IN THE NATIONAL COMPANY LAW TRIBUNAL

KOCHI BENCH
IA (IBC)/343/KOB/2023
IN
CP (IBC)/33/KOB/2021

(Under Section 60(5) of the Insolvency and

Bankruptcy Code, 2016 read with Rule 11 of NCLT
Rules 2016)

Memo of Parties

Mr Jossy Steephen Kattur

Resolution Professional of Kerala Chamber of
Commerce and Industries,
Skyline Imperial Gardens,
Next to IMA house, Kaloor,
Kochi - 682025

…Applicant/Resolution Professional

Versus

1. Phoenix ARC Private Limited

5th Floor, Dani Corporate Park,
158, CST Road, Kalina,
SantaCruz (E), Mumbai-400098

2. CA P.R Rajendran
Authorized Representative for Class of
Home Buyers of Kerala Chamber of
Commerce and Industry Padinjareparippil,
Kulayettikara P.0,
Kanjiramattom, Ernakulam - 6823 17

3. Kerala Trade Centre Owners Association

Kerala Trade Centre Building,
Marine Drive, Kochi - 682031

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 IN THE NATIONAL COMPANY LAW TRIBUNAL
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IA(IBC)/343/KOB/2023 in CP(IBC)/33/KOB/2021
In re Jossy Stephan Kattur (RP) v Pheonix ARC Private Limited & Ors

Represented by its Secretary

…Respondents

In the matter of :

Phoenix ARC Private Limited : Operational

Creditor
Versus

Kerala Chamber of Commerce: Corporate

and Industries Debtor

Order delivered on: 19.03.2024

Coram:

Hon’ble Member (Technical) Hon’ble Member (Judicial)

Shri. Shyam Babu Gautam TMT. (Retd.) Justice T Krishna Valli

Appearances:
For the Applicant : Mr. Akhil Suresh, Advocate
For the Respondent : Mr. Suresh Dutt Dobhal, Advocate

ORDER

Per: Coram

1. The present application is filed by the Resolution Professional, Mr

Jossy Steephen Kattur of Kerala Chamber of Commerce and Industries
(hereinafter referred to as the ‘Corporate Debtor’), under Section
60(5)(c) of the Insolvency and Bankruptcy Code, 2016 (hereinafter

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In re Jossy Stephan Kattur (RP) v Pheonix ARC Private Limited & Ors

referred to as the ‘Code’) and Rule 11 of NCLT Rules, 2016 for the
following reliefs;

a. To reclassify the claims pertaining to arbitration awards from

'other creditors to "Financial Creditors' and correspondingly
revise the voting share of the CoC members as tabulated in
Annexure A-5.

b. To reclassify the Claims pertaining to operational creditors from

'other creditors' to operational creditors'.

c. To reconstitute the CoC as tabulated in Annexure A-5.

d. Pass such other order as the Hon'ble Tribunal deems fit and proper

2. The facts as narrated in the application and explained by the

learned counsel for the applicant are summarised hereunder:

i. The 1st Respondent/ Financial Creditor, M/s Phoenix ARC

Private Limited had filed the underlying CP(IB)/33/KOB/2021
for initiation of the Corporate Insolvency Resolution Process
(hereinafter referred to as the ‘CIRP’) under section 7 of the
Code against the Kerala Chamber of Commerce and Industries,
the Corporate Debtor herein, which was admitted by this
Tribunal vide order dated 21.02.2022. Mr. K. Parameswaram
Nair was initially appointed as the Interim Resolution
Professional and later confirmed as the Resolution Professional
during the 1st CoC meeting. Subsequently, during the 10th CoC
meeting, an agenda was proposed and approved to replace the

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In re Jossy Stephan Kattur (RP) v Pheonix ARC Private Limited & Ors

Resolution Professional. Consequently, the Tribunal, through

an order dated 17.03.2023 in IA (IBC)/108/KOB/2023,
appointed Mr. Jossy Steephen Kattur, the Applicant, as the new
Resolution Professional.

