2019 (10) TMI 1340 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditor or not - existence of debt and dispute or not - HELD THAT - On perusal of the documents, it is amply clear that the amount paid as Time Share membership is only for claiming the services in future from NLL being Time Share Member. Section 3(1) defines 'Debt'. Debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and an operational debt - Thus, in order to be 'debt', there ought to be a liability or an obligation in respect of a claim . It would not be out of place to mention herein, the maxim Volenti non fit injuria . When a person consents to the inflicting of some harm upon himself, he has no remedy for that in tort. In case, the plaintiff voluntarily agrees to suffer some harm, he is not allowed to complain for that and his consent serves as a good defence against him. No man can enforce a right which he has voluntarily waived or abandoned. Consent to suffer may be express or implied. Thus, in view of the terms and conditions of Time Share Membership, the Applicant is entitled for refund provided the applicant cancels his Time Share Membership within a period of 10 days from the date of enrolment as Time Share Member. The Applicant himself has waived his right and has consented expressly to the non-refund of Time Membership Fees. This shows the Applicant has the knowledge of risk and has voluntarily agreed for the Membership Fees which is not refundable. The person who himself voluntarily waived or abandoned his right cannot have any claim over it. Applicant does not fall within the category of Financial Creditor - Application disposed off.

Issues Involved:
1. Classification of creditors as financial or operational creditors.
2. Authority and actions of the Interim Resolution Professional (IRP).
3. Rights of the creditors to attend and vote in the Committee of Creditors (CoC) meetings.
4. Validity of IRP's decisions and actions without CoC's concurrence.
5. Entitlement of Time Share Members to be classified as financial creditors.

Detailed Analysis:

1. Classification of Creditors as Financial or Operational Creditors:
The core issue revolves around whether the Time Share Members of Neesa Leisure Limited (NLL) should be classified as financial creditors or operational creditors. The Applicant argued that the IRP initially classified them as financial creditors, granting them representation and voting rights in the CoC. However, the IRP later reclassified them as operational creditors, which the Applicant contested.

According to Section 5(7) of the Insolvency and Bankruptcy Code (IB Code), a financial creditor is one to whom a financial debt is owed, and Section 5(8) defines financial debt as a debt disbursed against the consideration for the time value of money. The Tribunal examined these definitions and concluded that the membership fees paid by the Time Share Members did not constitute a financial debt since it was a one-time payment for the use of NLL's properties and was non-refundable. The Tribunal referenced the case "Innoventive Industries Ltd. v. ICICI Bank and Ors." to emphasize that financial debt must involve consideration for the time value of money, which was not present in this case.

2. Authority and Actions of the Interim Resolution Professional (IRP):
The Applicant contended that the IRP did not have the authority to unilaterally reclassify them from financial creditors to operational creditors without the CoC's concurrence and without informing or obtaining consent from the affected creditors. The IRP countered that the initial classification was provisional and subject to verification, as indicated in the First Report to the CoC.

The Tribunal found that the IRP acted within his rights to reclassify the creditors after further verification and legal consultation. The IRP's actions were deemed appropriate as the initial classification was provisional, and the IRP had communicated the need for further due diligence.

3. Rights of the Creditors to Attend and Vote in the Committee of Creditors (CoC) Meetings:
The Applicant sought a declaration that they and other similarly placed creditors should be allowed to attend and vote in CoC meetings. They argued that the IRP's decision to exclude them from the CoC was invalid and that any meetings or votes conducted without their participation should be declared void.

The Tribunal held that since the Time Share Members did not qualify as financial creditors, they were not entitled to attend or vote in the CoC meetings. The IRP's decision to exclude them was upheld as valid.

4. Validity of IRP's Decisions and Actions Without CoC's Concurrence:
The Applicant argued that the IRP's decisions to reclassify creditors and exclude them from CoC meetings were made without the CoC's concurrence and should therefore be invalid. The IRP maintained that his decisions were provisional and subject to verification.

The Tribunal determined that the IRP's actions were within his authority and did not require prior concurrence from the CoC. The IRP's provisional classification and subsequent reclassification were found to be appropriate and in line with the IB Code's provisions.

5. Entitlement of Time Share Members to be Classified as Financial Creditors:
The Applicant claimed that the money extended by the Time Share Members to NLL was a form of commercial borrowing, thus qualifying them as financial creditors. They provided various documents, including terms and conditions of the membership, balance sheets, and auditor reports, to support their claim.

The Tribunal reviewed these documents and concluded that the membership fees were non-refundable and did not involve consideration for the time value of money. Therefore, the Time Share Members did not meet the criteria for financial creditors under Section 5(8) of the IB Code. The Tribunal referenced the judgment in "Nikhil Mehta and Sons vs. AMR Infrastructure Limited" to support its interpretation of financial debt.

Conclusion:
The Tribunal concluded that the Applicant and other similarly placed creditors did not qualify as financial creditors and were correctly reclassified as operational creditors by the IRP. The IRP's actions were deemed valid and within his authority. Consequently, the Applicant's requests for declarations and relief were denied, and the application was disposed of with no costs.

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