The National Company Law Appellate Tribunal (NCLAT) ruled that failing to complete payment for purchasing immovable property does not amount to “financial debt” under the Insolvency and Bankruptcy Code (IBC), 2016. The NCLAT emphasized that only the disbursal of money, not property, qualifies as financial debt.
This clarification overturned an earlier decision by the National Company Law Tribunal (NCLT) in Ahmedabad. The issue centered around Shree Industries Ltd. (SIL), which had purchased secured assets from Gujarat State Financial Corporation (GSFC) in 1990 but failed to meet its payment obligations. ASREC (India) Ltd., which later acquired a portion of the property transaction from Bank of Baroda, claimed SIL defaulted on financial obligations and sought relief under the IBC.
The NCLT had initially accepted ASREC’s claim, interpreting the structured payments in the 1990 sale agreement as financial debt. However, the NCLAT rejected this interpretation, referencing a Supreme Court ruling that defined financial debt as the disbursal of money with consideration based on the time value of money.
In reversing the NCLT’s decision, the NCLAT clarified that the property transaction did not involve financial debt under the IBC. The tribunal concluded that ASREC’s claims sought to recover the balance of the purchase price and did not meet the legal criteria for a financial debt classification.
