In a recent judgement of the
FACTS OF THE CASE
The Respondent Nos. 1 and 2 are individuals and had jointly booked a unit with M/s
Thereupon, the Respondent Nos. 1 and 2 approached the Uttar Pradesh RERA ("UP RERA") where they were awarded a decree of
Thereafter, the Respondents filed an application under Section 7 of the Code to recover the sums before the
ISSUE
One of the issues that came up for consideration in this matter before the Hon'ble Tribunal was whether the application filed by the Respondent Nos. 1 and 2 under Section 7 of the Code was maintainable?
FINDINGS
The Hon'ble Tribunal observed that the Respondent Nos. 1 and 2 had not approached the adjudicating authority in their capacity as allottees of a real estate project which would bring them within the category of financial creditors under the Code. Instead, their contention of coming within the purview of 'financial creditors' rested on the strength of the definition of creditor in terms of Section 3(10) of the Code which includes a decree holder and therefore they had claimed to be decree holders against the financial debt of the Corporate Debtor.
This raised the question as to whether a decree holder, though covered by the definition of a creditor, is a 'financial creditor' under the Code? The Hon'ble Tribunal opined that a 'decree-holder' is undoubtedly covered by the definition of 'creditor' under Section 3(10) of the Code but would not fall within the class of creditors classified as 'financial creditor' unless the debt was disbursed against the consideration for time value of money or falls within any of the clauses thereof as the definition of 'financial debt' is inclusive in character. The case set up by the Respondent Nos. 1 and 2 before the adjudicating authority was not on the strength of a transaction having the commercial effect of borrowing, thereby giving them the status of 'financial creditors' but was on the strength of being 'decree-holders'.
While answering the question whether a decree-holder would fall within the definition of 'financial creditor', the Hon'ble Tribunal stated that it has to be an emphatic 'No' as the amount claimed under the decree is an adjudicated amount and not a debt disbursed against the consideration for the time value of money and does not fall within the ambit of any of the clauses enumerated under Section 5(8) of the Code.
CONCLUSION
The Hon'ble Tribunal summarised its judgement as under:
- Respondent Nos.1 and 2 could not claim to be allottees of a
Real Estate Project after issuance of a recovery certificate by UP RERA; on their own showing they were decree holders seeking execution of money due under the Recovery Certificate which is impermissible within the ambit of Section 7 of the Code and their application for triggering the corporate resolution process is not maintainable as allottees - 'Decree holder' though included in the definition of a 'creditor' does not fall within the definition of 'financial creditor' and cannot seek initiation of Corporate Insolvency Resolution Process as 'financial creditor'.
Whilst acknowledging the fact that setting aside the Impugned Order would derail the entire resolution process since there were a number of claimants including the allottees before the Interim Resolution Professional, the NCLAT ultimately ruled that the Impugned Order initiating Corporate Insolvency Resolution Process against the Corporate Debtor cannot be sustained. The application preferred by the Respondent No.1 and 2 under Section 7 of the Code was dismissed.
Footnotes
1 Company Appeal (AT) (Insolvency) No. 452 of 2020 (arising out of order dated
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