Appellant's claim as financial creditor rejected under Section 9; recognized only as operational creditor in flat booking dispute

The NCLAT upheld the rejection of the appellant's claim to be recognized as a financial creditor. The appellant, acting as an authorized broker, had paid only Rs. 2,00,000 towards flat booking, with other amounts adjusted against brokerage fees. The appellant filed a Section 9 petition as an operational creditor, which was admitted, and no additional payments were made for the flats allegedly allotted later. The Tribunal found no disbursement by the appellant that could constitute financial debt and confirmed that the appellant remained an operational creditor throughout. The IRP and Adjudicating Authority acted within their jurisdiction, and the appeals challenging the rejection of financial creditor status were dismissed.

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1. Issues Presented and Considered

• Whether the claims raised by the appellants can be classified as financial debt under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016, particularly under the amended definition including allottees of real estate projects.
• Whether the appellants qualify as financial creditors by virtue of being allottees under real estate projects as defined under RERA Act, 2016.
• Whether the amounts claimed by the appellants, adjusted against brokerage/commission dues, constitute disbursal of money against consideration for time value of money.
• Whether the appellants, having earlier filed a petition under Section 9 of the IBC as operational creditors, are estopped from claiming to be financial creditors subsequently.
• Whether the National Company Law Tribunal (NCLT) and the Resolution Professional (RP) erred in rejecting the appellants' claims as financial debt and treating them as operational debt.

2. Issue-wise Detailed Analysis

Issue 1: Classification of Claims as Financial Debt under Section 5(8) of IBC

Legal Framework and Precedents: Section 5(8) of the IBC defines "financial debt" as debt disbursed against consideration for the time value of money, including amounts raised from allottees under real estate projects per Explanation (i) and (ii) inserted by the 2018 amendment. The Supreme Court in Pioneer Urban Land and Infrastructure Ltd. clarified that amounts raised from allottees have the commercial effect of borrowing, as money is paid in advance for temporary use, and the allottee receives a flat/apartment in return, reflecting the time value of money. The Court emphasized that the disbursal must be money paid against consideration for time value of money, and the transaction must have a commercial effect of borrowing.

Court's Interpretation and Reasoning: The Tribunal examined the nature of the amounts paid by the appellants to the corporate debtor (CD). It was found that only Rs. 2,00,000/- was actually paid by the appellants towards booking a flat which was later cancelled. The remaining amounts claimed as consideration for two flats allotted later were adjustments of brokerage/commission dues owed by the CD to the appellants. No fresh money was disbursed by the appellants for these flats.

Application of Law to Facts: Since the appellants did not disburse any money in respect of the two flats allotted under the MoUs dated 25.11.2021 and 03.02.2022, and the allotments were made by adjusting brokerage dues, the Tribunal held that there was no "disbursal" of money against consideration for time value of money as required under Section 5(8). The amounts adjusted were operational dues, not financial debts.

Treatment of Competing Arguments: The appellants contended that by virtue of allotment and execution of builder-buyer agreements, they are allottees and thus financial creditors. The Respondent argued that the underlying transaction was brokerage services (operational debt), and the allotments were adjustments of the same, with no fresh disbursal by appellants. The Tribunal agreed with the Respondent, highlighting that the appellants had earlier filed a Section 9 petition as operational creditors, thus estopped from changing their stance.

Conclusion: The claims of the appellants do not qualify as financial debt under Section 5(8) of the IBC, as there was no disbursal of money by the appellants against consideration for time value of money. The claims are operational debts.

Issue 2: Status of Appellants as Financial Creditors under the Definition of Allottee in RERA

Legal Framework and Precedents: Section 5(8)(f) Explanation (i) and (ii) of the IBC includes amounts raised from allottees under real estate projects as financial debt. The RERA Act defines "allottee" as a person to whom a plot, apartment or building has been allotted or sold by the promoter. The Supreme Court in Pioneer Urban Land recognized allottees as financial creditors due to their financial stake and interest in the project's completion.

