Skip to main content

Insolvency - Decree Holders Do Not Come Under The Definition Of Financial Creditors

IN THE MATTER OF Sh. Sushil Ansal vs Ashok Tripathi, appeal was filed before the NCLAT against the order of the NCLT admitting an application filed by the Respondents under Section 7 of the Insolvency Code.

The Respondents have been awarded decree for recovery of their money paid to the Corporate Debtor by the ‘Uttar Pradesh Real Estate Regulatory Authority’ (“UP RERA”). As per Adjudicating Authority, the decree proved the existence of financial debt and liability of Corporate Debtor. The Adjudicating Authority noted that the Corporate Debtor has failed to pay the principal amount along with penalty as decreed by the “UP RERA”. The Adjudicating Authority had passed the impugned order based on the Judgment of the Appellate Tribunal in “M/s. Ugro Capital Limited v. Company Appeal (AT) (Insolvency) Bangalore Dehydration and Drying Equipment Co. Pvt. Ltd.-Company Appeal (AT) (Insolvency) No. 984 of 2019” wherein the Appellate Tribunal had observed that the definition of word ‘creditor’ in ‘I&B Code’ includes decree-holder and a petition filed for realisation of decretal amount could not be dismissed on the ground that the creditor should have taken steps for filing execution case in Civil Court.

The Appellate Tribunal observed that Respondent Nos. 1 and 2 neither asserted nor sought triggering of Corporate Insolvency Resolution Process in a purported capacity as allottees of Real Estate Project but sought initiation of Corporate Insolvency Resolution Process against the Corporate Debtor on the strength of being ‘decree-holders’ which owed its genesis to the Recovery Certificate issued by the ‘UP RERA’.

The Appellate Tribunal decided that the question was whether in their projected capacity as ‘decree-holders’ Respondent Nos.1 and 2 could maintain an application under Section 7 as ‘Financial Creditors’.

A ‘decree-holder’ is undoubtedly covered by the definition of ‘Creditor’ under Section 3(10) of the ‘I&B Code’ but would not fall within the class of creditors classified as ‘Financial Creditor’ unless the debt was disbursed against the consideration for time value of money or falls within any of the clauses thereof as the definition of ‘financial debt’ is inclusive in character. A ‘decree’ is defined under Section 2(2) of the Code of Civil Procedure, 1908 (“CPC” for short) as the formal expression of an adjudication which conclusively determines the rights of the parties with regard to the matters in controversy in a lis. A ‘decree- holder’, defined under Section 2(3) of the same Code means any person in whose favour a decree has been passed or an order capable of execution has been made. Order XXI Rule 30 of the CPC lays down the mode of execution of a money decree. According to this provision, a money decree may be executed by the detention of judgment-debtor in civil prison, or by the attachment or sale of his property, or by both. Section 40 of the ‘Real Estate (Regulation and Development) Act, 2016’ lays down the mode of execution by providing that the RERA may order to recover the amount due under the Recovery Certificate by the concerned Authority as an arrear of land revenue, which the said authority has already done in this case against the application filed by the Respondents.

Based on the above, the Appellate Tribunal answered the question of whether a decree-holder would fall within the definition of ‘Financial Creditor’ with an emphatic ‘No’ as the amount claimed under the decree is an adjudicated amount and not a debt disbursed against the consideration for the time value of money and does not fall within the ambit of any of the clauses enumerated under Section 5(8) of the ‘I&B Code’.

As to the question of whether execution of decree on the strength of Recovery Certificate issued by the ‘UP RERA’ would justify triggering of the Corporate Insolvency Resolution Process at the instance of Respondent Nos.1 & 2, the Appellate Tribunal referring to the judgment of the tribunal in G. Eswara Rao v. Stressed Assets Stabilisation Fund and Ors.- held that an application under Section 7 of the ‘I&B Code’ cannot be filed for execution of a decree.

Comments

Post a Comment

Most viewed this month

Merits and the terms of contract are irrelevant for invoking of the bank guarantees

In Sabarkantha Annuity Pvt. Ltd. Vs. NHAI and Ors, the Petitioner filed before the Delhi High Court  petition under Section 9 of the Arbitration and Conciliation (Amendment) Act, 2015 with a prayer that, Respondents be restrained from acting upon the letter dated 15th September, 2017 or from invoking the Bid securities of the Petitioner to the tune of Rs. 10.93 Crores and also restraining the banks from honouring the invocation of said bank guarantees on behalf of Respondent No. 1 acting in terms of letter dated 3rd November, 2007. Petitioner has relied upon Clauses Nos. 9.1.1, 9.1.2 and 4.3 of the agreement dated 28th April, 2017 entered into between the parties to say the claim for damages since is not a claim for a sum presently due and payable and the respondent would be entitled to damages only on proof of loss, per Clause 4.3 of the agreement and hence is not entitle to the entire sum of bid security.  The Court found that Clause No. 9.1.2 speaks of an exclusiv...
Post a Comment
Read more

Right of pre-emption under West Bengal Land Reform Act

In Rabindra Nath Kundu & Anr vs Sudhir Hira, Bijoy Krishna Hira being the owner in the suit plot, gifted to Santosh Kumar Hira demarcated 11 decimals of land vide deed of gift dated 27.4.2004 and the latter sold 9 decimals out of 11 decimals of land to Sudhir Hira the preemptor/opposite party no. 1 and well demarcated 1.65 decimals of land in the said plot along with several other plots were sold, transferred and conveyed to the preemptees/petitioners herein by a registered deed of sale dated 10.8.2010, the subject matter of preemption. It is argued on behalf of the preemptees that  the present opposite party no. 1/preemptor Sudhir Hira has no relationship of co-sharership with Santosh Kumar Hira opposite party no. 2 as the demarcated portion of land has been purchased. It is settled principle of law that partial preemption is not permissible and this was what the view adopted by this Hon'ble High Court is Surendra Vs. Abhimannu reported in (1980) 1 Cal LJ 135 whe...
Post a Comment
Read more

CBI has no jurisdiction to probe affairs of medical college:HC

The Madras High Court has quashed charges against administrators of a medical college and dismissed CBI's petitions opposing discharge of officials of two other medical colleges, saying the investigation agency, or any other external agency for that matter, has no jurisdiction to probe the affairs of a medical college. Quashing the charges against the administrators of a medical college and dismissing CBI's petitions opposing the discharge of officials of two other medical colleges, Justice Aruna Jagadeesan said "contravention of rules and regulations may be an offence against the statute but is not a crime. There is no room or jurisdiction for any external agency to investigate the affairs of any medical institution coming within the purview of the Medical Council of India." In identical set of orders, all delivered on August 6, Justice Jagadeesan said "the shortfall in faculties and submissions of fake/forged documents would only disentitle the institution...
Post a Comment
Read more