2017 (3) TMI 151 - Tri - Insolvency and Bankruptcy

Tribunal dismisses application due to lack of financial creditor status under Insolvency and Bankruptcy Code

Nikhil Mehta and Sons (HUF) and ors Versus M/s AMR Infrastructures Ltd.

The tribunal dismissed the application as the applicants did not qualify as 'Financial Creditors' under Section 7 of the Insolvency and Bankruptcy Code, ... Default in payment of the amount of 'Assured Returns' - Insolvency process by invoking Section (7) of the Insolvency and Bankruptcy Code, 2016 - how the Applicants would be covered by the expression 'Financial Creditor' and the expression 'Financial Debt' within the meaning of the term used in Section 7 and Section 5(7) & (8) of the IBC.Held that:- When we examine the nature of transactions in the present case, we find that it is a pure and simple agreement of sale or purchase of a piece of property. The agreement to sell a flat or office space etc. Merely because some 'assured amount' of return has been promised and it stands breached, such a transaction would not acquire the status of a 'financial debt' as the transaction does not have consideration for the time value of money, which is a substantive ingredient to be satisfied for fulfilling requirements of the expression 'Financial Debt'. Essentially in the case in hand 'Assured Returns' is associated with the delivery of possession of the aforementioned properties and has got nothing to do with the requirement of sub-section (8) of section 5. It is the consideration for the time value of money which is mercifully missing in the transaction in hand. The classical transaction which would cover the definition of financial debts is illustrated in sub-clause (a) of sub-section (8) of Section 5 i.e. the money borrowed against the payment of interest. Learned Counsel of Applicants has not been able to show from any material on record or otherwise that it is a financial transaction in which a debt has been disbursed against the consideration for the time value of money and he being the Financial Creditor is entitled to trigger the insolvency process against the Respondent in accordance with Section 7 of the IBC. Even otherwise the present petition would not be maintainable as many winding up petitions have been filed before Hon'ble Delhi High Court. Even the Official Liquidator has been appointed as a provisional liquidator although the matter is presently pending before the Appellate Bench with interim directions. As a sequel to the above discussions, we are unable to persuade ourselves to accept that the applicants are covered by the expression 'Financial Creditor' in term. The arrears of 'assured returns' would also not be covered by the expression 'financial debt'. Therefore the applicants do not answer the description of Section 7 read with Section 5(7) & 5(8) of IBC. The application is accordingly dismissed. The remedy of the Applicant may lie elsewhere. We make it clear before parting that any observations made in this order shall not be construed as an expression of opinion on the merit of the controversy as we have refrained from entertaining the application at the initial stage itself when the Respondents have not entered appearance and are not present before us. Therefore the right of the Applicants before any other forum shall not be prejudiced on account of dismissal of instant application. Issues Involved:1. Whether the applicants qualify as 'Financial Creditors' under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).2. Whether the 'Assured Returns' promised by the respondent constitute 'Financial Debt' under Section 5(8) of the IBC.3. The impact of pending winding-up petitions against the respondent on the maintainability of the present application.Detailed Analysis:Issue 1: Qualification of Applicants as 'Financial Creditors'The applicants filed for triggering the insolvency process under Section 7 of the IBC, claiming to be 'Financial Creditors.' The tribunal examined whether the applicants fit the definition of 'Financial Creditors' as per Section 5(7) of the IBC, which defines a 'Financial Creditor' as a person to whom a financial debt is owed. The tribunal emphasized that to qualify as a 'Financial Creditor,' the debt must meet the criteria outlined in Section 5(8) of the IBC, which defines 'Financial Debt.'Issue 2: 'Assured Returns' as 'Financial Debt'The applicants argued that the default in payment of 'Assured Returns' by the respondent constituted a financial debt. The tribunal scrutinized Section 5(8) of the IBC, which states that a financial debt is a debt disbursed against the consideration for the time value of money. The tribunal noted that financial transactions under Section 5(8) must involve a sum of money received today to be paid over time or an investment to be repaid over time, with compensation for the time value of money.The tribunal found that the 'Assured Returns' promised by the respondent were linked to the delivery of possession of the properties and did not involve consideration for the time value of money. Therefore, the 'Assured Returns' did not meet the substantive criteria of a 'financial debt' as per Section 5(8) of the IBC. The tribunal concluded that the applicants did not qualify as 'Financial Creditors' because the nature of their transaction did not involve a financial debt.Issue 3: Impact of Pending Winding-Up PetitionsThe tribunal noted that multiple winding-up petitions against the respondent were pending before the Hon'ble Delhi High Court, and a provisional liquidator had been appointed. This further complicated the maintainability of the present application. The tribunal held that the existence of these winding-up petitions and the appointment of a provisional liquidator indicated that the respondent was already undergoing a form of insolvency resolution process, making the present application inappropriate.Conclusion:The tribunal dismissed the application, stating that the applicants did not meet the criteria of 'Financial Creditors' under Section 7 of the IBC, and the 'Assured Returns' did not constitute 'Financial Debt' under Section 5(8) of the IBC. The tribunal clarified that its observations were limited to the initial stage of the application and did not prejudice the applicants' rights to seek remedies in other forums.