Interest Free Maintenance Security Collected From Homebuyers By Builder Not Financial Debt: NCLT Jaipur

The National Company Law Tribunal, Jaipur Bench has recently held that Interest Free Maintenance Security collected by a builder from flat buyers is not a financial debt under the Insolvency and Bankruptcy Code, 2016.

Thus, it ruled that a residential welfare society cannot trigger insolvency proceedings on the basis of such maintenance-related claims.

A coram of Judicial Member Reeta Kohli and Technical Member Kavita Bhatnagar dismissed the plea filed by SDC Green Park Residential Welfare Society against Sand Dune Constructions Private Limited, observing that insolvency law applies only where money is disbursed for the time value of money.

In this context, the tribunal, relying on decisions of the NCLT Hyderabad and NCLT Mumbai on similar issues, observed,

“A combined reading of Section 5(8)(f) of the IBC, 2016, along with the above-mentioned judgments, unequivocally establishes, that the amount advanced for maintenance of society can in no term can be classified as 'Financial Debt. Further, the Petitioner herein cannot a claim on the amount of maintenance and thus on that basis cannot be classified as a Financial Creditor, in terms of Section 5(7) of IBC, 2016”

The dispute arose from the SDC Green Park Residential Apartments project in Jaipur. Flat buyers had paid the developer a one-time Interest Free Maintenance Security of Rs 100 per square foot, totalling about Rs 4.86 crore, along with club and contingency charges. These amounts were collected after possession of the flats was handed over, solely for maintenance of common areas and facilities.

The Society argued that the developer had agreed to use the interest earned on the lump sum maintenance amount for meeting maintenance expenses and had, during the COVID-19 period, committed to make monthly maintenance payments. It alleged that the developer failed to honour this assurance, resulting in a shortfall in maintenance funds.

Rejecting these submissions, the tribunal noted that the payment was not linked to any real estate project or financing arrangement. It further held that a registered society of apartment owners could not be treated as an “allottee” under Section 5(8) of the Code, since the money was collected purely for maintenance of completed apartments. On this reasoning, the application was dismissed as not maintainable.