2019 (11) TMI 1616 - AT - Insolvency and Bankruptcy

Admissibility of appeal - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Real estate project - Financial Creditors or not - existence of debt and dispute or not - HELD THAT - It is stated that the transaction was for a unit in building which was already in existence and it was in the nature of party trying to enter into an Agreement of sale which did not take place and thus, the Counsel states that it cannot be said to be financial debt which was recoverable. It is argued that the amendment to Section 5 Sub-Section (8) came in June, 2018 and thereafter, the Appellant sent Notice (page - 46) in October, 2018 to take benefit of the provisions of IBC. The expression 'allottee' and the expression 'real estate project' are to be understood on the basis of Clause - d and Clause - z(n) of Section 2 of Real Estate (Regulation and Development) Act, 2016 which expressions have been defined in the said Act - Even if there would have been a regular agreement of sale executed between the parties for a unit in existing building, if there was a default, it would at the most create a debt to be recovered but would not create financial debt . The explanation added by the legislature in Section 5(8) has been added for specific purpose to protect allottees in development projects Company Appeal (AT) (Ins) No.1047 of 2019 which are going into problems. It is not for enforcing specific performance of Contract of existing property. There are no reason to take a different view from that of Adjudicating Authority where it found that the financial debt was not established. Appeal declined.

Summary

Issues:
1. Rejection of Section 7 Application
2. Fit to be admitted - Appeal analysis

Rejection of Section 7 Application:
The judgment revolves around the rejection of a Section 7 Application filed by the Appellant. The Appellant, in this case, had filed the Section 7 Application as she intended to purchase a unit in Pinnacle Business Park from the Respondent. The Appellant had advanced a certain amount as token money for the transaction, and the rest of the payment was to be made after the execution of the Agreement. The Appellant claimed that the Respondent failed to complete the transaction, leading to the filing of the Application under the Insolvency and Bankruptcy Code, 2016 (IBC). The Adjudicating Authority dismissed the Application, stating that the financial debt was not established and that the payment made was not against the time value of money. The Appellant argued that even though no formal Agreement was executed, the transaction details were available, showing the amount paid and the TDS deducted. The Respondent, on the other hand, contended that the transaction was for a unit in an existing building and did not constitute a financial debt recoverable under the IBC.

Fit to be admitted - Appeal analysis:
The question before the Appellate Tribunal was whether the Appeal was fit to be admitted. The Appellant's Counsel argued that the transaction in question should be considered a financial debt under the IBC, while the Respondent's Counsel maintained that it did not meet the criteria for financial debt. The Counsel for the Respondent referred to written submissions indicating that the Appellant had approached the Respondent to purchase a unit in the Pinnacle Business Park for a specific amount. However, after the initial payment, subsequent cheques issued by the Appellant bounced, leading to the forfeiture of the deposited amount by the Respondent. The Counsel highlighted that the transaction was an attempt to enter into a sale agreement for an existing building and did not fall under the definition of financial debt as per the IBC. The Tribunal analyzed the provisions of Section 5(8) of the IBC, along with the definitions of 'allottee' and 'real estate project' under the Real Estate (Regulation and Development) Act, 2016, to determine the nature of the transaction. Ultimately, the Tribunal agreed with the Adjudicating Authority's finding that the financial debt was not established, leading to the dismissal of the Appeal.

In conclusion, the Appellate Tribunal declined to admit the Appeal, stating that there was no reason to deviate from the Adjudicating Authority's decision. The judgment emphasized that the legislative intent behind the IBC provisions related to financial debt was to protect allottees in development projects facing issues, rather than enforce specific performance of contracts for existing properties. As a result, the Appeal was disposed of accordingly.