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2020 (7) TMI 121 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - scope of Financial Creditor - HELD THAT - On detailed perusal of the clause 64 65 it is evident that a transaction will fall in the residuary clause (f) of section 5(8) under the category of financial debt, only if the transaction has commercial effect of borrowing, as such it will not fall within the category of financial debt. Moreover, Hon'ble Supreme Court in this clause 65 made reference to real estate allottee in order to conclude this observation which is not the case here as the transaction is in relation to purchase of land which does not fall within the ambit of real estate transaction. This bench is of the view that the contentions/ or claims being raised by the M/s. Versatile Commotrade Private Limited as a financial creditor is correct, M/s. Versatile Commotrade has a right to claim the advances and therefore, shall within the definition of Financial Creditor. Also, liquidated damages after being proven can be deducted. The sale transaction between the corporate debtor and M/s. Versatile Commotrade Private Limited was entered by the corporate debtor to make huge profit and money paid by the M/s. Versatile Commotrade Private Limited to the Corporate Debtor was in the nature of advance paid for particular purpose for purchase of the property and Corporate Debtor was to give back equivalent money paid by executing sale deed and the corporate debtor being in the business of real estate, was obviously doing the same for huge profit purpose. Thus, advance money paid had commercial effect of borrowing. As such, above amount paid by M/s. Versatile was a debt disbursed against the consideration of time value of money under Sale Agreement having the commercial effect of borrowing - RP had rightly treated M/s. Versatile Commotrade Private Limited as a Financial Creditor . Application disposed off.
Issues Involved:
1. Status of M/s. Versatile Commotrade Private Limited as a Financial Creditor. 2. Validity of the Resolution Professional's decision regarding creditor classification. 3. Applicability of the Supreme Court's ruling in Pioneer Land & Infrastructure Ltd v. U.O.I. Detailed Analysis: 1. Status of M/s. Versatile Commotrade Private Limited as a Financial Creditor: The Applicant, Mr. Anuj Kumar Tiwari, challenged the classification of M/s. Versatile Commotrade Private Limited as a Financial Creditor by the Resolution Professional (RP). The RP had reconstituted the Committee of Creditors (CoC) after admitting M/s. Versatile's claim of ?4,17,07,549/- as a financial debt, reducing the Applicant's voting percentage to 'NIL'. The Applicant argued that the advance payment made by M/s. Versatile under a sale agreement did not qualify as a financial debt since the agreement did not stipulate any interest payment, thus lacking the "time value of money" component required under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016. 2. Validity of the Resolution Professional's Decision: The Applicant contended that the RP erred in treating the advance amount as a financial debt, arguing that M/s. Versatile should be classified as an Operational Creditor under Section 5(21) of the IBC. The Applicant emphasized that M/s. Versatile did not supply any goods or services to the Corporate Debtor, which is a requisite for being categorized as an Operational Creditor. In response, M/s. Versatile cited Section 5(8)(f) of the IBC, which includes any amount raised under any transaction having the commercial effect of borrowing. They referenced the Supreme Court's decision in Pioneer Land & Infrastructure Ltd v. U.O.I., which clarified that financial debt includes any transaction where funds are transferred to the Corporate Debtor with a commercial effect akin to borrowing. 3. Applicability of the Supreme Court's Ruling: The Tribunal relied heavily on the Supreme Court's interpretation in Pioneer Land & Infrastructure Ltd v. U.O.I., which elucidated that Section 5(8)(f) of the IBC is a "catch-all" provision. It encompasses transactions where funds are advanced for a specific purpose with an expectation of repayment, thereby having the commercial effect of borrowing. The Tribunal observed that the advance payment made by M/s. Versatile to the Corporate Debtor for the purchase of land was intended for profit-making, thus fitting within the ambit of financial debt. The Tribunal concluded that the RP correctly classified M/s. Versatile as a Financial Creditor. The sale agreement between the Corporate Debtor and M/s. Versatile involved an advance payment for a specific purpose, with the Corporate Debtor expected to return the equivalent amount through the execution of a sale deed. This arrangement had the commercial effect of borrowing, as defined by the Supreme Court. Conclusion: The Tribunal upheld the RP's decision to classify M/s. Versatile Commotrade Private Limited as a Financial Creditor, based on the Supreme Court's interpretation of Section 5(8)(f) of the IBC. The advance payment made under the sale agreement was deemed to have the commercial effect of borrowing, thus qualifying as a financial debt. The Tribunal dismissed the Applicant's contention and confirmed the validity of the RP's decision. Order: Both applications were disposed of with the above order, and copies of the order were supplied to the parties.
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