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2019 (11) TMI 1522 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - Financial Creditor or not - existence of debt and dispute or not - whether there is a debt which is disbursed against the consideration for the time value of money and including any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing? - HELD THAT - In the present case, the MOU dated 10.04.2015 states that the first party (Victory Buildestates) and confirming party (Step Reality Pvt. Ltd.) are now desirous to transfer the complete project of affordable group housing with regard to the land and measuring 5.03125 acres situated in the revenue estate of Village Devlawas, Sector 27, Rewari by way of transfer of the complete management and control of the first party (Victory Buildestates) in favour of the second party (S-Tech) against fulfilment of the conditions mentioned therein including payment of total consideration amount of ₹ 29,800,4,480. The MOU provides for payment of ₹ 50.00 lacs as first instalment; second instalment of ₹ 2.50 crores, vide cheque No. 486626 dated 23.04.2015 drawn on Indian Overseas Bank, Delhi Branch; another instalment of ₹ 3.00 crores by 20.05.2015; and balance payment to be made within six months from the date of signing the agreement subject to the compliance of the aforesaid comments of the MOU. Therefore, the amounts of ₹ 50.00 lacs and ₹ 2.50 crores supra is not an amount raised under a real estate agreement. In the present case, the whole project of affordable group housing is to be transferred by Victory Buildestates to S-Tech. The amounts received are therefore, not in the nature of advance given by the home buyer to a real estate developer for temporary use i.e. for use in the construction project. The project is to be sold to S-Tech. The funds of ₹ 3.00 crores are not given by S-Tech to Victory Buildestates for any use by Victory Buildestates in the project of affordable group housing at Rewari. The MOU is in respect of a sale of a project of affordable group housing and would not have the commercial effect of a borrowing. In the present case, the alleged debt is not advanced by a promoter, Director or shareholder of the corporate debtor as a stakeholder. The purpose of the alleged debt is not for improving the financial health of the company and boosting its economic prospect. On the other hand the purpose is to purchase the project of affordable group housing at Rewari. S-Tech has not proved its contention that it is a financial creditor under the provisions of Section 5(7) and Section 5(8) of the Code - Petition dismissed.
Issues Involved:
1. Jurisdiction of the Tribunal. 2. Validity of the application under Section 7 of the Insolvency & Bankruptcy Code, 2016. 3. Determination of the financial debt and financial creditor status under Section 5(7) and Section 5(8)(f) of the Insolvency & Bankruptcy Code, 2016. 4. Interpretation of the Memorandum of Understanding (MOU) and its implications on the financial debt. 5. Reliance on precedents and their applicability to the current case. Detailed Analysis: 1. Jurisdiction of the Tribunal: The Tribunal confirmed its jurisdiction over the case based on the registered address of Victory Buildestates Pvt. Ltd. being within its territorial limits. 2. Validity of the Application: The application was filed by S-Tech Builders Pvt. Ltd. under Section 7 of the Insolvency & Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Victory Buildestates Pvt. Ltd. The application was signed by the Director of S-Tech, and an affidavit verifying the contents was provided. The proposed Interim Resolution Professional was also named in the application. 3. Determination of Financial Debt and Financial Creditor Status: The Tribunal examined whether the amounts paid by S-Tech to Victory Buildestates constituted a financial debt under Section 5(7) and Section 5(8)(f) of the Code. The key issue was whether the debt was disbursed against the consideration for the time value of money and whether it had the commercial effect of a borrowing. The Tribunal noted that the MOU did not provide for the payment of any interest on the amounts paid, which is a critical factor in determining the financial debt. 4. Interpretation of the Memorandum of Understanding (MOU): The Tribunal analyzed the MOU dated 10.04.2015, which outlined the transfer of an affordable group housing project from Victory Buildestates to S-Tech. The MOU specified the payment schedule but did not indicate that the amounts paid were intended for temporary use in the project or had the commercial effect of borrowing. Instead, the funds were part of the consideration for purchasing the project, not for use by Victory Buildestates in the project. 5. Reliance on Precedents: The Tribunal considered several precedents, including the Supreme Court judgment in Pioneer Urban Land and Infrastructure Ltd. vs. Union of India, which discussed the broad interpretation of Section 5(8)(f) to include amounts raised under transactions with the commercial effect of borrowing. However, the Tribunal distinguished the current case from the precedents, noting that the alleged debt was not advanced by a promoter, Director, or shareholder to improve the financial health of the company but was part of the consideration for purchasing the project. Conclusion: The Tribunal concluded that S-Tech did not prove its status as a financial creditor under the provisions of Section 5(7) and Section 5(8) of the Code. Consequently, the petition was rejected, and CP(IB) No. 467/Chd/Hry/2019 was disposed of. Pronouncement: The judgment was pronounced in open court, rejecting the petition filed by S-Tech Builders Pvt. Ltd.
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