2019 (7) TMI 117 - Tri - Insolvency and Bankruptcy

Timely compliance crucial: Tribunal denies financial creditor status under Insolvency & Bankruptcy Code

Ms. LCS City Makers Private Limited And Lakshmanan Eshwaran Versus Mr. S.R. Krishnan (Liquidator of M/s LCS City Makers Pvt. Ltd.

The tribunal ruled against recognizing the applicant as a financial creditor under the Insolvency and Bankruptcy Code, 2016, despite the applicant's ... Initiation of Corporate Insolvency Resolution Process - Section 10 of the Insolvency and Bankruptcy Code, 2016, R/w Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - HELD THAT:- As per the provisions of Section 42 of the Insolvency and Bankruptcy Code, 2016, a creditor may appeal to the Adjudicating Authority against the decision of the liquidator within fourteen days of the receipt of the rejection or acceptance of claim. The liquidator vide letter dated 10.10.2018 has rejected the contention of the applicant for being treated as financial creditor and the appeal against the same has been filed on 16.11.2018 with a delay of 22 days, which has neither been explained nor any application for condonation of delay has been filed - the application being time barred stands rejected. Issues:1. Recognition of the applicant as a financial creditor under the Insolvency and Bankruptcy Code, 2016.2. Applicability of the provisions of Section 5(8)(f) of the IBC, 2016 in determining the status of the applicant.3. Timeliness of the appeal against the decision of the liquidator.Issue 1: Recognition of the applicant as a financial creditor:The case involved an applicant who entered into a development agreement with a corporate debtor, where the debtor failed to deliver a flat as promised, resulting in a substantial sum becoming due to the applicant. Despite the applicant submitting a claim to the liquidator and being admitted as an 'Other Creditor,' the liquidator declined to recognize the applicant as a financial creditor under Section 5(8)(f) of the IBC, 2016. The applicant contended that the debtor's actions fell within the purview of Sections 5(7) and 5(8) of the IBC, 2016, requiring the applicant to be treated as a financial creditor. The applicant highlighted clauses (f) and (g) of sub-Section (8) of Section 5 to support their claim. The applicant argued that failure to recognize them as a financial creditor would result in irreparable prejudice and hardship.Issue 2: Applicability of Section 5(8)(f) of the IBC, 2016:The applicant relied on Section 5(8)(f) of the IBC, 2016, which includes amounts raised under various transactions having the commercial effect of borrowing. The applicant specifically pointed out that amounts raised from an allottee under a real estate project are deemed to be amounts having the commercial effect of borrowing. The applicant emphasized that the actions of the corporate debtor, in failing to deliver the flat and compensate the applicant, should categorize them as a financial creditor under the mentioned section. The applicant's counsel argued that the provisions of the IBC should be interpreted in a manner that upholds the applicant's status as a financial creditor, as per the clauses of Section 5(8)(f).Issue 3: Timeliness of the appeal:The liquidator rejected the applicant's claim to be treated as a financial creditor, leading to an appeal being filed against this decision. However, the appeal was filed with a delay of 22 days, exceeding the fourteen-day period stipulated by Section 42 of the IBC, 2016. The delay in filing the appeal was not explained, nor was any application for condonation of delay submitted. Consequently, the tribunal deemed the application time-barred and rejected it. The importance of adhering to the statutory timelines for appeals under the IBC was highlighted, emphasizing the need for timely compliance with legal procedures.This detailed analysis of the judgment provides insights into the issues surrounding the recognition of the applicant as a financial creditor, the interpretation of relevant provisions of the IBC, and the significance of adhering to prescribed timelines for legal actions within the insolvency framework.