2017 (8) TMI 1568 - AT - Insolvency and Bankruptcy

Admissibility of application - initiation of Corporate insolvency resolution process - corporate debtor - existence of Debt or not - HELD THAT - In the present case, the Respondent has not taken any plea that the appellants failed to pay the balance amount on due date or any of the cheque has been bounced on account of any reasons. The respondent has also not denied the allegation that the 'commitment amount as mentioned in the agreement Memorandum of Understanding has not been paid month to month and there is a default - From the agreement/ Memorandum of Understanding, we find that the appellants are also investors and have chosen committed return plan . Thus, the amount as is due to the appellants, come within the meaning of debt as defined in Section 3(11) of the 'II B Code'. In the present case, we find that no case has been made out by the respondent that the construction was stopped or delayed on account of factors beyond its control. It has also not been disputed that the respondent failed to pay monthly committed returns which was to be paid month to month till, the completion of the project apartment - thus, the appellants in this case have also successfully proved that the money disbursed by them is against the consideration for the time value of money and for all purpose, they come within the meaning of 'Financial Creditor' as defined in Section 5(7) of the 'l B Code'. Matter remitted to Adjudicating Authority to admit the application preferred by appellants and pass appropriate order, if the application under Section 7 of the 'I B Code' is otherwise complete - appeal allowed by way of remand.

Issues Involved:
1. Determination of the appellants' status as 'Financial Creditors' under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Interpretation of the term 'Financial Debt' as defined in Sections 3(11) and 5(8)(f) of the Insolvency and Bankruptcy Code, 2016.
3. Relevance of the commitment amount stipulated in the Memorandum of Understanding (MOU) between the parties.
4. Examination of the Balance Sheet and financial treatment of the appellants' investment by the Corporate Debtor.
5. The applicability of the precedent set by "Nikhil Mehta and Sons v. AMR Infrastructure Ltd."

Issue-wise Detailed Analysis:

1. Determination of the appellants' status as 'Financial Creditors' under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The appellants filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, claiming to be 'Financial Creditors' and seeking initiation of insolvency proceedings against the Corporate Debtor. The National Company Law Tribunal (NCLT) dismissed the application, stating that the appellants could not be regarded as Financial Creditors within the meaning of Section 5(7) and (8) of the Code. The NCLT relied on a precedent case, "Nikhil Mehta & Sons (HUF) & Ors. V. M/s AMR Infrastructures Ltd.," where it was held that the advance payment for the purchase of the flat could not be regarded as a 'Financial Debt' merely because there was a stipulation in the MOU regarding assured return.

2. Interpretation of the term 'Financial Debt' as defined in Sections 3(11) and 5(8)(f) of the Insolvency and Bankruptcy Code, 2016:
The Appellate Tribunal referred to its own decision in "Nikhil Mehta and Sons v. AMR Infrastructure Ltd," where it was held that the appellants were "investors" who had chosen a "committed return plan." The Tribunal concluded that the amount due to the appellants came within the meaning of 'debt' as defined in Section 3(11) of the Code, which includes financial debt and operational debt. The Tribunal further stated that the amount invested by the appellants came within the meaning of 'Financial Debt' as defined in Section 5(8)(f) of the Code, subject to the condition that the disbursement was against the consideration for the time value of money.

3. Relevance of the commitment amount stipulated in the Memorandum of Understanding (MOU) between the parties:
The MOU between the appellants and the Corporate Debtor included a commitment amount to be paid monthly until the possession of the flat was delivered. The Corporate Debtor had stopped paying this commitment amount, leading to the default. The Tribunal noted that the commitment amount was part of the consideration for the time value of money, making the appellants' investment a 'Financial Debt.'

4. Examination of the Balance Sheet and financial treatment of the appellants' investment by the Corporate Debtor:
The appellants provided the Balance Sheet of the Corporate Debtor, showing the amount invested by the appellants under 'current liabilities' and treating it at par with 'loan' in their returns. This financial treatment indicated that the Corporate Debtor considered the appellants as 'investors' and their investment as a 'Financial Debt.'

5. The applicability of the precedent set by "Nikhil Mehta and Sons v. AMR Infrastructure Ltd":
The Tribunal found that the facts of the present case were similar to those in "Nikhil Mehta and Sons v. AMR Infrastructure Ltd." The Tribunal held that the appellants were also "investors" who had chosen a "committed return plan," and the amount due to them came within the meaning of 'debt' as defined in Section 3(11) of the Code. The Tribunal disagreed with the NCLT's conclusion that the transaction did not have consideration for the time value of money and held that the appellants successfully proved their status as 'Financial Creditors.'

Conclusion:
The Tribunal set aside the impugned judgment of the NCLT and remitted the matter back to the Adjudicating Authority to admit the application preferred by the appellants and pass appropriate orders. The Tribunal allowed the appeal, holding that the appellants were 'Financial Creditors' within the meaning of Section 5(7) of the Insolvency and Bankruptcy Code, 2016.

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