2018 (5) TMI 1331 - Tri - Insolvency and Bankruptcy

Application for Corporate Insolvency Resolution Process Dismissed: Claimants Failed to Prove Financial Debt

The Tribunal dismissed the application for initiation of Corporate Insolvency Resolution Process (CIRP) as not maintainable. The applicants, claiming to ... Financial debt - financial creditor - assured return - contractual debt versus financial debt - initiation of Corporate Insolvency Resolution Process under Section 7 - cessation of liability upon licensing and handing over possessionAssured return - financial debt - cessation of liability upon licensing and handing over possession - Whether the claim for 'assured return' asserted by the applicants till January 2018 constitutes a 'financial debt'. - HELD THAT: - The Tribunal examined the contractual scheme, reproduced Clause 9 of the MOU and noted that 'assured return' was contractually payable only up to the point the premises is constructed and licensed, after which the developer's liability ceases. The record shows the premises were licensed and possession given to the licensee in May 2016. Applicants conceded that assured returns were paid only up to November 2015 and claimed amounts thereafter up to January 2018 without satisfactorily explaining or proving entitlement for that period. The claim thus prima facie seeks payment after completion and licensing contrary to the contractual term; the debt claimed involves disputed, complex contractual questions (including allegations of applicant breaches and CAM charges) which cannot be treated as a simple 'financial debt' for the limited scope of a Section 7 application. Consequently the claimed assured return until January 2018 does not, on the material before the Tribunal, fall within the definition of 'financial debt'. [Paras 27, 28, 29, 30, 31]The claim for assured return till January 2018 is not established as a 'financial debt' on the record and, prima facie, is inconsistent with the contractual cessation of liability upon licensing and possession.Financial creditor - initiation of Corporate Insolvency Resolution Process under Section 7 - contractual debt versus financial debt - Whether the applicants qualify as 'financial creditors' entitled to maintain an application under Section 7 of the Code. - HELD THAT: - Section 7 permits only a 'financial creditor' to file for initiation of CIRP and the applicant must prove the existence of a 'financial debt'. Because the Tribunal found that the asserted assured return claim (the basis of the application) does not, on the available material, constitute a 'financial debt' and that the claim involves contested contractual issues and alleged breaches by the applicants, the applicants failed to establish that a financial debt was owed to them. The onus lay on the applicants to substantiate entitlement to assured return till January 2018, which they did not discharge. As they do not fall within the definition of 'financial creditor' for the disputed claim, they are not entitled to invoke Section 7. [Paras 29, 30, 31, 32, 33]Applicants do not qualify as 'financial creditors' in respect of the disputed claim and therefore the Section 7 application is not maintainable.Final Conclusion: The Section 7 petition is dismissed as not maintainable because the applicants have not established that the claimed assured return until January 2018 is a 'financial debt' and therefore are not 'financial creditors' entitled to initiate CIRP; the Tribunal's observations are confined to maintainability and do not prejudice parties' rights before other fora. Issues Involved:1. Whether the applicants qualify as 'financial creditors' under the Insolvency and Bankruptcy Code, 2016.2. Whether the claim made by the applicants constitutes a 'financial debt.'3. Whether the application for initiation of Corporate Insolvency Resolution Process (CIRP) is maintainable.Issue-wise Detailed Analysis:1. Whether the applicants qualify as 'financial creditors' under the Insolvency and Bankruptcy Code, 2016:- The applicants, Mr. Manoj Kumar Bahri and Mrs. Meera Kapoor, claimed to be financial creditors and filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code) for initiating CIRP against the respondent company, M/s. Entertainment City Limited.- The Tribunal noted that only a 'financial creditor' can file an application under Section 7 of the Code. To qualify as a financial creditor, the applicants must prove that they are owed a 'financial debt' as defined under Section 5(7) and 5(8) of the Code.- The Tribunal examined the definitions of 'financial creditor' and 'financial debt' and concluded that the applicants must demonstrate that the debt was disbursed against the consideration for the time value of money.2. Whether the claim made by the applicants constitutes a 'financial debt':- The applicants had booked a commercial space in the Gardens Galleria Shopping Mall project and paid 90% of the total lease premium. They were promised an assured return until the date of possession.- The applicants claimed an amount of Rs. 72,38,516, which included the assured return and interest thereon at 24% per annum for the period from October 2015 to January 2018.- The Tribunal noted that the assured return was payable until the completion and licensing of the premises. The respondent had informed the applicants that the unit was ready for possession and had licensed the premises to a third party.- The Tribunal found that the applicants failed to justify their claim for assured return until January 2018, as the premises were completed and licensed by May 2016. Therefore, the claim did not constitute a 'financial debt' under the Code.3. Whether the application for initiation of Corporate Insolvency Resolution Process (CIRP) is maintainable:- The Tribunal observed that the claim involved complex contractual issues requiring detailed investigation, which could not be addressed in an application under Section 7 of the Code.- The Tribunal emphasized that the onus was on the applicants to prove that the assured return was payable until January 2018. The applicants failed to provide sufficient evidence to support their claim.- The Tribunal distinguished the present case from the Nikhil Mehta & Sons v. AMR Infrastructure Ltd. case, where the claim for unpaid assured return was considered a financial debt. In the present case, the assured return was only payable until the completion and licensing of the premises.- The Tribunal concluded that the applicants did not qualify as financial creditors and, therefore, the application under Section 7 of the Code was not maintainable.Conclusion:- The Tribunal dismissed the application as not maintainable, stating that the applicants did not come within the meaning of 'financial creditor' and the claim did not constitute a 'financial debt.'- The Tribunal clarified that the observations made in the order should not prejudice the applicants' rights before any other forum.