The Hyderabad Bench of the National Company Law Tribunal (NCLT) ruled that the amount in corpus fund used for maintenance of apartments by homebuyers not ‘financial debt’ under the Insolvency and Bankruptcy Code, 2016 (IBC).
The application was filed by the Vasathi Anandi Owners Welfare Association (“VAOWA”) (Financial Creditor/ FC Association) under Section 7 of Insolvency and Bankruptcy Code, 2016 (IBC, 2016) seeking to initiate CIRP declaring moratorium and appointment of Interim Resolution Professional (IRP) against Corporate Debtor (“CD”), Vasathi Housing Limited., for a default of Rs 5,33,12,287.
The present application was filed before the Adjudicating Authority on the ground that CD has defaulted to make a payment of INR 5,33,12,287/- of which the principal is calculated @ 100 Sq. Ft as per agreement of sale i.e., INR 4,76,35,700 and Interest is calculated @ 6.5 % from last payment i.e., INR 56,76,587.
The CD submitted that the FC has not lent any Financial Debt as defined under section 5(8) of the IBC and therefore FC Association cannot be called as a Financial Creditor under section 5(7) of the IBC. 21. It is further argued that there was no agreement between the Petitioner and CD and therefore it cannot be called as a Financial Creditor. Another argument of the Petitioner is that the Bye-Laws and objective clause of the Petitioner Society do not have any provision which allows filing of the present CP and FC has no locus standi in the present CP.
A Two-Member Bench comprising Sanjay Puri, Technical Member and Rajeev Bhardwaj, Judicial Member observed that “Therefore, in our considered view, the amount in question is akin to a prepayment made to a service provider, with maintenance services being the relevant service in this case. A comprehensive examination of Section 5(8)(f) of the IBC, 2016, in conjunction with the aforementioned judgments, unequivocally establishes that the said amount does not meet the criteria for classification as Financial Debt.”
“In the present case, it is acknowledged that possession has already been handed over to the allottees, and the issue pertains to the Corpus Fund, which was intended for ensuring the proper maintenance of the project. It cannot be held that the primary motivation for collecting such a corpus fund was profit-oriented” the Bench noted.
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