2017 (6) TMI 459 - Tri - Insolvency and Bankruptcy

Insolvency Resolution Process - proof of outstanding financial debt - petitioner claims to be a financial creditor, claiming a financial debt of ₹ 30,69,000/- from the Corporate Debtor - Held that - The case of the petitioner was one for purchase of any immovable property to be developed and for which assured returns were undertaken to be given. The Principal Bench, in the matter of Nikhil Mehta & Sons and others Vs. M/s AMR Infrastructures Ltd. 2017 (3) TMI 151 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI has already elucidated that the liability towards assured returns in matters of booking commercial flats would not fall within the definition of a financial debt which essentially means a debt disbursed against consideration for the value of money, or money borrowed against payment of interest, while the concept of Assured Returns typically requires full payment towards the property to be developed, and perhaps leased out for the owner by the developer on rentals, but pending that stage, the developer pays a Return on the property from day one. As pending completion it cannot be termed as Rent, the return is given and taxed under the Head Interest . The petitioner s claim herein is more encumbered and complex than a plain and simple claim against assured returns. The present transaction is based on multiple contractual novated agreements. The initial foundation was with one entity, the liability of which was taken over by another. The payment was made towards development and delivery of a property changed for another. The agreement relied upon contained the provision for appointment of a named arbitrator which though invoked, did not materialize. Further, dispute with respect to the liability has been raised and as the return of the principal amount is not disputed, the liability towards any interest/assured returns on the proposed property in terms of the agreements, essentially towards for purchase of a piece of property, would not fall within the purview of the financial debt as defined under the Code for initiating Insolvency Resolution Process. Merely because an assured amount of return has been promised, which is termed as interest under Section 194A of the I.T. Act, for the period till the property is developed and handed over, it would not acquire the status of a financial debt as it is not money loaned to be recovered with interest. This Bench is of the opinion that the aforesaid transaction between the parties would not fall within the definition of a financial debt so as to invoke Insolvency Resolution Process against the Corporate Debtor.

Summary

Issues:
Prayer for Insolvency Resolution Process against Respondents under Insolvency and Bankruptcy Code 2016 based on financial debt claim.

Analysis:
The petitioner claimed to be a financial creditor seeking &8377; 30,69,000 from the Corporate Debtor, arising from an initial transaction with M/s Maruti Realtors Pvt. Ltd. The petitioner agreed to an IT commercial complex by the Corporate Debtor in lieu of the failed residential project by M/s Maruti Realtors. An agreement in 2008 detailed the financial creditor's contribution and assured returns. A subsequent settlement agreement in 2014 finalized the claim at &8377; 30,69,000, with interest provisions. The petitioner argued to be a financial creditor based on post-dated cheques, TDS deductions, and dishonored cheques under the Negotiable Instrument Act.

The financial creditor contended that the dispute was referred to arbitration per the agreement, but the Corporate Debtor denied any arbitration agreement. The respondent contested the claim, stating excess payment made and filing a FIR against the petitioner. The Tribunal noted the evolving agreements and novation of contracts, emphasizing the complexity of the transaction. Referring to a previous case, the Tribunal clarified that liability towards assured returns for booking commercial flats does not constitute a financial debt under the Code. The Tribunal concluded that the transaction did not meet the definition of a financial debt for initiating insolvency proceedings.

The Tribunal held that the transaction did not qualify as a financial debt, thus rejecting the petition. The petitioner was allowed to seek redressal through an appropriate forum without prejudice to their rights. No costs were awarded in the judgment.