ii. On 27.03.2023 the newly appointed Resolution Professional

took control of the assets of the Corporate Debtor but the CIRP
period came to an end on 20.03.2023. As per the order in IA
(IBC)/144/KOB/2023, an application for exclusion of the CIRP
period was allowed from 03.10.2022 to 20.03.2023.

iii. During the 14th CoC meeting convened on May 15, 2023, on
receipt of letters from the home buyers, concerns were raised
regarding the wrong classification of arbitration awards of the
home buyer class under the category of "Other than financial
and operational creditors” by the former Resolution
Professional. In response, the Applicant sought legal opinion
from Adv. Nipun Singhvi to address the matter, as deliberated
within the CoC. As per the legal opinion received by the
Applicant, the underlying nature of the claim from a claimant
may be the determining factor for classifying the arbitration
awards received by such claimants.

iv. The revised financial creditor’s admitted claims amount /voting

share of the CoC members will be as under:

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v. Furthermore, it was submitted that the claim amount of Rs

52,85,024/- awarded to Schindler India Pvt Ltd (a lift
manufacturing company) in arbitration may now be classified
as that of an operational creditor, rather than being grouped
under 'other creditors.'

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In re Jossy Stephan Kattur (RP) v Pheonix ARC Private Limited & Ors

vi. The Applicant further submits that the underlying nature of the
claim from a claimant will determine the position/
classification category of the Arbitration Awards from the
claimant. Accordingly, allottees falling under Section 5(8)(f)
may be categorized as financial creditors and Arbitration
Awards in favour of operational creditors may fall under the
category of Operational creditor and added that the Applicant
has duty under Section 25(e) R/w 13(l)(d) of the regulations to
file updated claims with this Tribunal.

vii. Respondent No 1 filed reply stating that this application is an

ill-intended attempt on the part of Resolution Professional to
deprive Respondent no 1 of its legal right of having due
representation/voting share in the CoC by reducing the voting
share from the current 30.94% to 21.24%.

viii. It is stated that various arbitration petitions were filed by

various Allottees and arbitral awards were passed in favour of
the Allottees and against Corporate Debtor. The said arbitral
awards directed the Corporate Debtor to pay the Allottees
various amounts under the following categories:

i. Repayment of consideration money.

ii. Interest on consideration money.
iii. Loss of Rent/Income.
iv. Cost of Arbitration/Damages.

ix. Respondent No. 1 further stated that the initial 180 days of CIRP
lapsed on 20.08.2022. Consequently, on 26.08.2022, this

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In re Jossy Stephan Kattur (RP) v Pheonix ARC Private Limited & Ors

Tribunal upon application granted an extension of 90 days, i.e.

till 18.11.2022. Following this, on 23.11.2022, upon application,
this Tribunal further extended the period by 60 days, until
17.01.2023. Subsequently, on 25.01.2023, this Tribunal once
more extended to 60 days, till 20.03.2023. On 19.04.2023, the
Tribunal excluded the CIRP period from 03.10.2022 to
23.03.2023. However, it was only on 30.07.2023 that the
Resolution Professional belatedly filed this application seeking
the reclassification of claims of Allottees.

x. The Resolution Professional has prayed that the part of claims

made by Allottees was not admitted as financial debts by the
Resolution Professional because the same were in respect of
loss of rent and arbitration cost/damages, etc. and therefore,
not financial debt and should now be treated as the financial
debt. And submitted that there is no res integra that the
Resolution Professional after collation of claims and formation
of CoC is not entitled to review or change the category/status of
creditors as updating the list of claims and reviewing the claims
are entirely two different things.

xi. Further stated that the claims were rightly admitted under the
category of claims of other creditors i.e. other than financial
creditors and operational creditors because those claims were
for compensation towards loss of rent and damages for
arbitration, which are not financial debts as they are neither
debts which were 'disbursed against the consideration for the

