2020 (1) TMI 1268 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt or not - existence of debt and dispute or not - HELD THAT - Claim means a right to payment and Financial Debt means a debt along with interest, if any, which is disbursed against consideration for the time value of money and includes any amount having a commercial effect of borrowing. Thus, it has become clear that the Financial Debt refers to non- payment of money, which is due and payable and a default has occurred in paying the same. In connection with financial creditors falling in the category of home buyers, any amount raised from an allottee under a reat estate project shall be deemed to be an amount having the commercial effect of a borrowing. The legal position stated above gives rise to another question i.e., whether any amount has been raised from FC and its associates by the CD under a real estate project? As can be inferred from the factual position recorded in the preceding paragraphs, the answer to this question is no. Thus, the claim of the FC as recorded under Para 8 of PART-IV of its Application i.e., by virtue of the decree passed in the civil suit on 10th of April 1996, and in consideration of services provided by the FC and its associates, 34, 000 sq. ft., of buildup residential area with proportionate super area in 48, Keventer, Sardar Patel Marg, New Delhi were admittedly sold to FC and its associates by the CD and the said transaction has the effect of raising an amount, is misconceived; because the decree passed in the civil suit on 10th of April 1996, admittedly is not for 'payment of money' - Further, in case the arguments of the FC i.e., the buildup residential area was to be given in lieu of services provided by the FC and its associates to the CD, then the application filed under Section 7 of the IBC 2016 is not maintainable, as this Authority cannot assume the jurisdiction of the executing court to direct the CD to deliver the possession of built-up total area of 39100 Sq. Ft. with proportionate super area to the Financial Creditor and its associates as claimed. Accordingly, the issued framed under Para 14 herein above, is decided against the FC and in favour of the CD. Thus, it is on record that the FC along with its associates has filed execution petition under No. 77/2008 before the District Court. The CD has filed an application in the said execution petition by raising an objection that execution proceedings are premature and prayed to keep the same in abeyance till the commencement of the construction - therefore, even execution petition cannot be pressed to get the decree dated, 10.04.1996 executed by FC and its associates against the CD, as the same is premature. In the present circumstances it is a fit case to relegate the parties to the civil court for seeking appropriate legal remedies available under law. However, they are already before the Civil Court for getting the decree dated, 10th of April 1996, executed against the CD and its associates - petition dismissed without costs.

Summary

Issues Involved:
1. Whether the claim made by the petitioner falls within the purview of the definition of 'Financial Debt' as defined under sub-section (8) of Section 5 of the IBC, 2016.

Issue-wise Detailed Analysis:

1. Definition of Financial Debt:
The core issue is whether the claim by the Financial Creditor (FC) qualifies as a 'Financial Debt' under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016. The tribunal examined relevant definitions from IBC, including "claim," "creditor," "debt," and "default."

2. Background and Settlement:
The FC and its associates entered into a Memorandum of Understanding (MoU) with the Corporate Debtor (CD) regarding the development of land. Disputes led to a civil suit which was settled amicably in 1996, with the CD agreeing to develop a group-housing complex and allocate 34,000 sq. ft. of residential area to the FC. The settlement included a penalty clause for delays in sanctioning plans.

3. Execution and Allegations:
The FC contended that the CD failed to fulfill its obligations under the consent decree, raising loans on the mortgaged property instead of completing the project. The FC claimed a debt of 39,100 sq. ft. due to penalties for delay, asserting this as a financial debt under IBC.

4. CD's Defense:
The CD argued that the decree did not involve a monetary transaction and thus did not constitute a financial debt. The CD highlighted that the land was designated for dairy farming, making construction infeasible, and emphasized that the decree did not specify a fixed timeline for construction.

5. Tribunal's Analysis:
The tribunal scrutinized whether the decree involved raising any amount from the FC under a real estate project. It concluded that the decree was not for the payment of money but for the delivery of built-up area, which does not fall under the definition of 'financial debt.' The tribunal emphasized that financial debt involves non-payment of money due and payable.

6. Premature Execution Proceedings:
The tribunal noted that the FC had already filed an execution petition, which the District Court deemed premature. The High Court stayed the execution proceedings, reinforcing that the decree was not yet executable.

Conclusion:
The tribunal ruled that the claim did not constitute a financial debt under IBC, and thus, the application under Section 7 of IBC was not maintainable. The tribunal dismissed the petition, directing the parties to seek remedies through the civil court where execution proceedings were already underway. The order was pronounced in open court, dismissing the petition without any cost.