The Meaning of 'financial creditor' and 'financial debt' as held by Delhi NCLT in “Nikhil Mehta v AMR Infrastructure Limited”
In Nikhil Mehta v AMR Infrastructure Limited ,the Delhi Bench of the NCLT in the case, while deducing the vital meanings of 'financial creditor' and 'financial debt', has disallowed the application on the footings of the Nikhil Mehta (petitioner) and the amount claimed to be unpaid not falling within the scope of the respective definitions.
The petitioner, Nikhil Mehta (HUF), had filed an insolvency application against AMR Infrastructure Limited for failing to pay 'Assured Returns'.
Assured Returns, as per contracts entered among the corporate debtor and the applicants (at the time of booking of several real estate units), were the sums of money that the petitioners were promised to be paid on a monthly basis until the possession of real estate units booked by them was handed over.
The petitioners had contended that since the amount was in the guise of an Assured Return, the failure to make such payment entitled the applicants to proceed under the CIR Process under the Insolvency Code.
The NCLT turned down the application on the ground that the Assured Returns promised to be paid to the applicants and defaulted upon by the corporate debtor did not satisfy the definition of 'financial debt' and the applicants therefore, were not entitled to prefer an application under the Code as 'financial creditors'.
The major legal points in this case are as follows:
- · The unpaid amount should satisfy the definition of 'financial debt' for a claim to be filed under Section 7 of the Code.
- · For a debt to be classified as a financial debt it should have been extended for the time value of money.
- · The NCLT deliberated upon the meaning of the term 'time value of money' and while relying upon several lexicons, held that time value is a price associated with the maturity period of the debt or the period during which the related income is earned.
- · There should be a time distance between inflows and outflows and the time value is compensation for that.
- · Since the transaction pertaining to the application was purely a transaction for purchase or sale of property, an amount of return promised in connection to it does not acquire the nature of a financial debt.
· The NCLT has gone into great detail to explain the meaning of the term 'time value of money' which has not been defined under the Code and this is expected to bring clarity on maintainability of applications which may be filed by financial creditors in future.
Courtesy: CA. Sanjay Ruia