered into agreement for purchase of a flat or shop or any immovable property is Operational Creditor or not? - whether appellants are Operational Creditor and are entitled to initiate Corporate Insolvency Resolution Process against Respondents - Corporate Debtor under Section 8 and 9 of the I & B Code? - HELD THAT - The letter of allotment is not an agreement to sell and the terms condition aforesaid is conditional as the question of default will arise, once Corporate Debtor receives the notice of cancellation from the allottee(s) and if the amount is not paid. Apart from the fact that the appellants are merely an allottee of a flat and does not come within the meaning of Operational Creditor, as held by the Learned Adjudicating Authority, there appears to be a variation in their claim amount, though the notice under Section 8 and 9 or application under Section 9 has not been filed. The appellants initially claimed that they are entitled for refund of total amount. deposited by them after one year, the flat having not completed within time along with 19% interest. But before the Tribunal the appellants claimed total amount along with 18% interest. On the other hand, as per the Allotment Letter at paragraph 3(b), the allottee is entitled to get refund of amount, subject to deduction of 15% of the total cost on receipt of allottees(s) application for cancellation. At paragraph 3(d) of the letter of allotment has further mentioned that if the amount paid by the allottee(s) is less than the amount deducted under (a) above, the allottee shall pay to the Company, deficient amount to the extent of 15% as mentioned therein. Thus we find there is a variation of claim amount i.e. the amount of debt alleged to have been defaulted by the respondent. While we hold that the appellants are not Operational Creditor , we also hold that there is confusion about the actual amount of default of debt and the date of notice for cancellation forwarded by appellant, the petition under Section 9 is fit to be rejected.

Summary

Issues:
Determining whether the appellants qualify as 'Operational Creditors' under the Insolvency and Bankruptcy Code, 2016.

Analysis:
The appellants, claiming to be 'Financial Creditors,' filed an application under Section 9 of the Insolvency and Bankruptcy Code against a respondent company for delay in delivering a residential flat. The appellants alleged non-payment of the refund amount agreed upon due to construction delays. The National Company Law Tribunal rejected the claim, stating the appellants did not qualify as 'Operational Creditors,' citing a previous case as precedent.

The key issue in this appeal was whether the appellants met the criteria to be considered 'Operational Creditors' under the Insolvency and Bankruptcy Code. The appellants argued that the Code provides a new layer of commercial resolution, distinct from judicial resolution, and contended that all creditors, not just 'Financial Creditors,' could file under Section 9. However, the Tribunal clarified that only those meeting the definition of 'Operational Creditor' in Section 5(20) could initiate the Corporate Insolvency Resolution Process.

Referring to the judgment in a related case, the Tribunal emphasized that 'Operational Debt' under the Code pertains to goods, services, employment, or dues to the government, excluding debts arising from delayed possession of immovable property. The Tribunal further clarified that 'Operational Creditors' must have a transactional relationship with the debtor based on operations, which the appellants lacked in this case.

The Tribunal highlighted that the appellants' claim amount varied, and the terms of refund in the allotment letter were conditional upon specific circumstances. The appellants initially sought a refund with 19% interest, later changing it to 18%, while the letter of allotment specified deductions and conditions for refunds. This variation in the claim amount and confusion regarding the debt default date led to the rejection of the Section 9 application.

Ultimately, the Tribunal dismissed the appeal, concluding that the appellants did not qualify as 'Operational Creditors' and citing the discrepancies in the claim amount and cancellation notice. The judgment emphasized the specific criteria for 'Operational Creditors' under the Code and the need for a transactional relationship based on operations to initiate insolvency proceedings.