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In re Jossy Stephan Kattur (RP) v Pheonix ARC Private Limited & Ors

time value of money' nor have any 'commercial effect of a

borrowing'. Part of the claims which were of the nature of
financial debts were admitted by Resolution Professional as
financial debt and the said Allottees have been made financial
creditors belonging to the class of creditors.

xii. Further stated that only an aggrieved party has the right to seek
redressal from a judicial forum. However, in the present case,
the Resolution Professional has failed to show how the
Resolution Professional is aggrieved by the alleged
classification of claims of creditors.

xiii. And stated that instead of acting and taking steps towards
maximization of the value of assets of the Corporate Debtor, the
Resolution Professional by way of this application is illegally
trying to reduce the value of the assets. Furthermore, the
Resolution Professional is only attempting to deprive
Respondent no 1 of its legal rights as a financial creditor.

xiv. The Applicant filed rejoinder stating that in no manner

whatsoever affect the legal right of the 1st Respondent to get
their claim satisfied for the fact that they are a ‘Secured
Financial Creditor’ and they will have priority in payment in the
event of a Resolution Plan or Liquidation over the Homebuyers
who are unsecured financial creditors in terms of Section 53 of
the Code. The 1st Respondent secured financial creditor is a
minority stakeholder and does not enjoy majority voting rights,

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hence, the reduction of the current minority voting share of the

1st Respondent does not make any difference at all.

xv. The contention of the respondent is that the claims were for
compensation towards loss of rent and damages which are not
financial debts, in this regard the Applicant submits that it is a
settled position in law that the underlying nature of the claim
will determine the nature of arbitration awards and hence
allottees being financial creditors in a class, the arbitration
awards of allottees cannot be segregated or separated and put
under a different category as “others.”

xvi. The Applicant further submits that there are no objections

which are made by the 1st Respondent in so far as prayer (b) of
the application and the Applicant most humbly prays that the
same may be treated as admitted.

3. We have heard the learned counsel for the Applicant and the 1st
Respondent and perused the materials available on record. As far as
the question of fact is concerned, we are going through the following
relevant provisions

Section 3 (11) "debt" means a liability or obligation in respect of a

claim which is due from any person and includes a financial debt and
operational debt;

Section 3 (6) "claim" means—

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(a) a right to payment, whether or not such right is reduced to

judgment, fixed, disputed, undisputed, legal, equitable, secured or
unsecured;

(b) right to remedy for breach of contract under any law for the time
being in force, if such breach gives rise to a right to payment,
whether or not such right is reduced to judgment, fixed, matured,
unmatured, disputed, undisputed, secured or unsecured;

Section 3 (12) "default" means non-payment of debt when whole or

any part or instalment of the amount of debt has become due and
payable and is not repaid by the debtor or the corporate debtor, as the
case may be;

Section 5 (7) "financial creditor" means any person to whom a

financial debt is owed and includes a person to whom such debt has
been legally assigned or transferred to;

Section 5 (8) "financial debt" means a debt along with interest, if any,
which is disbursed against the consideration for the time value of
money and includes—

(f) any amount raised under any other transaction, including any
forward sale or purchase agreement, having the commercial effect
of a borrowing;

1 [Explanation. -For the purposes of this sub-clause, -

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(i) any amount raised from an allottee under a real estate project
shall be deemed to be an amount having the commercial effect of
a borrowing; and

(ii) the expressions, “allottee” and “real estate project” shall have
the meanings respectively assigned to them in clauses (d) and (zn)
of section 2 of the Real Estate (Regulation and Development) Act,
2016 (16 of 2016);]

4. In essence, to qualify as a "debt," there must exist a legal obligation

concerning a "claim" that is currently due. In this context, a "claim"
denotes the entitlement to payment resulting from a breach of
contract. Subsequently, there's the concept of "default," which
denotes the failure to repay a debt either in full or in part when it
falls due. Section 5(8)(f) of the Code elucidates that when funds are
obtained from an allottee in a real estate project, having the
commercial effect of borrowing, and disbursed against the
consideration for the time value of money, it constitutes a financial
debt. Therefore, the right of home allottees to seek repayment of the
amount of money invested by them towards the apartment or flat
sought to be developed by the developer amounts to a claim against
the developer. The repayment of such an amount of money is the
liability of the developer towards the home allottees.

