Interest Free Maintenance Fee Deposited By Allottees Under Conveyance Deed Cannot Be Considered As Financial Debt U/S 5(8) Of IBC: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) has held that interest free maintenance fee to be paid by the allottees to the corporate debtor under the Conveyance Deed cannot be considered as financial debt under section 5(8) of the Insolvency and Bankruptcy Code, 2016 (Code). Brief Facts: M/s. ALM Infotech City Pvt. Ltd. (respondent) launched a project by the name ILD Trade Centre at Sector 47, Sohna Road, Gurgaon, in which occupancy certificate was received on 19.11.2010. Various unitholders booked their respective units on consideration, Builder Buyers Agreement (BBA) was executed and subsequently Conveyance Deed were also executed in favour of the different unit holders in the year 2015 onwards. Under the Conveyance Deed, unitholders were also required to pay a sum of Rs.100 sq. ft. super area of their respective unit to the respondent towards the Interest Free Maintenance Security (IFMS). ILD Owners Welfare Association (Appellant) claimed to have taken over the maintenance of the project on 08.09.2022. On 06.10.2023, appellant sent a demand notice of ₹2.95 Crore to the respondent, the project proponent and thereafter in April 2024 filed an application under Section 7 of the code, claiming default of the financial debt. The Adjudicating Authority heard the appellant and by the impugned order rejected the application under Section 7 holding that the IFMS is not a financial debt, hence the application under Section 7 is not maintainable. Aggrieved by the order, rejecting Section 7 application, this appeal has been filed. Contentions: The Appellant submitted that amount in default means to raise a finance by the corporate debtor and clearly falls within definition of financial debt. It was also argued that as per Haryana Apartment Ownership Act, 1983, responsibility of keep and maintenance of the complex is cast upon the appellant and the financial debt is to be handed over to the appellant. It was further submitted that the corporate debtor is not maintaining the project and project is being maintained by the appellant. Hence, the amount which was collected by the corporate debtor towards IFMS was required to be handed over to the appellant for which a demand notice was rightly issued by the appellant. Issue Before Tribunal Whether the amount which was deposited by the appellant towards IFMS is a financial debt which is owed by the corporate debtor to the appellant. Observations: The Supreme Court in 'Global Credit Capital Limited & Anr.' Vs. 'Sach Marketing Pvt. Ltd. & Anr.' (2024) held that for finding out the character of the debt, nature of the transaction entered between the parties has to be captured and find out and it is only after determining the real nature of transaction, issue can be answered as to whether there is a financial debt or not. The Tribunal after perusing the relevant clauses of the Deed observed that Clause 27 indicates that the amount maintenance charges shall be payable by the vendee to the vendor or nominated maintenance agency. The amount which is paid by the allottee towards IFMS security is the amount which is paid towards obtaining services and the amount is payable to the vendors/nominated maintenance agencies. The Tribunal said that for an amount to be qualified as a financial debt under section 5(8) of the code, it must be disbursed against consideration for the time value of money. This requirement applies to all transactions under sub clauses from (a) to (f) as held by the Supreme Court in Pioneer Urban Land and Infrastructure Ltd. & Anr. v. Union of India & Ors. (2019). While deciding whether security deposits made to secure rental amounts could be considered as financial debt, the NCLAT in Corab India Private Limited' Vs. 'Mr. Birendra Kumar Aggarwal, Resolution Profession of Renaissance Indus Infra Private Limited & Anr.(2024) held that the security deposit held by the corporate debtor was equivalent to four months rent amount which required to be refunded upon termination of lease deed without any interest subject to deductions for dues. Based on the adobe, it was held that since the security deposit was not disbursed against consideration for the time value of money, it does not qualify as a financial debt under section 5(8) of the code. While applying the above ratio to the facts of the present case, the Tribunal noted that in the present case, IFMS, maintenance security was towards providing services by the vendor/maintenance agencies and the amount was paid by the appellant for obtaining services regarding maintenance and the amount could not be held to be a financial debt. Accordingly, the present appeal was dismissed. Case Title: ILD Owners Welfare Association Versus M/s. ALM Infotech...

Interest Free Maintenance Fee Deposited By Allottees Under Conveyance Deed Cannot Be Considered As Financial Debt U/S 5(8) Of IBC: NCLAT

Mohd Malik Chauhan

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