NCLAT dismissed appeal concerning classification of security ...

Security Deposit Under Property MoU Not Classified as Financial Debt Under Section 5(8) IBC Despite Interest Clause

February 18, 2025

Case Laws IBC AT

NCLAT dismissed appeal concerning classification of security deposit as financial debt under IBC. Appellant transferred Rs. 2,37,61,440/- to Corporate Debtor under MoU for premises handover. Though money was disbursed, transaction lacked essential elements of financial debt under Section 5(8). Security deposit was not disbursed for time value of money as no interest accrued from disbursement date. Interest clause in MoU was purely penal, triggered only upon breach/termination. Clause 8.5 explicitly established deposit's purpose as security rather than mobilization advance for construction. Transaction's nature being security deposit without commercial borrowing characteristics disqualified it as financial debt under Code.

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NCLAT dismissed appeal concerning classification of security ...

Security Deposit Under Property MoU Not Classified as Financial Debt Under Section 5(8) IBC Despite Interest Clause

February 18, 2025

Case Laws IBC AT

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