Sushil Ansal Vs Ashok Tripathi & Ors. - Decree-holder, though included in the definition of ‘Creditor’, does not fall within the definition of ‘Financial Creditor’

NCLAT (14.08.2020) in Sushil Ansal Vs Ashok Tripathi & Ors. [Company Appeal (AT) (Insolvency) No. 452 of 2020]

• 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.

• 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’.

• By filing an application under Section 7 of the I&B Code, a Decree cannot be executed. In such case, it will be covered by Section 65 of the I&B Code, which stipulates that the insolvency resolution process or liquidation proceedings, if filed, fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, attracts penal action.

• Decree-holder, though included in the definition of ‘Creditor’, does not fall within the definition of ‘Financial Creditor’ and cannot seek initiation of Corporate Insolvency Resolution Process as ‘Financial Creditor’.

 

Excerpts of the order;

Appellant- Mr. Sushil Ansal, Former Director and Shareholder of ‘M/s. Ansal Properties and Infrastructure Limited’- (Corporate Debtor) has preferred the instant appeal against the order of admission of application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code” for short) filed by Mr. Ashok Tripathi and Mr. Saurabh Tripathi claiming to be the Financial Creditors. The order of admission passed on 17th March, 2020 by the Adjudicating Authority (National Company Law Tribunal), New Delhi, Court-II, with consequential directions in the nature of slapping of Moratorium and appointment of Interim Resolution Professional has been assailed through the medium of instant appeal on grounds adumbrated in the Memo of Appeal to which we shall advert to at a later stage.

# 8. Issues arising for consideration are:

• (i) Whether this is a fit case for invoking Rule 11 of the NCLAT Rules to allow the parties to settle the dispute?

• (ii) Whether application filed by Respondent Nos. 1 & 2 under Section 7 of the ‘I&B Code’ was not maintainable?

# 9. We propose to deal with the issues in the light of respective stand taken by the parties, submissions made on their behalf and the insolvency jurisprudence evolved till date.

Issue No.1

# 14. Admittedly, the Interim Resolution Professional has received 283 claims from allottees of different projects, Financial Creditors, Operational Creditors, other Creditors and Employees as detailed in para 10 of the reply filed by Respondent No.3 and the Settlement Deed does not take care of the interest of Claimants other than Respondent Nos.1 & 2. Therefore, allowing of withdrawal of application on the basis of such Settlement which is not all-encompassing and being detrimental to the interests of other Claimants including the allottees numbering around 300 would not be in consonance with the object of ‘I&B Code’ and purpose of invoking of Rule 11 of the NCLAT Rules. In a case where interests of the majority of stakeholders are in serious jeopardy, it would be inappropriate to allow settlement with only two creditors which may amount to perpetrating of injustice. Exercise of inherent powers in such cases would be a travesty of justice.

Issue No.2

# 17. However, the matter does not rest here. Respondent Nos. 1 and 2 admittedly approached the Adjudicating Authority not in the purported capacity of allottees of a Real Estate Project bringing them within the fold of Financial Creditors claiming to be decree-holders against the default of financial debt committed by the Corporate Debtor on account of non-payment of principal amount along with penalty as decreed by the ‘UP RERA’ vide orders dated 16th November, 2017 and 13th December, 2018 followed by issuance of Recovery Certificate dated 10th August, 2019 but not as allottees. Their contention of coming within the purview of ‘Financial Creditors’ rests on strength of definition of ‘Creditor’ in terms of provision of Section 3(10) of the ‘I&B Code’ which  a decree-holder within its fold. The question arising for consideration is whether a decree-holder, though covered by the definition of ‘Creditor’, does fall within the definition of a ‘Financial Creditor’ across the ambit of Section 5(7) of the ‘I&B Code’. Section 5(7) defines ‘Financial Creditor’ as under:

• “5. Definitions.- ……..(7) “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to” 

# 20. 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. In the instant case, RERA has conducted the recovery proceedings at the instance of Respondent Nos.1 & 2 against the Corporate Debtor which culminated in issuance of Recovery Certificate and passing of order under Section 40 of the ‘Real Estate (Regulation and Development) Act, 2016’ directing the concerned Authority to recover amount of Rs.73,35,686.43/- from the Corporate Debtor as an arrear of land revenue. As already stated elsewhere in this Judgment, Respondent Nos.1 & 2 instead of pursuing the matter before the Competent Authority sought triggering of Corporate Insolvency Resolution Process against the Corporate Debtor resulting in passing of the impugned order of admission which has been assailed in the instant appeal. 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’.

# 21. Now we proceed to determine 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. This Appellate Tribunal has considered the issue in “G. Eswara Rao v. Stressed Assets Stabilisation Fund and Ors.- MANU/NL/0092/2020”. It was held that an application under Section 7 of the ‘I&B Code’ cannot be filed for execution of a decree. The relevant portion of the Judgment may be reproduced hereunder:

• “26. By filing an application under Section 7 of the I&B Code, a Decree cannot be executed. In such case, it will be covered by Section 65 of the I&B Code, which stipulates that the insolvency resolution process or liquidation proceedings, if filed, fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, attracts penal action.”

# 22. It has already been noticed in this Judgment that the ‘UP RERA’, which ordered recovery of amount of Rs.73,35,686.43/- owed to Respondent Nos.1 and 2 in terms of its order dated 10th August, 2019 has forwarded the Recovery Certificate to the Competent Authority for effecting recovery in the manner and as an arrear of land revenue from the Corporate Debtor. In the backdrop of this factual situation, Respondent Nos. 1 and 2 can safely be held to have approached the Adjudicating Authority only with a view to execute the decree in the nature of Recovery Certificate and recover the amount due thereunder. No conclusion other than the one that Respondent Nos. 1 and 2 were seeking execution of the Recovery Certificate issued by RERA and did not file the application under Section 7 of the ‘I&B Code’ for purposes of Insolvency Resolution, would be available in the facts and circumstances noticed hereinabove. This conclusion is further reinforced by the fact that the Recovery Certificate issued by RERA had been forwarded to the Competent Authority for effecting recovery as arrears of land revenue and the process was underway when Respondent Nos.1 and 2 sought triggering of Corporate Insolvency Resolution Process against the Corporate Debtor. It is indisputable that the Recovery Certificate sought to be executed is the end product of an adjudicatory mechanism under the ‘Real Estate (Regulation and Development) Act, 2016’ and realisation of the amount due under the Recovery Certificate tantamounts to recovery effected under a money

decree though mode of execution may be slightly different. In this view of the matter, we are of the considered opinion that the application of Respondent Nos.1 and 2 under Section 7 of ‘I&B Code’ was not maintainable. It is accordingly held that in their projected capacity as decree-holders Respondent Nos. 1 and 2 could not maintain an application under Section 7 as ‘Financial Creditors’.

# 23. We accordingly summarise our finding as under:

• (i) Respondent Nos. 1 and 2 can no more claim to be allottees of a Real Estate Project after issuance of Recovery Certificate dated 10th August, 2019 by ‘UP RERA’ directing recovery of Rs.73,35,686.43/- due thereunder as arrears of land revenue by the Competent Authority. On their own showing they are the decree-holders seeking execution of money due under the Recovery Certificate which is impermissible within the ambit of Section 7 of the ‘I&B Code’. Clearly their application for triggering of Corporate Insolvency Resolution Process is not maintainable as allottees.

• (ii) Decree-holder, though included in the definition of ‘Creditor’, does not fall within the definition of ‘Financial Creditor’ and cannot seek initiation of Corporate Insolvency Resolution Process as ‘Financial Creditor’.

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