Classification of a security deposit made by the appellant for a ...

Security Deposit in Lease with Corporate Debtor Classified as Operational Debt Under IBC, Not Financial Debt.

November 13, 2024

Case Laws     IBC     AT

Classification of a security deposit made by the appellant for a lease deed with the corporate debtor, as either a financial debt or an operational debt under the Insolvency and Bankruptcy Code (IBC). The key points are: The security deposit is a claim within the meaning of the IBC. To qualify as a financial debt u/s 5(8), there must be a disbursal of money against consideration for the time value of money. However, the security deposit was a refundable corpus amount without interest, not disbursed for time value of money, lacking elements of commercial borrowing. Therefore, it does not satisfy the definition of financial debt. An operational debt u/s 5(21) relates to claims for provision of goods, services, employment, or government dues. The security deposit, being an advance for prospective occupation and use of leased premises, can be considered a claim for services, satisfying the definition of operational debt. The NCLAT held that the security deposit should be classified as an operational debt, and the appellant should be accorded the status of an operational creditor. The resolution professional was directed to admit the appellant's claim as an operational creditor and allow the appellant to substitute the relevant form.

View Source