Court's Interpretation and Reasoning: The Tribunal noted that the appellants were initially brokers engaged by the CD and had paid a nominal booking amount for a flat which was later cancelled. The subsequent allotments of flats were made by adjusting outstanding brokerage dues. The Tribunal observed that the appellants did not raise any fresh amount from the CD as allottees, and the transactions were essentially adjustments of operational dues.

Application of Law to Facts: The appellants could not be considered allottees in the true sense under RERA, as they did not disburse money for the flats allotted under the MoUs. The allotments were not independent transactions but adjustments of brokerage dues. The Tribunal relied on a precedent where landowners allotted flats under development agreements were held not to be financial creditors as no amount was raised from them.

Treatment of Competing Arguments: The appellants argued that execution of builder-buyer agreements and issuance of receipts evidenced their status as allottees and financial creditors. The Respondent countered that the agreements were settled adjustments of operational dues and no new financial debt was created. The Tribunal found the Respondent's arguments persuasive.

Conclusion: The appellants do not qualify as financial creditors/allottees under the RERA definition for the purpose of Section 5(8)(f) of the IBC, as no fresh amount was raised from them for the flats allotted.

Issue 3: Effect of Earlier Admission as Operational Creditor on Subsequent Claim as Financial Creditor

Legal Framework and Precedents: The principle of estoppel prevents a party from adopting contradictory positions in legal proceedings. The Supreme Court in Anuj Jain vs. Axis Bank Ltd. emphasized that a financial creditor is one to whom the corporate debtor owes financial debt. The nature of the debt is determined by the underlying transaction.

Court's Interpretation and Reasoning: The appellants had earlier filed a petition under Section 9 of the IBC claiming operational debt and were admitted as operational creditors. The Tribunal held that they cannot later claim to be financial creditors as it would be inconsistent and contrary to the principle of estoppel.

Application of Law to Facts: The appellants' prior admission as operational creditors and their conduct during CIRP, including attending Committee of Creditors (CoC) meetings, evidenced their acceptance of the operational debt classification. The Tribunal found no change in circumstances warranting reclassification as financial creditors.

Treatment of Competing Arguments: The appellants argued that the amended definition of financial debt includes allottees and thus they qualify as financial creditors. The Respondent highlighted the appellants' earlier admission as operational creditors and estoppel. The Tribunal sided with the Respondent.

Conclusion: The appellants are estopped from changing their status from operational creditors to financial creditors, and their claims remain operational debts.

Issue 4: Legality of NCLT and RP's Rejection of Financial Debt Claims

Legal Framework and Precedents: The NCLT and RP are tasked with verifying claims and classifying creditors as financial or operational based on the nature of debt and transactions. The Supreme Court judgments provide guidance on classification criteria.

Court's Interpretation and Reasoning: The Tribunal found that the NCLT and RP correctly rejected the appellants' claims as financial debt since no fresh disbursal of money was made by the appellants for the flats allotted, and the amounts were adjustments of brokerage dues, constituting operational debt.

Application of Law to Facts: The factual matrix showed that the appellants' claims were based on brokerage commissions due and adjusted against flats allotted. The NCLT and RP's classification aligned with the statutory definitions and judicial precedents.

Treatment of Competing Arguments: The appellants contended that the allotment and execution of builder-buyer agreements created financial debt. The Respondent maintained the operational nature of the claims. The Tribunal upheld the Respondent's position.

Conclusion: The rejection of the appellants' claims as financial debt by the NCLT and RP was lawful and justified.

Summary of Conclusions

• The appellants' claims do not constitute financial debt under Section 5(8) of the IBC as there was no disbursal of money by them against consideration for time value of money.
• The appellants do not qualify as financial creditors/allottees under RERA for the purpose of financial debt classification since the flats allotted were adjustments of brokerage dues, not fresh allotments funded by the appellants.
• The appellants are estopped from changing their status from operational creditors to financial creditors due to their earlier admission and conduct.
• The NCLT and RP correctly rejected the appellants' claims as financial debt and treated them as operational debt.
• The appeals challenging the rejection of financial debt claims were dismissed with no order as to costs.

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