In ruling on an appeal brought forth in S. Chandriah v. Sunil Kumar Agarwal & Ors., the National Company Law Appellate Tribunal (“NCLAT”) Principal Bench made up of Justice Ashok Bhushan (Chairperson) and Mr. Naresh Salecha (Technical Member) determined that payment of Earnest Money towards the purchase of land is a financial liability but not a “financial debt” as defined by the Insolvency and Bankrupt.
The Appellant filed its claim as a Financial Creditor before the Resolution Professional, the latter informed the Appellant that remittance of funds as interest free advance, to be adjusted against sale consideration for proposed sale of land, does not fall under “Financial Debt”.
Arguments made by the appellant According to the appellant, the corporate debtor had issued a receipt for the payment of Rs. 7 crores.
Without the Corporate Debtor accepting the Appellant’s offer, the Appellant on his own had paid the Earnest Money to the Corporate Debtor.
7 Crores owed to the Corporate Debtor by the Appellant constitutes a financial debt as defined by Section 5(8) of the IBC?
The disbursement by the Appellant to the Corporate Debtor was argued to be only a payment of Earnest Money, to be adjusted in the sale of the land, and not a disbursement in consideration for the time worth of money.
Because of this, it cannot be determined that the Appellant’s payment of earnest money constituted “Financial Debt” on the basis of the Annual Return for the Financial Years 2018-19 and 2019-20.
