2021 (2) TMI 305 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditor - Refund of token amount - existence of debt and default or not - HELD THAT - The binding Term Sheet dated 2nd August 2018 is a mere understanding between the parties which captures the basic commercial terms and contend a specific clause that the parties would endeavor to execute the Development Management Agreement and that if the Development Management Agreement is not executed within the stipulated time, the binding Term Sheet would be automatically terminated. The binding Term Sheet thus demonstrates that the Petitioner had undertaken to provide the service to their Corporate Debtor and the same did not fructify and was thus terminated / cancelled. The execution of Development Management Agreement would have qualified the Petitioner to claim the Development Management Agreement fees which is an Operational Debt but since the Development Management Agreement was not executed, the termination of the binding term sheet thus triggers the liability of refund of moneys as agreed under Clause 13 of the Term Sheet. The token amount was agreed was transferred by the Petitioner to the Corporate Debtor upon execution of the Term Sheet and therefore, as such upon termination of the Term Sheet, the token amount is to be repaid as agreed under Clause 13 and can be construed as the part of the Operational Debt and part services rendered to the Corporate Debtor in accordance with mutual obligations set out in the Term Sheet. The binding Term Sheet dated 2nd August, 2018 clearly stipulates the obligation of the Petitioner to pay the money to the Corporate Debtor at the time of execution of the Term Sheet and hence, the liability of refund of such monies paid is well defined in the case of termination of the Term Sheet. Therefore, the Corporate Debtor is liable to refund the token amount to the Petitioner which is part of the services provided to the Corporate Debtor. The Petition filed by the Operational Creditor is on proper Form 5, as prescribed under the Adjudicating Authority Rules and is complete - Petition under sub-section (2) of Section 9 of I B Code, 2016 filed by the Operational Creditor for initiation of CIRP in prescribed Form 5, as per the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 is complete. The existing operational debt beyond the threshold limit against the Corporate Debtor and its default is also proved. Accordingly, the Petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of corporate insolvency resolution process against the Corporate Debtor deserves to be admitted. Application admitted - moratorium declared.

Summary

Issues Involved:

1. Whether the petitioner qualifies as an Operational Creditor under the Insolvency and Bankruptcy Code, 2016.
2. Whether the amount claimed by the petitioner constitutes an Operational Debt.
3. Whether the Term Sheet between the parties was binding and if it was extended by mutual conduct.
4. Whether there was a pre-existing dispute between the parties.
5. Whether the Corporate Debtor is liable to refund the token amount with interest.

Issue-wise Detailed Analysis:

1. Whether the petitioner qualifies as an Operational Creditor under the Insolvency and Bankruptcy Code, 2016:

The Tribunal examined the binding Term Sheet dated 02.08.2018 and found that the petitioner was engaged to perform services as a Project Manager for the Corporate Debtor. The scope of services and payment of fees were well defined in the Term Sheet. The petitioner was to perform services in relation to the project, making it an Operational Creditor under Section 5(20) of the Code, which defines an "operational creditor" as a person to whom an operational debt is owed.

2. Whether the amount claimed by the petitioner constitutes an Operational Debt:

The Tribunal referred to Section 5(21) of the Code, which defines "operational debt" as a claim in respect of the provision of goods or services. The Tribunal concluded that the amount of ?2.51 crores paid by the petitioner to the Corporate Debtor was part of the service rendered. The Term Sheet envisaged the execution of a Development Management Agreement, and the failure to execute this agreement triggered the termination of the Term Sheet, making the token amount repayable. Thus, the amount claimed was considered an Operational Debt.

3. Whether the Term Sheet between the parties was binding and if it was extended by mutual conduct:

The Tribunal found that the Term Sheet was binding and contained specific clauses regarding the execution of the Development Management Agreement within 60 days, failing which the Term Sheet would automatically terminate unless mutually extended in writing. The Tribunal rejected the Corporate Debtor's argument that the Term Sheet was extended by mutual conduct through correspondences and emails, as there was no written mutual extension.

4. Whether there was a pre-existing dispute between the parties:

The Tribunal noted that the Corporate Debtor raised the defense of a pre-existing dispute, claiming that the petitioner breached the terms of the Term Sheet and caused financial losses. However, the Tribunal found that the Corporate Debtor had admitted its liability to refund the advance money in the draft Deed of Cancellation. The Tribunal concluded that the Corporate Debtor's claims of a pre-existing dispute were an attempt to wriggle out of its obligations under the Term Sheet.

5. Whether the Corporate Debtor is liable to refund the token amount with interest:

The Tribunal held that the binding Term Sheet stipulated the obligation of the Corporate Debtor to refund the token amount with interest upon termination. The Term Sheet clearly defined the terms of repayment, including interest rates of 15% p.a. within 60 days and 24% p.a. after 60 days of termination. The Tribunal concluded that the Corporate Debtor was liable to refund the token amount as part of the services provided by the petitioner.

Conclusion:

The Tribunal admitted the petition filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016, for initiating the corporate insolvency resolution process (CIRP) against the Corporate Debtor. The Tribunal declared a moratorium under Section 14 of the Code and appointed an Interim Resolution Professional to carry out the functions as mentioned under the Code. The Tribunal directed the Registry to communicate the order to both parties and the Interim Resolution Professional immediately.