MoU And Ledger Extract Are Insufficient Proof For Admitting Of Financial Debt Claim: NCLAT Delhi

One of the creditors of the Corporate Debtor submitted its claim before the Resolution Professional claiming itself to be a Financial Creditor at par with Homebuyers. To substantiate the claim, the creditor submitted an MoU and Ledger extract of the Corporate Debtor as proof. The Resolution Professional rejected the claim citing that financial debt claim cannot be admitted merely upon MoU and Ledger extract and the decision was upheld by the NCLT and NCLAT.

Background Facts

On 26.09.2019, D S Kulkarni Developers Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT.

D.S. Kulkarni & Associates (“Appellant”) submitted its claim before the Resolution Professional in Form CA and Form F, seeking treatment as a Financial Creditor at par with Homebuyers. A Memorandum of Understanding (“MoU”) was entered between the Appellant and Corporate Debtor and Ledger extracts were submitted as proof of claim.

The Resolution Professional sent emails to the Appellant stating that the proof of claim so submitted are insufficient for admission of claim. However, the Appellant did not submit any further documents in support of its claim. Therefore, the Resolution Professional rejected the Appellant's claim.

Subsequently, a Resolution Plan submitted by the Resolution Applicant was approved by the Committee of Creditors (“CoC”). The Resolution Professional filed an application for approval of the resolution plan and the NCLT reserved order in the application on 22.02.2023.

In February 2023, the Appellant filed an application before NCLT, seeking direction to the Resolution Professional to consider their claim and to classify them as Financial Creditor at par with the homebuyers.

On 31.03.2023, the NCLT rejected the Appellant's application while holding that the application has been filed with delay. It was further held that Resolution Professional did not commit any illegality in rejecting the Claim of the Appellant.

The Appellant filed an appeal before the NCLAT against the order dated 31.03.2023. It was argued that the Resolution Professional ought to have admitted the claim based on the MoU and ledger extracts.

NCLAT Verdict

The Bench observed that the MoU was entered between the Parties for purchasing and/or jointly developing real estate properties. Under the MoU, the parties may choose to execute a joint venture and the consideration amount shall be considered as investment brought by the Appellant. It was further observed that the consideration as per the MoU was paid either for purchasing the property or for entering into joint venture, where the consideration was to be treated as investment.

The Bench held that the Appellant cannot be treated as a real estate allottee on the basis of MoU, as per the Explanation to Section 5(8)(f) of IBC.

“The MoU, which is a basic document evidencing the transaction does not qualify as a financial debt and the RP has rightly taken the view that the documents filed, i.e. MoU and Ledger statement are insufficient to accept the Claim as financial debt.”

It has been held that MoU and Ledger are insufficient documents for accepting a claim as financial debt. The Bench dismissed the appeal and upheld the order passed by NCLT.

Case title: D S Kulkarni & Associates v Manoj Kumar Aggarwal

Case No.: Company Appeal (AT) (Insolvency) No.923 of 2023

Counsel for Appellants: Mr. Sandeep Bajaj, Ms. Aakanksha Nehra, Mr. Naman Tandon and Adya Singh, Advocates.

Counsel for Respondent: Mr. Abhijeet Sinha, Mr. Varun Kalra and Mr. Saikat Sarkar, Advocate for R-1 Mr. Arvind Nayar, Sr. Advocate with Mr. Puneet Singh Bindra, Mr. Akshay Sharma, Akshay Doctor, Ms. Simran Jeet, Mr. Rishabh Gupta, Mr. Sameer Sethi, Advocates for SRA.

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