Speculative Investment Without Commercial Effect Of Borrowing Not A 'Financial Debt': NCLT New Delhi

The National Company Law Tribunal (NCLT), New Delhi Bench-III, comprising Bachu Venkat Balaram Das (Judicial Member) and Shri Atul Chaturvedi (Technical Member) have dismissed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, filed by M.K. Jain and family (Financial Creditors) against Krrish Realtech Pvt. Ltd. (Corporate Debtor) for default of Rs. 12.3 crore. The Tribunal held that the Applicant was a speculative investor and could not claim status and benefits as a 'financial creditor' under Explanation (i) of Section 5(8)(f) of the IBC as he was not interested in the financial well-being growth and vitality of the Corporate Debtor. Background Facts The case stemmed from a 2018 MoU under which the applicants invested over Rs. 14 crore for purchase and re-allotment of plots ("Kelvin Plots") in a real estate project. M/s. Krrish Realtech Pvt. Ltd., the Respondent/Corporate Debtor failed to deliver the plots, leading to arbitral proceedings. The Arbitrator passed an interim award in favour of the Financial Creditors, directing the Corporate Debtor to make a payment of Rs. 12.3 crore. Despite the award being upheld by the Delhi High Court, no payment was made. Observations The Tribunal noted that the Applicant filed an execution petition before the Delhi High Court, therefore, the intent of the Applicant was to arm twist the Corporate Debtor and recover monies allegedly due to it. The Tribunal observed that the Applicant was never an allottee or a home buyer but was a speculative buyer as the Applicant was aware that the money that was being so invested in the Kelvin Plots, belonged to a third party i.e. Kelvin Buildcon Pvt. Ltd. The applicants sought to gain from the appreciation and resale of the plots, including profit-sharing terms. The Tribunal referred to the case of Naman Infradevelopers Pvt Ltd. v. Metcalfe Properties Pvt. Ltd, Company Appeal (AT) (INS) 74/2024 where the NCLAT observed that “the status of 'Financial Creditor' cannot be accorded to the Appellant, it being a speculative investor and had filed an Application under Section 7 of the Code for recovery of its money with profit and interest.” The MoU showed no commercial effect of borrowing, as required under Section 5(8) of the IBC to qualify as a "financial debt". The Tribunal noted that the amount was not for investment purpose and was in the nature of financial borrowing. It observed that the amount so invested cannot be said to be a 'Financial Debt' as defined under Section 5(8) of the Code. The Tribunal referred to Meehika Buildcon LLP v. City Star Infrastructure Ltd., Comp. App. (AT) (Ins) 47/2024, wherein the NCLAT held that when monies so invested are to clear title, an application under Section 7 would not be maintainable. The Tribunal dismissed the insolvency application, holding that the transaction was speculative in nature and structured as an investment, not a financial debt. The Tribunal concluded that the applicants were speculative investors, not financial creditors, and thus not entitled to invoke the insolvency process. The proper remedy lies in enforcement of the arbitral award, which is already pending before the Delhi High Court. Case Title: M.K. Jain & Ors. vs. M/s. Krrish Realtech Pvt. Ltd. Case Number: IB-348(ND)/2024 For Applicant : Mr. Gaurav Mitra, Mr. Vipul Wadhwa, Advs. For Respondent : Mr. Dhruv Pande, Adv. Date of Order: 03.04.2025Click Here To Read/Download The Order

Speculative Investment Without Commercial Effect Of Borrowing Not A 'Financial Debt': NCLT New Delhi

Tazeen Ahmed

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