NCLT Mumbai Reaffirms: Operational Creditor Cannot Become Financial Creditor Through Settlement Allotment Of Flats 

Summary:

The National Company Law Tribunal (NCLT), Mumbai Bench, has categorically held that an operational creditor cannot be converted into a financial creditor merely because the corporate debtor allots flats to settle unpaid operational dues. The tribunal rejected Capacite Infraprojects Ltd.’s attempt to claim status as a “financial creditor in the homebuyer class” on the basis of 10 flats allotted during settlement negotiations. 

Relying heavily on the NCLAT’s ruling in Mahi Buildhome Pvt. Ltd. v. Unibera Developers Pvt. Ltd. and the Supreme Court judgment in Pioneer Urban Land & Infrastructure Ltd. v. Union of India, the NCLT clarified that unless an allottee has actually advanced money to the real estate developer, thereby creating the commercial effect of a borrowing such person cannot claim to be a financial creditor under Section 5(8)(f) of the Insolvency and Bankruptcy Code (IBC). 

Since Capacite had originally acted as a contractor, raised only operational dues, and had never paid any consideration towards the flats, the tribunal held that the allotment was only a settlement mechanism, not a financial transaction. Consequently, Capacite’s claim was to be recognized only as an operational creditor, not a homebuyer. 

Facts:

• Capacite Infraprojects Ltd. (“Capacite”) was engaged as a contractor for construction of 16 SRA buildings for Radius & Deserve Builders LLP (“Corporate Debtor”). 

• Upon non-payment, the parties executed Settlement Terms dated 02.02.2018, under which the corporate debtor agreed to pay ₹6 crore. Of this, the debtor paid ₹4.98 crore. 

• For remaining dues, the developer offered 10 flats in its “Anantya” project. Capacite initially refused, issued fresh demand notice, and filed a Section 9 petition. 

• During the pendency of the Section 9 petition, the developer filed an affidavit on 11.03.2023 confirming the allotment of the 10 flats. Capacite then accepted the units and withdrew its petition on 19.04.2023. In September 2023, Radius & Deserve Builders LLP was admitted into CIRP on a petition by Amit Infra-Logic (India) Pvt. Ltd. 

• Capacite filed a claim as a financial creditor in the homebuyer class, relying on the purported allotment letters dated 20.08.2020. 

• The Resolution Professional (RP) classified Capacite as “Other Creditor”, not a financial creditor. Aggrieved, Capacite filed the present I.A. 2802/2024 seeking reclassification as a “financial creditor–homebuyer”. 

Issues:

1. Whether an operational creditor who accepts flats in settlement of dues can be treated as a financial creditor under Section 5(8)(f) of the IBC? 

2. Whether the allotment of 10 flats, without any monetary disbursement by Capacite, qualifies it as an “allottee” under Section 2(d) of RERA and thereby a homebuyer? 

3. Whether the RP erred in classifying the applicant as “Other Creditor” instead of “Financial Creditor in Class of Homebuyer”? 

Judgement:

1. Operational creditor cannot become financial creditor through settlement- The tribunal held that Capacite was originally an operational creditor, and the allotment of flats was agreed only as a settlement of operational dues. There was no disbursement of money by Capacite. Citing Mahi Buildhome Pvt. Ltd. vs. Unibera Developers Pvt. Ltd. [IA 4356/2023 in CP(IB)-505/ND/2022, the NCLT held: 

“The claim of allotment of flats on account of adjustment of brokerage money cannot be classified as ‘financial creditor’ but directed the Resolution Professional to examine the claim as mentioned in the Settlement Deed as Operational Creditor.” 

2. Mandatory requirement of “amount raised” not satisfied- Relying on Pioneer Urban Land and Infrastructure Ltd v. Union of India (2019) 8 SCC 416, the tribunal reiterated that financial debt under Section 5(8)(f) requires money raised from an allottee. The amount must reflect time value of money and there must be an investment by the allottee into the real estate project. Since Capacite invested no money and the flats were only a mode of adjusting contractor dues, the essential elements of a financial debt were absent. 

3. Allotment letters lacked authenticity- The Tribunal also highlighted serious inconsistencies in Capacite’s claim. It noted that Capacite had earlier expressly denied the existence of the application forms dated 14.08.2020 and the allotment letters dated 20.08.2020, yet relied on the very same documents when filing its Form CA. Additionally, there was no registered agreement, no RERA-compliant documentation, and no proof of any consideration paid for the flats. In view of these defects, the Tribunal held that the documents were unreliable and incapable of conferring homebuyer status. 

4. Barter/Settlement Does Not Constitute Financial Debt- The Tribunal held that the allotment of flats was merely a barter or reciprocal settlement of outstanding dues and not a borrowing. Since no money was disbursed and the settlement was entirely in kind, the transaction could not qualify as a financial debt under the IBC. 

5. RP Directed to Treat Capacite Only as an Operational Creditor- The Tribunal categorically held that Capacite is not a financial creditor under Section 5(8)(f) of the IBC. It therefore directed that Capacite’s claim be examined solely in the capacity of an operational creditor. 

Analysis

The NCLT’s ruling underscores the clear divide between financial and operational debt in real estate insolvencies. It emphasizes that financial debt must involve an actual flow of money and the element of time value, and that a later settlement cannot change the original character of an operational claim. The Tribunal also clarified that homebuyer status arises only from a real, monetary investment in a project not from flats allotted as compensation for dues. Overall, the decision reinforces that creditor classification must reflect the substance of the transaction, protecting the integrity of the CIRP and preventing attempts to convert operational claims into financial ones through settlement arrangements.