Insolvency & BankruptcyNational Company Law Tribunal & NCLATDecree Holder ≠ Financial Creditor

September 17, 20200
NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI
Sh. Sushil Ansal v. Ashok Tripathi 
Company Appeal (AT) (Insolvency) No. 452 of 2020 | Date: 14.08.2020
FACTS
The Respondent had filed complained the RERA Authority against the Appellant for not completing the construction and demanded a refund. The Authority issued a recovery certificate in favour of the Respondents and directed the Corporate Debtor to pay the amount.
Thereafter, the Respondents filed an application under Section 7 of Insolvency  and Bankruptcy  Code, 2016 (“Code”) for initiating Corporate Insolvency Resolution Process (“CIRP”). The Respondents premised their application on the ground that covered under the purview of ‘Financial Creditors’ in furtherance of the definition of ‘Creditor’ in under Section 3(10) of the Code which includes a decree-holder within its fold.
ISSUE BEFORE THE NCLAT
Whether a decree-holder, though covered by the definition of ‘Creditor’, does fall within the definition of a ‘Financial Creditor’ as per Section 5(7) of the Code?
CONCLUDING VIEW
The Appellant Tribunal first perused Section 5 (7) read with Section 5 (8) of the Code, and noted that a financial creditor is a person to whom financial debt is due, whereby financial debt is any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing. The ambit of ‘commercial effect of a borrowing’ was then amended to include any amount raised from an allottee under a Real Estate Project.
The Tribunal noted that the determining factor to decide whether a debt is covered under the ambit of financial debt would be “whether the debt was disbursed against the consideration for the time value of money which may include amount raised from an allottee under a Real Estate Project, the transaction deemed to be amount having the commercial effect of a borrowing.”
However, the Tribunal peculiarly analysed the facts of the case and held that the Respondent had filed the application before the Adjudicating Authority as a decree holder and not allottees. Thus, the amounts raised by them is not as allottees under the Real Estate Project deemed to be having the commercial effect of a borrowing to be called as Financial Creditors.
Thereafter, the Tribunal noted that the it is undisputed that the decree holders are covered under the ambit of creditor under Section 3(10) of the Code. But the Tribunal adjudicated that the a decrees holder is not a financial creditor as that the debt is not disbursed against the consideration of time value of money. The decreed amount has no commercial effect of borrowing.
Thus, the Tribunal concluded that –
“The answer to the question whether a decree-holder would fall within the definition of ‘Financial Creditor’ has to be 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’.”
The Tribunal also held that an application under the Code cannot be filed merely for execution of the decree.
Thus, the decree holders were not financial creditor and thereby the application under Section 7 was not maintainable.
AMLEGALS REMARKS 
The Appellant Tribunal herein has clarified that the home-buyers cannot be permitted to take dual advantage of available legal remedies. It not the same anymore that the home-buyers do not have a remedy at all under the Code. Once they approach a forum seeking relief, they cannot be permitted to indulge in forum-shopping.
Thus, a precedent has been set to the extent that the decree holders are creditors but not financial creditors under the Code.
Further, the NCLAT again emphasised that that no application can be permitted to be filed under the Code for any other frivolous purpose other than that of resolution of insolvency.
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