Real estate allottee payments can be financial debt; refund directions cannot bypass insolvency claim and liquidation rules.
Amounts raised from purchasers in a real estate project, including under an agreement to sell, may constitute financial debt where payment records and the corporate debtor's accounts show the transaction as application money for space booking and the arrangement has the commercial effect of borrowing. The unregistered or disputed execution of the agreement did not, on these facts, alter that character, so the claimants were treated as financial creditors as allottees. The limitation objection to the claim failed, and a direction to refund money outside the insolvency and liquidation framework was unsustainable. Other claimants, whose arrangements were in the nature of lease, licence, premium, or security deposit, were not financial creditors, though their claims could be lodged before the liquidator. The challenge to liquidation failed.
Issues: (i) Whether persons who paid consideration under an agreement to sell for space in a real estate project could be treated as financial creditors under the Insolvency and Bankruptcy Code, 2016; (ii) Whether the claim based on the agreement to sell was barred by limitation and whether the Adjudicating Authority could direct refund of the amount outside the insolvency framework; (iii) Whether the other claimants were entitled to be treated as financial creditors and whether their claims should be admitted by the liquidator; (iv) Whether the challenge to liquidation by the operational creditor could succeed.
Issue (i): Whether persons who paid consideration under an agreement to sell for space in a real estate project could be treated as financial creditors under the Insolvency and Bankruptcy Code, 2016.
Analysis: The agreement to sell was supported by payment records and reflected in the corporate debtor's audited financial statements as application money for space booking. The project was treated as a real estate project, and the statutory explanation to the definition of financial debt covered amounts raised from allottees in such projects as having the commercial effect of borrowing. The fact that the agreement was unregistered or that the execution was disputed did not, on these facts, displace the substantive nature of the transaction.
Conclusion: The applicants were entitled to be treated as financial creditors as allottees in the real estate project, in favour of the appellants.
Issue (ii): Whether the claim based on the agreement to sell was barred by limitation and whether the Adjudicating Authority could direct refund of the amount outside the insolvency framework.
Analysis: The agreement contemplated possession and further performance, and the record did not show completion of the transaction so as to make the claim stale in the manner assumed by the Adjudicating Authority. The direction to refund the amount to the claimants was inconsistent with the scheme of the insolvency process and liquidation, and could not be issued as an extraneous direction bypassing the statutory distribution and claim-adjudication mechanism.
Conclusion: The limitation objection failed and the refund direction was unsustainable, in favour of the appellants.
Issue (iii): Whether the other claimants were entitled to be treated as financial creditors and whether their claims should be admitted by the liquidator.
Analysis: Their arrangements were in the nature of lease, licence, premium, or refund of security deposit claims, not transactions of the same character as the agreement to sell considered in the first set of appeals. On those facts, they did not satisfy the definition of financial creditors, though their claims could still be lodged and dealt with in accordance with law before the liquidator.
Conclusion: They were not entitled to be treated as financial creditors, but their claims were to be received and considered by the liquidator, against the appellants on the financial creditor issue and in favour of them on claim reception.
Issue (iv): Whether the challenge to liquidation by the operational creditor could succeed.
Analysis: Liquidation followed the failure of CIRP within the statutory period, and grievances against the conduct of the resolution professional did not furnish a basis to set aside liquidation in the circumstances. Those complaints were left to the regulator.
Conclusion: The challenge to liquidation failed, in favour of the respondent.
Final Conclusion: The common order was interfered with only to the extent of recognising the agreement-to-sell claimants as financial creditors and setting aside the refund direction, while the remaining claimants were relegated to lodging their claims before the liquidator and the challenge to liquidation itself was rejected.
Ratio Decidendi: Amounts raised from purchasers or allottees in a real estate project, even under an agreement to sell, may constitute financial debt with the commercial effect of borrowing when supported by payment records and the corporate debtor's accounts, and the insolvency forum cannot order refund outside the statutory claim and liquidation framework.
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