Tribunal rules money paid to directors’ personal accounts does not qualify as financial debt under IBC.
In a significant ruling, the National Company Law Tribunal (NCLT) Chandigarh Bench has dismissed a claim made by homebuyers, led by Keshab Chand Gupta, for the refund of Rs. 60,00,000. The tribunal, comprising Mr. Khetrabasi Biswal and Mr. Shishir Agarwal, found that the payments were made to the personal accounts of directors rather than the corporate debtor, Samar Estates Pvt. Ltd., thus disqualifying it as a financial debt under the Insolvency and Bankruptcy Code (IBC), 2016.
The applicants, homebuyers in the ESS VEE Apartments project at Panchkula, had alleged that they paid a total of Rs. 1,11,00,000 in 2006 for booking 18 flats. While Rs. 51,00,000 was refunded, the remaining Rs. 60,00,000 remained unpaid. The tribunal, however, noted that the applicants failed to provide proof of disbursement of the Rs. 60,00,000 into the account of the corporate debtor, a necessary condition for a claim to be recognized as financial debt under Section 5(8) of the IBC.
The tribunal also observed that the applicants did not furnish essential documents such as builder-buyer agreements and allotment letters within the stipulated time, as required under Regulation 8A of the CIRP Regulations. Despite repeated opportunities, the applicants could not produce valid documentation supporting their claim.
The interim resolution professional (IRP) and respondents argued that the funds were credited to the personal accounts of the directors, not to the corporate debtor, thus failing the criteria for financial debt. The tribunal upheld this view, emphasizing that disbursement into the corporate debtor's account is an essential criterion under the IBC.
The tribunal further dismissed allegations of misconduct against the resolution professional, finding no basis for such claims. The ruling underscores the importance of adhering to procedural requirements and proper documentation in insolvency proceedings.
Bottom line:-
Insolvency and Bankruptcy Code - Claim of financial debt must be supported by evidence of disbursement into the Corporate Debtor's account - Amounts paid to directors' personal accounts cannot qualify as "financial debt" under the Code.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 - Sections 5(8), 60(5), 70(2), 18, 25; Regulation 8A of CIRP Regulations; Indian Contract Act, 1872
Keshab Chand Gupta v. Rahul Jindal, (NCLT)(Chandigarh) : Law Finder Doc id # 2933158
