2020 (10) TMI 9 - Tri - Insolvency and Bankruptcy

Financial Creditor's Claim Dismissed Under Insolvency Code Section 7

K. Sivasubramanian Versus Quince Liveras Properties LLP

The Tribunal dismissed the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, as the Financial Creditor could opt to accept the ... Maintainability of application - initiation of CIRP - Financial Debt or not - Financial Creditors or not - HELD THAT:- The Petitioner has approached this Tribunal in the clothe of Financial Creditor, within the meaning of Section 5(8) in respect of Financial Debt in respect of which he has submitted a Memorandum dated 05.02.2020. Admittedly, an allottee is eligible to apply under Section 7 as a Financial Creditor in the event of failure to deliver the residential apartment as per the Sale Agreement. Here the Applicant claims that he has advanced to land owners as requested by the Respondent towards the purchase cost of 700 sq.ft. undivided share in the land belonged to Mr. Ponnuswamy and Mr. G. Jayajothi. It has been ascertained that a Sale Agreement has been executed on 20.06.2016 followed by an Agreement for Construction dated 20.06.2016. The Respondent has completed the construction and carried out the interior work in the apartment as demanded by the Petitioner, which was ready for delivery and handed over to him and the petitioner has accepted the same and as such now he cannot choose to claim the money back as Financial Creditor - further, the right to claim money by the allottee of a Residential Apartment eminates is maintained only in the event of non-delivery of the apartment to the allottee. The application of the Petitioner for initiating CIRP against the Corporate Debtor, LLP stands dismissed. Issues Involved:1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.2. Determination of the Financial Debt and the status of the Financial Creditor.3. Examination of the agreements and obligations between the parties.4. Applicability of the Supreme Court judgment in Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors.Issue-wise Detailed Analysis:1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016:The application was filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, by the Financial Creditor, claiming an amount of Rs. 61,02,960 including interest. The Financial Creditor argued that the Corporate Debtor had defaulted on the payment. The Corporate Debtor, however, contested the maintainability of the application, arguing that they had not committed any default as per the agreements between the parties.2. Determination of the Financial Debt and the status of the Financial Creditor:The Financial Creditor claimed that the amount due included interest at 24% per annum from October 1, 2016, and that a demand notice had been served to the Corporate Debtor, which was not replied to. The Corporate Debtor countered that the Financial Creditor had not advanced any amount directly to them but to landowners, Mr. S. Ponnuswamy and Mr. G. Jayajothi. The Tribunal noted that the Financial Creditor had approached it as a Financial Creditor under Section 5(8) of the Insolvency and Bankruptcy Code, 2016, but found that the nature of the transaction was more towards part financing for the acquisition of land.3. Examination of the agreements and obligations between the parties:The Tribunal examined various agreements, including the Memorandum of Understanding dated July 11, 2016, the Agreement for Sale dated June 20, 2016, and the Agreement for Construction dated June 20, 2016. The Corporate Debtor argued that they were liable to repay Rs. 60,00,000 within three months, failing which they had to pay interest and potentially hand over a residential flat to the Financial Creditor. The Tribunal found that the agreements indicated that the Financial Creditor had an option to accept the delivery of the flat instead of claiming a financial debt.4. Applicability of the Supreme Court judgment in Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors.:The Tribunal referred to the Supreme Court judgment in Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors., which held that speculative home buyers are not entitled to claim as Financial Creditors under Section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016. The Tribunal noted that the Financial Creditor's claim resembled that of a speculative investor rather than a genuine allottee entitled to claim a financial debt.Conclusion:The Tribunal concluded that the Financial Creditor could opt for accepting the delivery of the flat as per the agreements rather than claiming the amount as a financial debt. The Tribunal emphasized that the right to claim money by the allottee of a residential apartment arises only in the event of non-delivery of the apartment. Consequently, the application for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was dismissed.