Earnest money payment is not a financial debt

S. Chandriah Vs Sunil Kumar Agarwal (NCLAT)

Held that a ‘Financial Debt’ is a debt alongwith interest which is disbursed against the consideration for the time value of money. Earnest money doesn’t satisfy the essential condition of financial debt and accordingly categorized as other creditor.

Facts-

The Appellant sent a letter dated 14.09.2018 to the Corporate Debtor (M/s. Digjam Limited) setting out his offer to purchase surplus land available at the Mills premises of the Corporate Debtor at Jamnagar (Gujarat). Thereafter, the Appellant made payment of Earnest Money by RTGS/NEFT to the Corporate Debtor between 26.09.2018 to 08.04.2019 of Rs. 7 Crores.

In the meantime, an Application u/s 9 of the Insolvency and Bankruptcy Code, 2016 was filed by one M/s. Oman Inc. against the Corporate Debtor M/s. Digjam Limited for “Operational Debt” of Rs. 21,74,626/-. The Adjudicating Authority admitted the Application under Section 9 of the Code and initiated “Corporate Insolvency Resolution Process” (CIRP in short) against the Corporate Debtor.

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