Maintenance Security Charges Not Deemed Financial Debt Under IBC, 2016, Society Not a Financial Creditor
In a significant ruling, the National Company Law Tribunal (NCLT), Jaipur Bench, has dismissed the insolvency petition filed by M/S SDC Green Park Residential Welfare Society against M/s Sand Dune Constructions Private Limited. The tribunal concluded that the Maintenance Security Charges collected for the upkeep of common areas in residential societies do not qualify as 'financial debt' under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016.
The case arose when the SDC Green Park Residential Welfare Society, representing flat buyers who paid a substantial amount in Maintenance Security Charges, sought to initiate a corporate insolvency resolution process against Sand Dune Constructions. The society argued that the charges should be considered as financial debt, allowing them to be treated as a financial creditor under the IBC.
However, the tribunal, presided over by Judicial Member Ms. Reeta Kohli and Technical Member Ms. Kavita Bhatnagar, held that the charges in question were akin to advance payments for services rather than financial debt. The NCLT referenced the Supreme Court's interpretation of financial debt, emphasizing that a financial debt must be disbursed against the consideration for the time value of money. Since the Maintenance Security Charges were collected for service provision without the intention of profit, they did not meet this criterion.
The tribunal further clarified that the society, managing maintenance on behalf of flat owners, could not be deemed an 'allottee' under the Real Estate (Regulation and Development) Act, 2016, for the purposes of IBC proceedings.
Additionally, the application was deemed barred by limitation as it was filed beyond the three-year period from when the right to apply accrued, as outlined under Article 137 of the Limitation Act, 1963.
This ruling reinforces the legal position that maintenance charges collected for service provision in residential societies do not constitute financial debt, thus limiting the ability of such societies to initiate insolvency proceedings under the IBC.
Bottom Line:
Maintenance Security Charges collected for upkeep of common areas in residential societies cannot be classified as 'financial debt' under Section 5(8) of IBC, 2016, and the society cannot be treated as a Financial Creditor for initiating corporate insolvency resolution process under Section 7 of IBC.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 5(7), 5(8), and 7; Real Estate (Regulation and Development) Act, 2016 Section 2(d); Limitation Act, 1963 Article 137.
