Brief about decision: Money disbursed by home buyer is against the consideration for the time value of money and for all purpose, they come within the meaning of ‘Financial Creditor’ as defined in Section 5(7) of the ‘l & B Code’.
Analysis of the case:
The appellants, who claimed to be ‘Financial Creditor’ filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “I & B Code) for initiation of insolvency process in respect of the Respondent- ‘Corporate Debtor’.
Facts and NCLT verdict:
Ld. Adjudicating Authority (National Company Law Tribunal) Principal Bench, New Delhi by impugned order dated 8th March, 2017 dismissed the application with the following observations:
“27. Brief facts of the case necessary for disposal of the instant petition are that a MOU, allotment letter was executed between the applicants and Respondent Company. They were allotted one flat reference No. ETTS 1959 on the first floor in the project Earth Titanium Studios developed by Respondent Company at Greater Noida, UP. The MOU contains an express promise made on behalf of the Respondent Company for guaranteed a returned on the investment and has been styled as ‘commitment amount’ till the actual possession is delivered. The total sale consideration for the flat was Rs. 20,80, 000 plus taxes. The possession of the flat was to be delivered in September 2016. On the date of signing of the MOU part payment of sale consideration alongwith service tax was paid and Respondent Company had undertaken to make payment of commitment of amount of Rs. 20,000/-per month and it was to increase with the payment of the next instalment. The last instalment of the sale consideration was payable in May 2015. Eventually the applicants have paid the entire agreed sale consideration plus taxes. The Respondent Company paid the commitment amount to the applicants till February 2016 and has stopped paying the same subsequently.
28. The facts of the instant case are akin to those of a decided, case in material particulars namely Nikhil Mehta & Sons (HUF) & Ors. V. M/s AMR Infrastructures Ltd. IC.P.No. (IS.B)-03(PB)/201 7] decided on 23.1.2017 by this Bench. The aforesaid petition was also filed under section 7. of the Code. After hearing learned counsel for the applicants we have expressed the view that applicants could not be regarded as Financial Creditors within the meaning of section 5(7) & (8) of the Code nor their advance payment for purchase of the flat could be regarded as a ‘Financial Debt’ merely because there is a stipulation in the MOU with regard to payment of assured return. In view thereof we adopt the same reasons which have been given in the case of Nikhil Mehta (supra). A copy of the aforesaid order in the Nikhil Mehta and sons’ case may be added by the office which shall constitute as apart of this order as well.”
While dismissing the application, Ld. Adjudicating Authority observed that any observation made in the said order shall not be construed as an expression of opinion on the merit of the controversy as the Ld. Adjudicating Authority had refrained from entertaining the application at the initial stage.
The aforesaid order passed by Ld. Adjudicating Authority in ‘Nikhil Mehta & Sons’ was challenged before this Appellate Tribunal. In ‘Nikhil Mehta & Sons v. AMR Infrastructure Ltd’, considering the agreement/ Memorandum of Understanding relating to purchase of shops and flats, this Appellate Tribunal, read the judgment click here: Nikhil Mehta & Sons v. AMR Infrastructure Ltd’.
The judgment passed by Ld. Adjudicating Authority in the case of “Nikhil Mehta and Sons v. AMR Infrastructure Ltd” was set aside and matter has been remitted back to the Ld. Adjudicating Authority for admission. Notice was issued on respondents both by Speed-post and e-mail.
In spite of service of notice both by Speed-post and e-mail, the Respondent Corporate Debtor refused to appear.