5. We are relying on Pioneer Urban Land and Infrastructure Limited

and Anr. v. Union of India and Ors. (Writ Petition (Civil) No. 43 of
2019) the Hon’ble Supreme Court of India held that

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86. We, therefore, hold that allottees/home buyers were included in

the main provision, i.e. Section 5(8)(f) with effect from the inception
of the Code, the explanation being added in 2018 merely to clarify
doubts that had arisen.

6. Hence, it is evident from judicial precedents that the Supreme Court

affirmed that amounts raised from homebuyers through real estate
agreements, primarily for profit, fall within the scope of 'financial
debt' as defined in Section 5(8)(f) of the Code. Consequently, such
home allottees are recognized as financial creditors.

7. Regarding the matter at hand, there is no question that the claim of

breach of contract of home allottees falls within the realm of
financial debt. However, the question here pertains to whether
claims for 'loss of rent,' 'arbitration costs,' and 'damages' by home
allottees would also be categorized as financial debt.

8. In this aspect we are placing emphasis on Jaypee Infratech Limited V

Axis Bank Limited, Where the Hon’ble Apex Court held that

43. Applying the aforementioned fundamental principles to the

definition occurring in Section 5(8) of the Code, we have not an iota
of doubt that for a debt to become ‘financial debt’ for the purpose of
Part II of the Code, the basic elements are that it ought to be a
disbursal against the consideration for time 152 value of money. It
may include any of the methods for raising money or incurring
liability by the modes prescribed in sub-clauses (a) to (f) of Section
5(8); it may also include any derivative transaction or counter-

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indemnity obligation as per sub-clauses (g) and (h) of Section 5(8);

and it may also be the amount of any liability in respect of any of the
guarantee or indemnity for any of the items referred to in sub-
clauses (a) to (h). The requirement of existence of a debt, which is
disbursed against the consideration for the time value of money, in
our view, remains an essential part even in respect of any of the
transactions/dealings stated in sub-clauses (a) to (i) of Section 5(8),
even if it is not necessarily stated therein. In any case, the definition,
by its very frame, cannot be read so expansive, rather infinitely wide,
that the root requirements of ‘disbursement’ against ‘the
consideration for the time value of money’ could be forsaken in the
manner that any transaction could stand alone to become a
financial debt. In other words, any of the transactions stated in the
said subclauses (a) to (i) of Section 5(8) would be falling within the
ambit of ‘financial debt’ only if it carries the essential elements
stated in the principal clause or at least has the features which could
be traced to such essential elements in the principal clause. In yet
other words, the essential element of disbursal, and that too against
the consideration for time value of money, needs to be found in the
genesis of any debt before it may be treated as ‘financial debt’ within
the meaning of Section 5(8) of the Code. This debt may be of any
nature but a part of it is always required to be carrying, or
corresponding to, or at least having some traces of disbursal against
consideration for the time value of money.

9. We are further relying on the decision of Hon’ble High Court of

Madras in Cholamandalam Investment and Finance Company Ltd.

