Advance paid by Speculative Buyer in Real Estate not Financial Debt under IBC: NCLAT [Read Order]

The New Delhi Bench of the National Company Law Appellate Tribunal ( NCLAT ) observed that advance paid by speculative buyer in real estate not financial debt under the Insolvency and Bankruptcy Code, 2106 ( IBC ).

It is alleged by the Appellant he had made advance payment of Rs.5 crores through two cheques drawn on State Bank of India and the balance payment was to be made by the purchaser when the seller would be ready for registry of the plots. He paid some further amounts too. Further the Appellant give him an option to effect the registry of land project in their name and transferred a sum of Rs.50 lakhs on 21.10.2021. However, the Corporate Debtor failed to effect the Registry and vide letter dated 25.02.2022 showed its inability to transfer the land project and proposed to convert the outstanding amount as loan and to repay the same with interest within four months after entering into the Settlement agreement.

The Corporate Debtor allegedly agreed to pay Rs.14,91,57,539/- alongwith 24% interest on or before 22.07.2022 and if the repayment gets delayed then penal interest of 12% was also to be paid by the Corporate Debtor. However, the default occurred and a petition was filed by the Financial Creditor under Section 7 of the IBC.

The question which arose before the Adjudicating Authority ( NCLT ) was if the Appellant was a Financial Creditor or Financial Institution as per definition of the IB Code and if the petition was maintainable. The Adjudicating Authority ( NCLT ) had passed an impugned order stating that the debt owed to the Appellant is not a financial debt per Section 5(8) of the IBC as the money was not disbursed as a loan with consideration for the time value of money but was paid as an advance for purchase of residential plots in the PUDA approved colony namely Metcalfe Nirvana. Further it held the Appellant is not an allottee under Section 5(8)(f) but would be a speculative buyer.

In the matter of Nidhi Rekhan Vs M/s Samyak Projects Pvt Ltd it was held that “where the appellant is a speculative investor, he cannot claim status and benefits as financial creditor under Explanation (i) of Section 5(8)(f) of the IBC and is not interested in the financial well-being growth and vitality of the Corporate Debtor but is just interested in investment and has come in the garb of an allottee, such petition needs to be dismissed.”

A Three Member Bench comprising Justice Ashok Bhushan, Chairperson, Justice Yogesh Khanna, Member (Judicial) and Mr. Barun Mitra, Member (Technical) observed that “The judgement relied upon by the Appellant does not relate to the facts of the case as the Appellant was never an allottee or a home buyer but was a speculative buyer, hence would not fall within the purview of Section 5(8) of the IBC, hence we are in agreement with the order passed by the Adjudicating Authority as it had rightly relied upon Mansi Brar Fernandes Versus Sudha Sharma and Anr, which affirms the order of the Appellate Tribunal.”

“We are in agreement to say the status of ‘Financial Creditor’ cannot be accorded to the Appellant, it being a speculative investor and had filed an Application under Section 7 of the Code for recovery of its money with profit and interest” the Bench concluded.

To Read the full text of the Order CLICK HERE

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