From the agreement/ Memorandum of Understanding dated 14th May, 2014, we find that the said agreement relates to the allotment of apartment .admeasuring 520 sq. ft., therein the following terms and conditions of payment (commitment amount) has been stipulated and agreed between the parties: –
“The Company hereby undertakes to make a fixed payment of Rs. 13,000/- (Rupees Thirteen Thousand only (hereinafter referred to as the ‘Commitment Amount’) every calendar month to the Allottee(s) w.e.f. May – 2014 till the date of First PDC, which the Allottee(s) duly accepts. After realization of the abovementic.ined First PDC dated 1.11.14 on its due date, the Company assures the Allottees(s) that the Commitment amount shall be Rs. 11,160/- and will be effective from the date of realization of the first PDC till the date of realization of the Second PDC as mentioned in this MOU. Further, subject to realization of the Second PDC on its due date, the Commitment Amount shall be of Rs. 21,320/- with immediate effect of its realization till the date of offer ofpossession. The Company hereby clarifies that the monthly Commitment Amount in all the situations stated above is subject to the timely payment of all the instalments as per the plan opted by the Allottee(s). The Company shall stop the payment of commitment Amount, where any of the abovementioned PDC’s gets bounced on account of any reason whatsoever, and/or in case of non-payment of the balance amount on due date (as mentioned in this MOU) by the Allottee(s). The Flexi Payment Plan of the Allottee(s) shall change into Construction Linked payment Plan (CLP) without any notice to the Allottee(s) and after the change of payment plan into CLP, commitment Amount will not be paid by the Company to the Allottees(s). Further, the Allottee(s) is also liable to return to the Company 50% of the Commitment Amount already paid to the Allottee(s). If in any case Commitment Amount is not returned, Company may adjust the same by reducing the area allotted to the Allottee(s) or recover the amount with interest at any time as the Company deems fit and appropriate. The Allottee(s) knows and understands that Commitment Amount is applicable only in the case of Down Payment Plan and Flexi Payment Plan.”
In the present case, the Respondent has not taken any plea that the appellants failed to pay the balance amount on due date or any of the cheque has been bounced on account of any reasons. The respondent has also not denied the allegation that the ‘commitment amount” as mentioned in the agreement! Memorandum of Understanding has not been paid month to month and there is a default.
From the agreement/ Memorandum of Understanding, we find that the appellants are also “investors” and have chosen “committed return plan” like “Nikhil Mehta and Sons v. AMR Infrastructure Ltd“. Thereby we hold that the amount as is due to the appellants, come within the meaning of “debt” as defined in Section 3(11) of the ‘II & B Code’.
The Balance Sheet has been enclosed by the appellants, wherein the amount deposited by ‘persons’, including the appellants as shown also suggest that the Respondent ‘Corporate Debtor’ treated the appellants as ‘investors’ and borrowed the amount pursuant to sale purchase agreement for their ‘commercial purpose’ treating the amount at par with ‘loan’ in their return. Thereby, the amount invested by appellants come within the meaning of ‘Financial Debt’, as defined in Section 5(8)(f) of I & B Code, 2016, subject to satisfaction as to whether such disbursement against the consideration is for time value of money.
“Disbursed against the consideration for the time value of money”, as mentioned in the opening line of Section 5 has been rightly highlighted and considered by the Ld. Adjudicating Authority in “Nikhil Mehta and Sons v. AMR Infrastructure Ltd“, but the Appellate Tribunal while agreed with such findings but disagreed with the other part of findings in the said case.
In the present case, we find that no case has been made out by the respondent that the construction was stopped or delayed on account of factors beyond its control. It has also not been disputed that the respondent failed to pay monthly committed returns which was to be paid month to month till, the completion of the project! apartment. Thereby we find and hold that the appellants in this case have also successfully proved that the money disbursed by them is against the consideration for the time value of money and for all purpose, they come within the meaning of ‘Financial Creditor’ as defined in Section 5(7) of the ‘l & B Code’.
For the reasons aforesaid, we set aside the impugned judgment dated 8th March, 2017 passed by the Ld. Adjudicating Authority in C.P.No. (IB)-16(PB)/2017 and remit the matter to Adjudicating Authority to admit the application preferred by appellants and pass appropriate order, if the application under Section 7 of the ‘I & B Code’ is otherwise complete. In case it is found to be not complete, the appellants should be given seven days’ time to complete the application as per proviso to Section 7 of the ‘I & B Code’.
Case Reference: NCLAT in case of Anil Mahindroo & Anr Vs. Earth Iconic Infrastructure (P) Ltd., Company Appeal (AT) (Insolvency) No. 74 of 2017, Date of Order: 02.08.2017.
Read More related Judgment on Home Buyers: If Developer has shown the amount taken from home buyer under borrowing head and charged the interest thereon under Finance Cost in his Financial statements than that amount is constituted as debt under IBC- Nikhil Mehta and Sons(HUF) & Ors. Vs. AMR Infrastructure Ltd.-NCLAT