Tribunal Denies Financial Creditor Recognition Due to Arbitration and Section 138 Proceedings
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has dismissed a series of appeals filed by homebuyers seeking recognition as financial creditors under the Insolvency and Bankruptcy Code, 2016. The judgment, delivered by Mr. Justice Sharad Kumar Sharma and Mr. Indevar Pandey, pertained to five interconnected appeals related to a project by M/s RG Residency Pvt. Ltd.
The appellants, including Sumit Bansal and other family members, had claimed financial creditor status based on their purchase agreements for flats in the project. However, the agreements were unregistered, and the appellants had already initiated arbitration proceedings to reclaim their sale consideration. Additionally, they had filed proceedings under Section 138 of the Negotiable Instruments Act due to dishonored appreciation cheques provided by the corporate debtor.
The Tribunal noted that the appellants' actions, including invoking arbitration and initiating Section 138 proceedings, effectively waived their claim to be classified as financial creditors. The judgment emphasized that the appellants had sought refund of their investment rather than asserting a continuous liability or obligation from the corporate debtor, which is a requisite condition under Section 5(8)(f) of the Insolvency and Bankruptcy Code.
The NCLAT's decision also addressed the interpretation of "financial debt" and its implications for homebuyers. It highlighted that for a homebuyer to be classified as a financial creditor, there must be a continuous obligation or liability, which was not evidenced in this case due to the appellants' pursuit of refunds through arbitration and legal proceedings.
The Tribunal further dismissed the appellants' reliance on the Supreme Court's ruling in Vishal Chelani v. Debashis Nanda, noting factual distinctions between the cases. The NCLAT clarified that the Supreme Court's judgment addressed classification issues among allottees, whereas the present case involved the appellants' own actions negating their financial creditor status.
This judgment reinforces the legal framework for determining financial creditor status under the Insolvency and Bankruptcy Code, particularly for homebuyers engaging in arbitration and seeking refunds. It underscores the importance of continuous liability in establishing financial creditor claims.
Bottom Line :
Homebuyers seeking recognition as financial creditors under Section 5(8)(f) of the Insolvency and Bankruptcy Code (I&B Code) must demonstrate a continuous liability or obligation from the corporate debtor. Invocation of arbitration proceedings for refund of sale consideration and initiation of proceedings under Section 138 of the Negotiable Instruments Act indicate waiver of such status.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 5(7), 5(8)(f), 60(5); Negotiable Instruments Act, Section 138
Sumit Bansal v. Rajeev Lochan, (NCLAT)(Principal Bench, New Delhi) : Law Finder Doc id # 2964251
