2018 (3) TMI 1266 - Tri - Insolvency and Bankruptcy

Application Dismissed: Claim Not Financial Debt

The Tribunal dismissed the application under Section 7 of the Insolvency and Bankruptcy Code, ruling that the applicants do not qualify as financial ... Definition of Financial Creditor - financial debt - maintainability of Section 7 application - overriding effect of Section 238 of the Code - res judicataOverriding effect of Section 238 of the Code - forum shopping - Pendency of consumer complaints / allegation of forum shopping as a bar to initiation of CIRP under Section 7 of the Code - HELD THAT: - The Tribunal held that the mere pendency of consumer proceedings does not bar initiation of insolvency proceedings under the Code. In view of the Code's overriding effect under Section 238, proceedings under the Consumer Protection Act are not a legal impediment to a Section 7 petition. The allegation of forum shopping founded on the pendency of consumer complaints was rejected as legally unsustainable. [Paras 11]Pendency of consumer complaints does not preclude filing of a Section 7 application; allegation of forum shopping not sustained.Res judicata - maintainability of Section 7 application - Applicability of the doctrine of res judicata based on an earlier dismissed Section 9 petition in relation to a different unit - HELD THAT: - The Tribunal found res judicata inapplicable because the earlier proceedings related to a different allotment (Flat No.1002) whereas the present claim concerns Shop No. F-4. Further, the earlier petition was under Section 9 while the present petition is under Section 7, giving rise to distinct causes of action. On these factual and legal distinctions, the plea of res judicata was repelled. [Paras 12]Res judicata not attracted; earlier Section 9 dismissal in relation to a different unit does not bar the present Section 7 application.Definition of Financial Creditor - financial debt - maintainability of Section 7 application - Whether the applicants qualify as 'Financial Creditor' and the claimed sum constitutes a 'financial debt' so as to maintain a Section 7 petition - HELD THAT: - The Tribunal analysed the statutory definitions and the facts. A 'financial debt' is a debt disbursed against consideration for the time value of money. While the allotment letter provided an assured return plan, the Tribunal observed there was no pleaded or established default in payment of the annual assured returns; the applicants did not specify which assured returns were unpaid. The present claim arose from a suo motu cancellation seeking refund of principal with interest and raised contractual questions (including forfeiture and the buyer's delay in opting for refund) requiring adjudication on merits. Such a contractual claim on cancellation could not be equated to a straightforward 'financial debt' recoverable by a financial creditor. The Tribunal distinguished precedents where persistent non-payment of assured returns had been found to create a financial debt. Given these findings, the applicants failed to establish that they are financial creditors entitled to invoke Section 7. [Paras 23, 25, 27, 28, 30]Applicants do not come within the meaning of 'Financial Creditor' and the claim is not a 'financial debt'; the Section 7 application is not maintainable and is dismissed.Final Conclusion: The Tribunal dismissed the Section 7 application as not maintainable: pendency of consumer proceedings did not bar initiation of insolvency proceedings and res judicata did not apply, but on the merits the applicants failed to establish status as financial creditors or that their claim constituted a financial debt, warranting dismissal of the petition. Issues Involved:1. Jurisdiction of the Tribunal2. Allegations of forum shopping3. Applicability of res judicata4. Existence of a dispute5. Definition of 'Financial Creditor' and 'Financial Debt'6. Default in payment and contractual obligationsDetailed Analysis:1. Jurisdiction of the Tribunal:The Tribunal confirmed its jurisdiction over the case as the respondent company, J.B.K. Developers Private Limited, has its registered office in Delhi, making the Tribunal the appropriate Adjudicating Authority under Section 60(1) of the Insolvency and Bankruptcy Code, 2016 (the Code).2. Allegations of Forum Shopping:The respondent alleged that the applicants were engaged in forum shopping by filing consumer complaints and the present application under the Code. The Tribunal dismissed this allegation, stating that the pendency of proceedings under the Consumer Protection Act does not bar the initiation of insolvency proceedings under the Code due to the overriding effect of Section 238 of the Code.3. Applicability of Res Judicata:The respondent contended that the application should be dismissed based on res judicata, as the applicants had previously filed a petition under Section 9 of the Code, which was dismissed. The Tribunal clarified that the present application pertains to a different subject matter (shop No. F4) and is filed under Section 7 of the Code, making it a distinguishable case. Therefore, the principle of res judicata does not apply.4. Existence of a Dispute:The respondent argued that the existence of consumer cases indicated a dispute, making the provisions of the Code inapplicable. The Tribunal noted that the present application was filed under Section 7, where the existence of a dispute is irrelevant as long as the debt is due and payable. Variance in the claim of interest was also deemed insignificant.5. Definition of 'Financial Creditor' and 'Financial Debt':The core issue was whether the applicants qualify as 'Financial Creditors' and if the claimed amount constitutes a 'Financial Debt' under Sections 5(7) and 5(8) of the Code. The Tribunal examined the definitions and concluded that a financial debt must be disbursed against the consideration for time value of money. The applicants' claim was based on the cancellation of an allotment and a demand for refund with interest, which does not qualify as a financial debt.6. Default in Payment and Contractual Obligations:The Tribunal found no default in the payment of the annual assured returns as per the terms of the allotment letter. The applicants failed to specify any default in the assured returns. The claim arose from the cancellation of the allotment and demanded the return of the principal amount with interest, which required adjudication of contractual obligations. The Tribunal emphasized that such claims fall within the purview of contractual liability and not a simple financial debt.Conclusion:The Tribunal concluded that the applicants do not qualify as financial creditors and the present claim does not constitute a financial debt. Consequently, the application filed under Section 7 of the Code was dismissed as not maintainable. The Tribunal clarified that this order should not prejudice the applicants' rights before any other forum.