Tribunal dismisses Insolvency and Bankruptcy Code claim, suggests civil court remedy

The tribunal held that the claim did not qualify as a 'Financial Debt' under the Insolvency and Bankruptcy Code (IBC). Consequently, the application under Section 7 of the IBC was deemed not maintainable. The petition was dismissed, with the parties advised to pursue remedies in the civil court where execution proceedings were ongoing. The tribunal's decision was announced in open court, dismissing the petition without costs.

---

---

Issues Involved:
1. Whether the claim made by the petitioner falls within the purview of the definition of 'Financial Debt' as defined under sub-section (8) of Section 5 of the IBC, 2016.

Issue-wise Detailed Analysis:

1. Definition of Financial Debt:
The core issue is whether the claim by the Financial Creditor (FC) qualifies as a 'Financial Debt' under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016. The tribunal examined relevant definitions from IBC, including "claim," "creditor," "debt," and "default."

2. Background and Settlement:
The FC and its associates entered into a Memorandum of Understanding (MoU) with the Corporate Debtor (CD) regarding the development of land. Disputes led to a civil suit which was settled amicably in 1996, with the CD agreeing to develop a group-housing complex and allocate 34,000 sq. ft. of residential area to the FC. The settlement included a penalty clause for delays in sanctioning plans.

3. Execution and Allegations:
The FC contended that the CD failed to fulfill its obligations under the consent decree, raising loans on the mortgaged property instead of completing the project. The FC claimed a debt of 39,100 sq. ft. due to penalties for delay, asserting this as a financial debt under IBC.

4. CD's Defense:
The CD argued that the decree did not involve a monetary transaction and thus did not constitute a financial debt. The CD highlighted that the land was designated for dairy farming, making construction infeasible, and emphasized that the decree did not specify a fixed timeline for construction.

5. Tribunal's Analysis:
The tribunal scrutinized whether the decree involved raising any amount from the FC under a real estate project. It concluded that the decree was not for the payment of money but for the delivery of built-up area, which does not fall under the definition of 'financial debt.' The tribunal emphasized that financial debt involves non-payment of money due and payable.

6. Premature Execution Proceedings:
The tribunal noted that the FC had already filed an execution petition, which the District Court deemed premature. The High Court stayed the execution proceedings, reinforcing that the decree was not yet executable.

Conclusion:
The tribunal ruled that the claim did not constitute a financial debt under IBC, and thus, the application under Section 7 of IBC was not maintainable. The tribunal dismissed the petition, directing the parties to seek remedies through the civil court where execution proceedings were already underway. The order was pronounced in open court, dismissing the petition without any cost.

---