2020 (10) TMI 825 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt or not - Civil Suit for specific performance - non-allotment of 39100 sq. ft. built-up area of land or not - default in terms of Section 3(12) of the I B Code, 2016 - HELD THAT - Under Section 5(8)(f) of I B Code, any amount raised from allottee under a real estate project shall be deemed to be an amount having the 'commercial effect of borrowing' and thus, would be covered under the definition of 'Financial Creditor' as defined under Section 5(7) of the Code. It is thus, clear that the Appellant can claim a Financial debt as an 'allottee' only when the amount raised from it as an 'allottee' is used for a real estate project. In the facts and circumstances, the Appellant is neither an 'allottee' nor has any amount 'being raised' or 'raised' from it, that may be construed as to have the effect of borrowing - Appellant's Application as a Financial Creditor is not maintainable, and no amount has been paid by the Appellant to the Respondent. There is no financial debt in favour of the Appellant. It is pertinent to mention that Appellant's pleading is that the amounts have been paid by the Appellant to the Respondent and the consent decree itself is the debt for which Section 7 Application has been filed. Default or not - HELD THAT - The Financial Creditor filed a suit before Delhi High Court in 1992 and on the direction of the Hon'ble High Court the Corporate Debtor returned principal amount, i.e. Rs two crores to the Financial Creditor in January 1995 and to compensate interest-free security of Rs two crores for five years,given the terms of the settlement, the Applicant and Corporate Debtor entered into an agreement dated 10th April 1996, whereby the Applicant/Appellant was allotted 34000 sq. ft. area of built-up area. It was also agreed upon that in case the project is delayed; the Applicant would get an additional 5100 sq. ft area of built-up area. The 'debt' as alleged by the Financial Creditor is not a 'financial debt' as defined under sub Clause (8) of Section 5 I B Code, 2016, because no sum has been raised from an allottee under the Real Estate Project. The Financial Creditor and its associates have not paid any money towards the allotment of built-up area. Given the terms of settlement Financial Creditor and its associates entitled to 34000 sq. ft. In other words, nothing is paid in terms of money to the Financial Creditor and its associates in the light of the consent decree and settlement terms . The Corporate Debtor has not raised any money from the Financial Creditor in terms of the explanation provided to sub-clause (8) of Section 5 of I B Code, 2016. Thus, it is clear that the alleged debt is not a financial debt in terms of Sec 5(8)of the Code - Thus it cannot be said that there is any default by the Respondent under the Code, as the time for performance has not arrived yet and therefore in terms of various decisions of Hon ble Supreme Court it is clear that even if the consent decree is a debt , even then there is no Default by the Respondent in terms of the Code. Appeal dismissed - decided against appellant.

Summary

Issues Involved:

1. Whether the 'debt' as alleged by the Appellant/Applicant is a financial debt as defined under Clause (8)(f) of Section 5 of the I&B Code, 2016.
2. Whether the Corporate Debtor committed 'default' by not allotting 39,100 sq. ft. built-up area of land, in terms of Section 3(12) of the I&B Code, 2016.

Detailed Analysis:

Issue 1: Whether the 'debt' as alleged by the Appellant/Applicant is a financial debt as defined under Clause (8)(f) of Section 5 of the I&B Code, 2016.

The Appellant claims to be a Financial Creditor under Section 5(8)(f) of the I&B Code, 2016. Section 5(8)(f) defines "financial debt" as a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes any amount raised under any transaction having the commercial effect of a borrowing. The explanation to Section 5(8)(f) clarifies that any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of borrowing.

In this case, the Appellant is not an allottee under a real estate project. The alleged debt arises from a Consent Decree passed by the Hon'ble High Court of Delhi on 10th April 1996, which was a settlement agreement where the Corporate Debtor agreed to allot 34,000 sq. ft. of built-up area to the Financial Creditor in lieu of the utilization of ?2 Crores beyond the due date. The Financial Creditor contends that this allotment was a form of monetary compensation for the interest-free utilization of ?2 Crores for five years beyond the due date.

The Tribunal held that the Appellant's claim does not qualify as a financial debt under Section 5(8)(f) because the amount was not raised from an allottee under a real estate project, and no money was paid by the Financial Creditor towards the allotment of the built-up area. Therefore, the alleged debt does not have the commercial effect of borrowing as required under the definition of financial debt.

Issue 2: Whether the Corporate Debtor committed 'default' by not allotting 39,100 sq. ft. built-up area of land, in terms of Section 3(12) of the I&B Code, 2016.

The Appellant argued that the Corporate Debtor committed default by not allotting the agreed 39,100 sq. ft. built-up area as per the terms of the Consent Decree. The Corporate Debtor contended that the debt is not a financial debt and that there has been no default as defined under the I&B Code.

The Tribunal noted that the Hon'ble High Court of Delhi had stayed the execution proceedings related to the Consent Decree, deeming them premature until the construction was complete. The Tribunal concluded that there is no default by the Corporate Debtor as the time for performance had not yet arrived, and hence, the conditions for triggering the Insolvency Resolution Process under the I&B Code were not met.

Conclusion:

The Tribunal dismissed the appeal, stating that the Appellant's claim does not constitute a financial debt under the I&B Code, and no default had occurred as the execution of the Consent Decree was premature. Therefore, the application as a Financial Creditor was not maintainable.