NCLT Delhi: Financial Creditor Cannot Invoke CIRP Against Corporate Debtor To Recover Debt From Homebuyer
Sachika Vij
5 Sep 2023 8:00 AM GMT
The National Company Law Tribunal (“NCLT”), New Delhi Court – III comprising of Mr. Bachu Venkat Balaram Das (Judicial Member) and Mr. Atul Chaturvedi (Technical Member) adjudicating a petition filed in South Indian Bank Limited vs. Magic Info Solutions Private Limited dismissed the petition to initiate Corporate Insolvency Resolution Process (CIRP) against Magic Info...
The National Company Law Tribunal (“NCLT”), New Delhi Court – III comprising of Mr. Bachu Venkat Balaram Das (Judicial Member) and Mr. Atul Chaturvedi (Technical Member) adjudicating a petition filed in South Indian Bank Limited vs. Magic Info Solutions Private Limited dismissed the petition to initiate Corporate Insolvency Resolution Process (CIRP) against Magic Info Solutions Private Limited (Corporate Debtor).
The NCLT held that the only financial institutions directly disbursing loans against consideration of the time value of money have the right and right to file a petition to invoke the CIRP since they would invariably be interested in the revival of the Corporate Debtor, as opposed to other financial institutions without any financial debt, who would be solely concerned with the recovery of the debt. The Financial Creditor cannot invoke CIRP against the Corporate Debtor to recover its loan from the homebuyer.
Background Facts:
On 15.02.2023, South Indian Bank Limited (Financial Creditor) filed a petition initiating CIRP against the Corporate Debtor due to an unpaid financial debt amounting to Rs. 1,91,91,056.55/, with a monthly interest rate of 9.30% and a penal interest rate of 2% per annum as of 13.02.2023. The date of default was December 26.12.2021.
The Financial Creditor had granted a home loan of Rs. 2.5 crores for a residential apartment by a homebuyer. A Tripartite Agreement was established among the Corporate Debtor, the homebuyer, and the Financial Creditor as per which the Corporate Debtor committed to providing the necessary property documents to the Financial Creditor after the registration process was completed. Additionally, it agreed to acknowledge the Financial Creditor's lien on the residential property and deliver the original sale deed directly to the Financial Creditor upon registration.
Despite the Financial Creditor disbursing a loan amount of Rs. 2,51,96,750/-, the Corporate Debtor failed to execute and register the sale deed in favor of the homebuyer or transfer the sale deed to the Financial Creditor. Subsequently, the homebuyer revoked their provisional allotment through an email dated 09.02.2019 and requested closure of the loan account with a refund of the amount to the Financial Creditor. The Financial Creditor recalled the credit facility as the Corporate Debtor acknowledged its liability and proposed a repayment timeline for the outstanding loan amount.
Contentions of the Corporate Debtor:
The Corporate Debtor challenged the maintainability of the petition and argued that the Financial Creditor approved a loan for the home buyer and it was only a signatory to the Tripartite Agreement. Further, it had only provided an assurance that if the home buyer were to violate any terms and conditions of the agreements, the Corporate Debtor would be obligated to return the money received from the Financial Creditor. It also contended that as per the provisions of the Code, only a legally recoverable financial debt can warrant the filing of an application under Section 7 of the Code and also cited the case of Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Limited wherein the Supreme Court differentiated a financial debt from other types of debts.
NCLT Verdict:
The NCLT, New Delhi dismissed the petition and observed that the primary creditor in the present case is the home buyer to whom the Financial debt is owed and not the Corporate Debtor. The Tribunal pointed out that the Corporate Debtor only gave an assurance to the effect that in case the home buyer before the creation of an equitable mortgage violates any of the terms and conditions of the agreements.
The NCLT concluded that the only financial institutions directly disbursing loans against consideration of the time value of money have the right and right to file a petition to invoke the CIRP since they would invariably be interested in the revival of the Corporate Debtor, as opposed to other financial institutions without any financial debt, who would be solely concerned with the recovery of the debt. Therefore, the Financial Creditor cannot invoke CIRP against the Corporate Debtor to recover its loan from the homebuyer.
Case Title: South Indian Bank Limited vs. Magic Info Solutions Private Limited
Case No.: (IB) – 136(ND)/2023
Counsel for the Financial Creditor: Mr. Gautam Singhal, Advocate, Mr. Ravikant Sharma, Advocate, and Ms. Preeti Chauhan, Advocate
Counsel for Corporate Debtor: Mr. Mayank Goel, Advocate and Mr. Manav Gupta, Advocate
