In a recent judgment in Indiabulls Housing Finance Ltd v Rudra Buildwell Projects (P) Ltd, the National Company Law Appellate Tribunal (NCLAT) dismissed the appeal of Indiabulls claiming to be a financial creditor of Rudra.
Indiabulls had sanctioned a home loan of ₹7.3 million (US$106,675) to Devender Singh and Sushma Rajput to buy a flat developed by Rudra in April 2015. A tripartite agreement was executed between Indiabulls, the developer and the borrowers, according to which the developer assumed the liability of interest payments by the borrowers for 24 months from 2015 to 2017.
After the borrowers and the developer defaulted on monthly payments, Indiabulls approached the National Company Law Tribunal (NCLT), filing an application under section 7 of the Insolvency and Bankruptcy Code, 2016, claiming to be a financial creditor of Rudra. The NCLT dismissed the application.
In an appeal filed by Indiabulls, the NCLAT examined the definitions of financial creditor and financial debt under the IBC and held that under section 5(8) of the code if the disbursement is made for a consideration of time value of money a person can claim to be a financial creditor with regard to the amount paid. However, Indiabulls had disbursed the amount for a consideration of time value of money in favour of the borrowers and not the developer. Therefore, the NCLT was right in not recognizing the developer as a corporate debtor of Indiabulls and the application is not maintainable.
The dispute digest is compiled by Bhasin & Co, a corporate law firm based in New Delhi. The authors can be contacted at [email protected]. Readers should not act on the basis of this information without seeking professional legal advice.