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

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

The tribunal dismissed the application as the applicants did not qualify as 'Financial Creditors' under Section 7 of the Insolvency and Bankruptcy Code, ... Financial creditor - Financial debt - consideration for the time value of money - Assured Returns - initiation of corporate insolvency resolution processFinancial creditor - Financial debt - consideration for the time value of money - Assured Returns - initiation of corporate insolvency resolution process - Applicants do not qualify as 'financial creditors' and the arrears of 'Assured Returns' do not constitute a 'financial debt' under Section 5(7) & (8) read with Section 7 of the IBC. - HELD THAT: - The Court analysed the statutory definitions of 'financial creditor' and 'financial debt' in Sections 5(7) and 5(8) and the requirements for invoking Section 7. A 'financial debt' requires a debt disbursed against the consideration for the time value of money; the statutory list in sub-clauses (a)-(i) illustrates the class of transactions covered. The transactions in controversy are agreements for sale/allotment of property with a contractual promise of 'Assured Returns' until possession; these are essentially sale/purchase arrangements and not disbursements made in consideration of the time value of money. Merely promising an 'assured amount' of return, and its subsequent breach, does not transmute a sale transaction into a financial debt. The applicants failed to demonstrate that the payments arose from a transaction involving disbursement against consideration for the time value of money; accordingly they do not answer the description of 'financial creditor' entitled to invoke the corporate insolvency resolution process under Section 7. [Paras 11, 12, 13, 15]The application under Section 7 is not maintainable because the applicants are not 'financial creditors' and the arrears of 'Assured Returns' are not 'financial debt.'Initiation of corporate insolvency resolution process - Financial creditor - Maintainability is further affected by existing winding up proceedings and the appointment of a provisional liquidator in respect of the corporate debtor. - HELD THAT: - The Tribunal noted pending company winding up petitions filed before the Delhi High Court and the appointment of the Official Liquidator as provisional liquidator. In view of those proceedings, the present petition under Section 7 would not be maintainable at this stage as parallel insolvency initiation is impermissible when winding up processes are sub judice and a provisional liquidator is in place. This factor, together with the finding that the applicants do not qualify as financial creditors, supported dismissal. [Paras 14, 15]The existence of pending winding up petitions and a provisional liquidator militates against maintainability of the Section 7 application.Final Conclusion: The Section 7 application is dismissed: the applicants are not 'financial creditors' and the claimed arrears of 'Assured Returns' do not constitute a 'financial debt' under Sections 5(7) & 5(8) read with Section 7 of the IBC; maintainability is also affected by pending winding up proceedings. The applicants' rights before other fora are preserved. 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.