2018 (6) TMI 852 - AT - Insolvency and Bankruptcy

Corporate insolvency process - whether 1st Respondent does not come within the meaning of Financial Creditor in terms of Section 5(7) and Section 5(8) of the I & B Code? - agreement for sale of flat reached between Corporate Debtor and the 1st Respondent - Held that - 1st Respondent - flat buyer accepts that the total amount has been paid back by the Appellant. The terms of settlement have been brought on record. Learned Counsel for the 1st Respondent also failed to show that the 1st Respondent had informed one month in advance from the date of the agreement, to the Corporate Debtor that he intended to continue with the booking/holding of the flat in question. In view of the fact that the 1st Respondent has failed to prove that he comes within the meaning of Financial Creditor of the Corporate Debtor , the order passed by the Adjudicating Authority cannot be upheld. For the reasons aforesaid, we set aside the impugned order dated 09.02.2018 passed by the Adjudicating Authority in (IB) 19(ND) 2018. The 1st Respondent having paid the total dues, we direct the Adjudicating Authority to close the proceeding.

Summary

Issues:
Challenge to the admission of application under Section 7 of the Insolvency and Bankruptcy Code, 2016 based on the definition of 'Financial Creditor' and 'assured return'.

Analysis:
The appeal was filed against an order admitting an application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The appellant argued that the respondent did not qualify as a 'Financial Creditor' as per the Code. The dispute centered around an agreement for the sale of flats where the respondent was required to opt for an 'assured return' by informing the corporate debtor in writing within a specified timeframe. The appellant contended that the respondent failed to provide evidence of opting for the assured return within the stipulated period, thus challenging the respondent's classification as a financial creditor.

The appellant further contended that the total amount due to the respondent, a flat buyer, had already been repaid. The respondent acknowledged the repayment, and the terms of settlement were on record. However, the respondent failed to demonstrate compliance with the requirement of informing the corporate debtor in advance about the intention to continue with the booking/holding of the flat in question.

The Tribunal found that the respondent had not proven that they qualified as a 'Financial Creditor' of the corporate debtor. Consequently, the order of the Adjudicating Authority admitting the application under Section 7 was set aside. Given that the respondent had been fully paid, the Tribunal directed the Adjudicating Authority to close the proceedings. As a result, all actions taken by the Interim Resolution Professional, including the declaration of moratorium and freezing of accounts, were deemed illegal and set aside. The corporate debtor was released from the legal constraints and allowed to operate independently through its Board of Directors. The appeal was allowed without costs.