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Vs. Navrang Roadlines Private Limited (O.S.A.(CAD) No.115 of

2022),

12. A mere perusal of the above observations of the Hon'ble Supreme

Court in the decisions cited supra, shows that the liability in respect
of a claim arising out of a recovery certificate issued by the DRT
would be considered as “financial debt” within the ambit of Section
59(8) of Insolvency and Bankruptcy Code, 2016. It has also held that
the underlying claim of the Bank/Claimant under the lending
documents would have to be categorised as a “financial debt” under
Insolvency and Bankruptcy Code, 2016. Therefore, a recovery
certificate issued in respect of the same claim, which is essentially a
crystallization of the claim through the process of adjudication, had
also be classified as a “financial debt” under Insolvency and
Bankruptcy Code, 2016. Consequently, the nature of the underlying
claim of the creditor, would determine the categorisation of the
amount payable under the final decree passed adjudication of the
same claim. The liability arising out of an arbitral award or a court
decree would be (IB)-856(ND)2022 Globe Capital Market Ltd. vs.
Narayan Securities Ltd. Page 14 of 27 categorised as either financial
or operational debt depending on the nature of the underlying claim
which stands crystallised through the arbitral or court proceedings.

10. In the matter of Mukul Agarwal Vs Royale Resinex Pricate Limited in

Company Appeal (AT) (Insolvency) No. 777 of 2020, Hon’ble NCLAT,
held that,

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In this case, the Hon’ble NCLAT had held that a decree of the civil
court will not alter the basic nature of the transaction. The
transaction prima facie has to be considered for the purpose of
adjudicating the claim and the decree of the court is a measure of
debt and that would be the manner in which it should be heard.”

11. Hence it is clear from the judicial precedents that the

characterization of the payment under a decree or arbitral award
resulting from the adjudication of a creditor's claim hinges on the
underlying nature of that claim. Whether the liability originates from
an arbitral award or a court decree, it would be classified as either
financial or operational debt, contingent upon the intrinsic nature of
the underlying claim as determined by the arbitral or court
proceedings.

12. Though it is a mandatory requirement that, for a debt to be classified

as financial debt, it must be disbursed with consideration for the
time value of money and have a commercial effect of borrowing. It
has to satisfy the root requirements requirements of financial debt,
such as 'disbursement' and 'consideration for the time value of
money.

13. It's important to note that, in the context of home allottees,

disbursement refers to the payment made by home allottees to the
Real Estate Developer for the specific purpose of financing the real
estate project, in exchange for which the home allottees are allocated
their respective units. Also, it is worth noting that in the present
scenario, the former Resolution Professional appropriately admitted

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the claims made towards the consideration amount paid by the

home allottees to the Corporate Debtor, including interest, as
'financial debts.' Thus, it is of no doubt that the underlying nature of
the claim undisputedly satisfies the essential components of
‘financial debt’ as outlined in section 5(8) of the code. The
categorization of creditors under the Code depends on
understanding the fundamental nature of the transaction.
Consequently, considering the underlying nature of claims of 'loss of
rent,' 'cost of arbitration,' and 'damages’, we find it right to reclassify
these claims, as specified in Annexure 5, from 'other creditors' to
"Financial Creditors."

14. Taking into account that the arbitral award concerning M/s
Schindler India Private Limited stemmed from the non-payment
related to the supply and installation of machinery, thus indicating
the transaction's underlying nature as the supply of services and
non-payment, it is deemed appropriate to reclassify M/s Schindler
India Private Limited's claims from 'other creditors' to operational
creditors.

15. The Resolution Professional is hereby directed to reconstitute the

CoC in accordance with Annexure A5

16. This Application IA(IBC)/343/KOB/2023 is hereby allowed and

disposed of accordingly.

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17. The Registry is hereby directed to send e-mail copies of the order
forthwith to all the parties and their counsel for information and for
taking necessary steps.

18. Let the certified copy of the order be issued upon compliance with
requisite formalities.

19. File be consigned to records.

SHYAM BABU Digitally signed by

SHYAM BABU GAUTAM T.KRISHNAVAL Digitally signed by
T.KRISHNAVALLI
GAUTAM Date: 2024.03.19 16:00:23
+05'30' LI Date: 2024.03.19 15:59:48
+05'30'

SHYAM BABU GAUTAM T KRISHNA VALLI

(MEMBER TECHNICAL) (MEMBER JUDICIAL)

Signed on this the 19th day of March, 2024.

Krishna

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