Mere MOU For Flat Allotment Not Financial Debt Without Disbursal To Corporate Debtor: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai recently held that a payment made under an MOU for allotment of 3,000 sq ft of FSI in a proposed real estate project does not qualify as a “financial debt” under the Insolvency and Bankruptcy Code, 2016 if there is no disbursal to the corporate debtor and no element of time value of money.

A Bench of Judicial Member Ashish Kalia and Technical Member Sanjiv Dutt said, “There is nothing to show that money was disbursed by the Applicant against the consideration for the time value of money so as to be treated as a financial debt under Section 5(8) of the Code.”

The bench dismissed an application filed by Wescon Housing India Pvt. Ltd. in the CIRP of E Commerce Magnum Solution Ltd. It upheld the Resolution Professional's decision to reject Wescon's claim of Rs12.98 crore and declined to direct reconstitution of the Committee of Creditors.

Wescon claimed that it paid Rs. 3.73 crore under an MOU dated October 8, 2010 for allotment of 3,000 sq ft of BMC FSI in the proposed Old Victoria Mills project in Mumbai. The amount was paid to Ackruti City Ltd., later known as Hubtown Ltd. The corporate debtor had signed the MOU as a confirming party and later entered into a supplementary MOU in 2019 after taking over the project.

After commencement of CIRP, Wescon filed its claim as a financial creditor. It argued that the payment was an investment in the project and should be treated as a financial debt under Section 5(8) of the Code. The Resolution Professional rejected the claim, stating that the payment had been made to a third party and not to the corporate debtor, and that there was no borrowing arrangement.

The tribunal agreed. It noted that the MOU did not provide for payment of interest and did not reflect any borrowing. It observed that the transaction was essentially for the sale or transfer of flats or FSI in a proposed project.

Rejecting the plea, the Bench said, “This shows that the Applicant's claims cannot be treated as a Financial Debt. There is nothing to show that money was disbursed by the Applicant against the consideration for the time value of money so as to be treated as a financial debt under Section 5(8) of the Code. Nor is it covered under the Explanation below Section 5(8)(f) because the Applicant has failed to demonstrate that it had paid money to ACL in its capacity as an “allottee” of a “real estate project” within the meaning of the Real Estate (Regulation and Development) Act, 2016 and hence, issue (i) is decided against the Applicant."

Holding that no debtor-creditor relationship was established, the tribunal dismissed the application and allowed the Resolution Professional to proceed in accordance with the resolution plan.