No Financial Debt Where Flats Given In Lieu Of Legal Fees: NCLAT New Delhi

The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) on 23 April dismissed the appeal filed by L & L Partners Litigation, holding that allotment of three flats by AKME Projects Ltd. towards professional legal fees did not constitute a “financial debt” under Section 5(8) of the Insolvency and Bankruptcy Code (IBC).

A Bench comprising Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra observed:

“Amount raised from allottees under Real Estate Project has been deemed to be an amount having the commercial effect of borrowing. Thus, when an amount is raised from allottees by a Real Estate Builder, the said amount becomes financial debt. Present is not a case where any disbursement was made by the appellant in favour of the corporate debtor.”

The appellants, L & L Partners Litigation, had rendered legal services to AKME Projects Ltd., which had availed financial facilities of Rs. 63 crore from Yes Bank by mortgaging land measuring 9.856 acres. In March 2015, AKME allotted three flats in its project “AKME Raga” to the appellant as consideration for legal services.

Yes Bank subsequently initiated SARFAESI proceedings, and the mortgaged property was auctioned in July 2016 to Grandstar Realty Pvt. Ltd. A sale certificate was issued, which recognised 221 allottees listed in Annexure I.

Corporate Insolvency Resolution Process (CIRP) against Grandstar Realty commenced in September 2023. The Committee of Creditors (CoC) approved resolution plans in November 2024. L & L Partners thereafter filed its claim in January 2025, seeking recognition as an allottee of three flats.

The Resolution Professional (RP) rejected the claim in February 2025, citing delay, absence of the appellant's name in the list of 221 recognised allottees, and lack of the essential characteristics of financial debt.

The appellant contended that the delay arose due to dissolution of the firm in July 2022 and ongoing arbitration proceedings, which left no authorised representative to act. It further argued that the allotment created a subsisting obligation of AKME Projects Ltd., and since the corporate debtor acquired assets on an “as is where is” basis, it was bound to honour the allotments.

The RP opposed the claim, stating that it was filed after approval of the resolution plan and was therefore impermissible under the time-bound framework of the IBC. It was further submitted that the appellant's name did not appear in the SARFAESI sale certificate listing 221 allottees. The RP also maintained that the allotment was made in lieu of legal fees and not against any monetary disbursement, and therefore did not qualify as financial debt.

On the issue of delay, the NCLAT relied on RPS Infrastructure Ltd. v. Mukul Kumar, reiterating that claims cannot be entertained after approval of the resolution plan by the CoC. The Tribunal noted that the plan had already been approved when the appellant filed its claim and was pending consideration before the National Company Law Tribunal.

The Bench further held that L & L Partners, being a law firm, could not claim benefit extended to homebuyers as recognised in Puneet Kaur.

It also noted that the SARFAESI sale certificate expressly recognised 221 allottees, and the appellant's name was not included. Therefore, no enforceable liability existed against the corporate debtor in favour of the appellant.

The Tribunal observed that under Section 5(8) of the IBC, financial debt requires disbursement against consideration for time value of money. Relying on Anuj Jain v. Axis Bank Ltd., it reiterated that amounts raised from allottees in real estate projects may amount to financial debt due to their commercial effect of borrowing.

However, in the present case, the Bench held that no monetary disbursement was made by the appellant to the corporate debtor, and the allotment in lieu of professional fees did not satisfy the statutory requirements of financial debt.

Accordingly, the NCLAT dismissed the appeal.

For Appellants: Senior Advocate Sudhir Makkar

For Respondents: Advocates Abhishek Anand, Karan Kohli and Palak Kalra