Speculative Buyer/Investor, Not A Financial Creditor Neither An Allottee, Under IBC

Dhaval Vussonji & Associates


Our Firm was established in 2013 in Mumbai. Today, we have a team of over 60 lawyers in Mumbai with offices in Bengaluru and Delhi. We are a full service dynamic law firm with remarkable progress owing to our unparalleled commitment to quality. Professionalism, effectiveness and quick turnaround are the cornerstones of our service. Our work ethic and the accomplished legal advice is why we are trusted advisors to our clients.  
Recently, the NCLAT in an appeal filed by Naman Infradevelopers Pvt Ltd ("Appellant") against Metcalfe Properties Pvt Ltd ("Corporate Debtor") under Section 61 of the Insolvency & Bankruptcy Code, 2016...
India Insolvency/Bankruptcy/Re-Structuring
To print this article, all you need is to be registered or login on Mondaq.com.

Recently, the NCLAT in an appeal filed by Naman Infradevelopers Pvt Ltd (“Appellant”) against Metcalfe Properties Pvt Ltd (“Corporate Debtor”) under Section 61 of the Insolvency & Bankruptcy Code, 2016 (“Code”) was called upon to decide whether a person who has invested monies in a real estate development as a “speculative buyer” would fall withing the meaning of a financial creditor under the Code.


The Appellant had made advance part payments of about INR 5 crore to the Corporate Debtor for purchase of residential plots in a PUDA approved colony and entered into an agreement to sell (“Agreement”) with the Corporate Debtor, with the condition of balance payment of about INR 4.90 crore being made at the time of execution of the sale deed. The Agreement also provided that in the event the Corporate Debtor failed to execute the sale deed within a year, the advance part payments were to be returned with 24% interest per annum.

The sale deed was not executed. The Corporate Debtor returned a portion of the advanced payments, but the balance advance amount remained unrefunded.

About 9 years later, the Appellant gave another opportunity to the Corporate Debtor to execute and register the sale deed and transferred INR 50 lakhs to the Corporate Debtor. However, no sale deed was executed, and the Corporate Debtor proposed to convert the outstanding amount into a loan and repay it with interest. A Settlement Agreement was thereafter executed wherein the Corporate Debtor agreed to repay INR 14.90 crore with 24% interest till the date of the Settlement Agreement with a penal interest of 12% thereafter. The Corporate Debtor failed in honouring the terms of the Settlement Agreement and the Appellant filed an application with the NCLT under Section 7 of the Code as a financial creditor.

Decision of the NCLT and NCLAT:

The NCLT examined the definition of “financial debt” under the Code and noted a financial debt is a debt which is disbursed against the consideration for the time value of money. The NCLT noted that the monies were paid by the Appellant as advance payment for purchase of land. The Settlement Agreement too did not disclose any new fact but only acknowledged the liability under the Agreement. There was nothing to record that monies in the present case were disbursed against the consideration for the time value of money and had the commercial effect of borrowing and in fact, monies were advanced towards purchase of plots.

By virtue of Section 5(8)(f), any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing and therefore would fall within the definition of “financial debt”. Therefore, the NCLT examined whether the Appellant could be considered an “allottee”. However, basis the facts of the matter, where no plots were actually allotted or sold to the Appellant, the NCLT held that the Appellant was merely a speculative buyer and not an allottee of a real estate project.

This decision of the NCLT was appealed before the NCLAT by the Appellant. The NCLAT held that the Appellant being a speculative investor was merely interested in recovery of his money with profit and was not interested in the financial well-being and growth of the Corporate Debtor and was rightly held to be neither a financial creditor nor an allottee.


An interesting point in this case is that it appears that the payment of interest under the Agreement at a high rate of 24% was conditional on the failure of execution of the sale deed.

In Venkat Rao Marpina v. Vamuri Ravi Kumar and others1, the fact that the interest payable was not in the nature of an assured return but was conditional on the failure of obtaining certain approvals, led the NCLAT to consider the flat purchaser as a genuine allottee and not a speculative interest and therefore a financial creditor. Venkat Rao Marpina was cited by the Appellant before the NCLAT in the present case, but the NCLAT held that it did not relate to the facts before it as the Appellant was a speculative buyer.

Neither the NCLT nor the NCLAT has given any reasoning or detail behind this conclusion despite the interest being conditional.

Perhaps the fact that after nine long years of default, the Appellant paid further monies to the Corporate Debtor without insisting on the execution of the sale deed and then promptly entered into a settlement agreement crystallising the liability with interest, did not seem consistent with a genuine plot sale. Also, the judgments do not record the Agreement as being in respect of any specific plot numbers, which could be the biggest indicator that the transaction from inception was never a sale of land but more in the nature of a speculative investment.

Thus, interest being payable on an eventuality and not being in the nature of an assured return, is no longer a reliable indicator of a party being a genuine allottee. As seen here, tribunals will give equal importance to surrounding facts and circumstances and behaviour of the parties to ascertain whether the transaction could be considered a “financial debt”.


1 Company Appeal (AT) (CH) (Ins.) No. 134/2022 (IA No. 319/2022)

Decided on 04-Sep-23

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

See More Popular Content From

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More