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Issues: (i) Whether an allottee of a flat falls within the definition of a financial creditor under the Insolvency and Bankruptcy Code, 2016. (ii) Whether, during liquidation, the liquidator must first explore a compromise or arrangement under Section 230 of the Companies Act, 2013 before proceeding with sale of the corporate debtor's assets.
Issue (i): Whether an allottee of a flat falls within the definition of a financial creditor under the Insolvency and Bankruptcy Code, 2016.
Analysis: The definition of financial creditor under Section 5(7) read with Section 5(8) of the Insolvency and Bankruptcy Code, 2016 was applied in the light of the earlier decision recognising flat allottees as persons falling within the expression. The allottee's status was therefore examined against the statutory explanation to Section 5(8), which treats such allotments as within the financial debt framework.
Conclusion: The flat allottee was held to be a financial creditor.
Issue (ii): Whether, during liquidation, the liquidator must first explore a compromise or arrangement under Section 230 of the Companies Act, 2013 before proceeding with sale of the corporate debtor's assets.
Analysis: The liquidation stage was treated as a stage in which revival must still be attempted before corporate death by liquidation. Relying on the statutory scheme of the Insolvency and Bankruptcy Code, 2016 and the power to compromise or arrange under Section 230 of the Companies Act, 2013, the liquidator was directed to verify and consolidate claims, keep the corporate debtor as a going concern, and take steps for a scheme or arrangement before any outright sale of assets. The process was aligned with the object of maximisation of value and balancing stakeholder interests.
Conclusion: The liquidator was directed to proceed with claims verification and to take steps under Section 230 of the Companies Act, 2013 before sale of assets, and the liquidation order was not otherwise interfered with.
Final Conclusion: The appeals were disposed of with directions favouring exploration of revival through the statutory compromise and arrangement mechanism while leaving the liquidation framework intact subject to those directions.
Ratio Decidendi: In liquidation, revival-oriented measures under Section 230 of the Companies Act, 2013 must be explored before sale of the corporate debtor's assets, and a flat allottee is treated as a financial creditor under the Insolvency and Bankruptcy Code, 2016.
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