Case Law Details
Vasathi Anandi Owners Welfare Association Survey Vs Vasathi Housing Ltd (NCLT Hyderabad)
Introduction: The National Company Law Tribunal (NCLT) in Hyderabad recently ruled on a significant case regarding the classification of the Corpus Fund used for the maintenance of apartments by homebuyers. The case involves a dispute between Vasathi Anandi Owners Welfare Association (VAOWA) and Vasathi Housing Limited, with VAOWA seeking to initiate Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).
Detailed Analysis: The dispute centers around the application filed by VAOWA, representing homebuyers, alleging a default of Rs 5,33,12,287 by Vasathi Housing Limited. The principal argument by Vasathi Housing is that the amount collected for the Corpus Fund, meant for apartment maintenance, does not qualify as ‘financial debt’ under the IBC.
The tribunal, comprising Sanjay Puri and Rajeev Bhardwaj, examined the nature of the Corpus Fund and its intended use. It was observed that the Corpus Fund, collected under the agreement of sale, was explicitly earmarked for maintenance purposes and not for profit. The possession of apartments had already been handed over to the allottees, and the fund’s primary purpose was to ensure proper project maintenance.
The judgment emphasizes that the Corpus Fund cannot be considered a financial debt under Section 5(8)(f) of the IBC. The tribunal cited relevant judgments, including the landmark case of Anuj Jain, RP for Jaypee Infratech Ltd. vs. Axis Bank Ltd., to establish that for a debt to be a financial debt, it must be disbursed against the consideration for the time value of money.
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