Advance Collected From Allottes Towards Payment Of Maintenance Charges Or Taxes Is Operational Debt: NCLT Mumbai

Background Facts

Marathon Nextgen Realty Limited (“Corporate Debtor”) is engaged in the business of real estate development and owns a commercial building project named ‘Marathon Innova’. Innova Premises Co-operative Society Limited (“Applicant Society/Financial Creditor”) is a registered Co-operative Housing Society consisting of 100 members who occupy commercial flats in Marathon Innova Project.

The common area of the office flats in Marathon Innova is being maintained by the Applicant Society. In pursuance of which, a Premises Ownership Agreement was executed between the Parties. The Applicant Society alleged that in 2016-17 the Corporate Debtor collected surplus amounts from the Members for maintenance of the Marathon Innova building. The amount so collected was in nature of advances, paid by the allottees upon occupation of said flats towards maintenance charges/taxes recoverable from such flat owners. The amount was paid for the period subsequent to the occupation of the flats as well as period of development of the flats.

The Corporate Debtor failed to release the alleged surplus amount. However, there was no default on the part of the Corporate Debtor in handing over the commercial flats to the allottees.

Therefore, the Applicant Society filed an application under Section 7 of Insolvency & Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor over a default of Rs.1,55,31,417/-.

NCLT Verdict

The Bench opined that money was collected for the maintenance/taxes payment and there is no default in handing over the flats booked by members of the Applicant Society. The amount in question is akin to the money paid in advance to a service provider, for availing services and defraying expenses to be incurred by such service providers in rendition of agreed services.

“Any debt arising from supply of goods or services including advance paid towards supply of such goods or services fall under the definition of Operational Debt. In the present case, the Applicant has filed this Application claiming itself to be a Financial Creditor under section 5 (8) (f) of the Code whereas the amount in question is in nature of an Operational Debt recoverable from the Corporate Debtor, even if the debit notes towards common amenities as claimed by the Corporate Debtor for the period subsequent to the handing over are not considered.”

The Bench observed that any debt which arises from supply of goods or services, including advance towards the same, falls under the category of Operational Debt. Whereas, the Applicant Society filed the Section 7 application in capacity of a Financial Creditor under Section 5(8) of IBC.

The Applicant Society cannot be treated as a Financial Creditor since the debt in question is operational in nature. Hence, the Section 7 application is not maintainable. The Bench rejected the application.

Case Title: Innova Premises Co-operative Society Limited v Marathon Nextgen Realty Limited

Case No.: CP (IB) No.1042/MB-IV/2020

Counsel for Applicant: Mr. Simil Purohit a/w Mr. Punit Damodar, Ms. Nikita Vardhan & Mr. Vishal Tiwari i/b Kanga and Company, Advocates.

Counsel for Respondent: Mr. Nausher Kohli a/w Mr. Ashish Parwani, Ms. Gitika Makhija, Ms. Anjali Dhoot & Mr. Chintan Gandhi i/b Rajani Associates, Advocates.

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