Property Allotted in Lieu of Consultancy Fees Qualifies as Financial Debt: NCLT Mumbai NCLT Upholds Claim of Consultant as Financial Creditor

Property Allotted in Lieu of Consultancy Fees Qualifies as Financial Debt: NCLT Mumbai NCLT Upholds Claim of Consultant as Financial Creditor

Introduction

The National Company Law Tribunal (NCLT) Mumbai Bench has held that a property allotted in lieu of consultancy fees constitutes a financial debt, and the allottee may be classified as a financial creditor under the Insolvency and Bankruptcy Code (IBC), 2016.

Factual Background

The applicant provided income-tax consultancy services to the corporate debtor, Sheltrex Karjat Pvt. Ltd.. To settle the dues, the corporate debtor's board resolved to transfer ownership of a commercial shop belonging to the company. Accordingly, a registered sale deed was executed in favor of the applicant.

Subsequently, the Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor. Initially, the Interim Resolution Professional (IRP) admitted the applicant's claim, but it was later rejected by the Resolution Professional (RP), prompting the applicant to approach the Tribunal.

Key Legal Contentions and Tribunal’s Findings

Contentions of the Parties

Applicant’s Contentions: The applicant argued that the property transfer in lieu of consultancy fees qualifies as a financial debt, making it eligible to be classified as a financial creditor under the IBC.

Respondent’s Contentions: The RP submitted that the resolution approving the transfer was defective, as it was signed by a director unauthorized to act as chairman. Further, it contended that the dues were against consultancy services and should therefore be treated as operational debt under Section 5(21) read with Regulation 7 of the CIRP Regulations. Relying on the case Umesh Kumar v. Narendra Kumar Sharma Company, the RP claimed it was within its rights to re-verify and reject the claim.

Observations of the Adjudicating Authority

The Tribunal noted that it was undisputed that the applicant had rendered services to the corporate debtor, and that the consideration was settled by transferring ownership of a commercial shop. The bench observed that the payment of dues through such transfer effectively qualifies the applicant as an allottee, and hence, a financial creditor.

The bench emphasized that the RP cannot re-verify or reject an admitted claim without the approval of the Adjudicating Authority. Referring to Mr. Rajnish Jain vs. Manoj Kumar Singh (RP) and Ors., it further held that procedural disputes regarding the board resolution do not invalidate the nature of the transaction unless challenged before a competent authority.

Outcome

The NCLT quashed the rejection of the applicant’s claim and directed the RP to admit the claim as a financial creditor.

Conclusion

This ruling sets a significant precedent in cases where non-monetary consideration, such as property allotment, is used to settle dues. It clarifies that such transactions, if structured correctly, can qualify as financial debt, potentially expanding the scope of who can be considered a financial creditor under the IBC.