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Maintenance Security Deposit is a financial debt

  July 14, 2021

M/s Vipul Greens Residents Welfare Association v. Vipul Limited

The application prayed for the initiation of CIRP of the CD for its inability to liquidate its financial debt of Maintenance Security Deposit, to the tune of Rs. 6,51,36,981/–. The NCLAT in Company Appeal (AT) (Ins) No. 21 of 2020 had set aside the earlier order of the AA and had remitted the matter back to the AA. The NCLAT had also directed it to decide whether the claim comes within the meaning of ‘financial debt’ as defined u/s. 5(8) of the Code.

• The applicant was a registered Resident Welfare Association and the CD was a builder.
• The CD had collected a deposit of Rs. 50/sq. Ft. from the flat allottees, and this amount had to be handed over to the society formed for this purpose.
• The applicant was representing 300 out of the 644 flat owners, thereby satisfying the eligibility required u/s. 7 of the Code.

The primary issue was “whether a ‘security deposit’ comes under the definition of ‘financial debt’ or not?”. The AA relied on Satish Chand Gupta v. Servel India Private Limited, where the NCLAT had held that the term “deposit” is inclusive and covers receipts of money in all forms, and is not limited to a loan. The AA held that the deposit collected by the CD came under the definition of ‘financial debt’ and the applicant was an FC. The date of default was 01.04.2018, as the maintenance had been carried out by the applicant since that date, as per the agreement between itself and the CD. The AA admitted the petition and initiated CIRP against the CD.