Interest-free maintenance security is not financial debt unless it reflects time value of money or commercial borrowing.

An interest-free maintenance security collected under a conveyance deed for upkeep of common areas, services, installations, passages and lifts does not amount to financial debt under the Insolvency and Bankruptcy Code unless it is disbursed against consideration for the time value of money or has the commercial effect of borrowing. The amount was linked to maintenance obligations to be performed by the vendor or nominated agency, and its character was not altered by the Haryana Apartment Ownership Act, 1983. As it was not a borrowing, a Section 7 application based on that claim was not maintainable.

---

---

Issues: Whether the amount collected as Interest Free Maintenance Security under the conveyance deed constituted a financial debt so as to sustain an application under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The nature of the transaction had to be examined from the conveyance deed and the surrounding arrangements. The amount was stipulated to secure payment towards maintenance of common areas, services, installations, passages, lifts and other facilities, and was linked to upkeep services to be provided by the vendor or the nominated maintenance agency. For a claim to qualify as financial debt, disbursal against consideration for the time value of money is essential. The security amount here was not advanced as a borrowing and did not carry the commercial effect of such borrowing. The provisions dealing with common areas and facilities under the Haryana Apartment Ownership Act, 1983 did not alter the character of the amount or convert it into a financial debt.

Conclusion: The amount deposited as Interest Free Maintenance Security was not a financial debt, and the Section 7 application was not maintainable.

Ratio Decidendi: A payment made towards maintenance security for services and upkeep of common facilities does not constitute financial debt unless it is disbursed against consideration for the time value of money or has the commercial effect of borrowing.

---