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2021 (11) TMI 188 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - time limitation - reliability of undated, unstamped and unregistered Memorandum of Understanding (MoU) signed by the Respondent along with Harmony Developers Private Limited (the Developers) on one side and the Petitioner (the Joint Developer) on other side - Payment of Refundable Security Deposit made by the third party i.e. Sunteck Realty Ltd. - Does the Refundable Security Deposit given by a Joint Developer constitute a Financial Debt? - default occurred or not - dishonor of cheque constitute the existence of Financial Debt and Default due from Respondent to Petitioner or not. HELD THAT - As no disbursement has been made by the Petitioner to the Respondent, the Petitioner Magnate Industries LLP is not entitled to file an application under section 7 of the IBC-2016 as Financial Creditor against Respondent Safal Developers Private Limited. - Admittedly, the petitioner has filed Axis Bank Statement of Sunteck Realty Ltd. as Exhibit-I of the petition, showing a payment of ₹ 25 crore to the Respondent. If at all, somebody can file Insolvency petition against the Respondent under section 7 or under section 9 of IBC-2016, it is Sunteck Realty Limited, of course subject to satisfying the criteria of being a financial or an operational creditor. As there is no financial debt owed by the respondent to the petitioner being a Joint Developer, the Joint Developer becomes a Joint Venture Partner in the project, the question of default does not arise. The date of default as mentioned in the Part-IV of the Form 1 of Petition is 31.07.2020 whereas, as per NeSL record of default the date of default is shown as 04.01.2020 as submitted by the petitioner himself. The respondent issued two cheques in favour of the petitioner amounting to ₹ 25,00,00,000/- and ₹ 1,74,57,534/- totalling to ₹ 26,74,57,534/-. These cheques were dishonoured. For dishonouring of the cheques, there is a specific remedy available to the petitioner under section 138 of the Negotiable Instrument Act 1881. The petitioner chose not to proceed against the respondent in this regard. The mere fact of dishonouring of cheques, by itself, cannot be construed as existence of financial debt and default so as to admit a petition under section 7 of the IBC-2016. Petition filed by Magnate Industries LLP, the Financial Creditor/Applicant, under section 7of Insolvency Bankruptcy Code, 2016 (I B Code) against Safal Developers Private Limited, Corporate Debtor is hereby dismissed.
Issues Involved:
1. Validity of an undated, unstamped, and unregistered Memorandum of Understanding (MoU). 2. Entitlement of the petitioner to file as a Financial Creditor. 3. Classification of Refundable Security Deposit as a Financial Debt. 4. Occurrence of default. 5. Impact of dishonoured cheques on the existence of Financial Debt and Default. Detailed Analysis: 1. Validity of an undated, unstamped, and unregistered Memorandum of Understanding (MoU): The Tribunal determined that the MoU between the parties was undated, unstamped, and unregistered. According to the Supreme Court in M/s. N.N. Global Mercantile V. M/s. Indo Unique Flame Ltd. & Others, an unstamped document cannot be received in evidence or acted upon unless it is duly stamped. Section 35 of the Indian Stamp Act, 1899, also supports this, stating that such instruments are inadmissible in evidence unless duly stamped. Hence, the Tribunal concluded that the MoU could not be relied upon as a valid document to proceed against the Respondent. 2. Entitlement of the petitioner to file as a Financial Creditor: The Tribunal noted that the payment of ?25 crore was made by Sunteck Realty Ltd., a distinct corporate entity from the petitioner, Magnate Industries LLP. Since no disbursement was made by the petitioner to the respondent, Magnate Industries LLP cannot be considered a Financial Creditor under Section 5(7) of the Insolvency and Bankruptcy Code (IBC), 2016. The petitioner must be the entity to whom the financial debt is owed, or to whom such debt has been legally assigned or transferred. Therefore, Sunteck Realty Ltd., not being a party to the petition, would be the appropriate entity to file under Section 7 or Section 9 of the IBC, subject to meeting the criteria of being a financial or operational creditor. 3. Classification of Refundable Security Deposit as a Financial Debt: The Tribunal held that the refundable security deposit of ?25 crore arranged by the petitioner through a third entity does not constitute a financial debt under Section 5(8) of the IBC. The definition of financial debt includes a debt disbursed against the consideration for the time value of money. The refundable security deposit, as per the Tribunal, does not meet this criterion and thus cannot be classified as a financial debt. 4. Occurrence of default: The Tribunal observed discrepancies in the dates of default mentioned in the petition and the NeSL record. The date of default in Part-IV of Form 1 of the petition was 31.07.2020, while the NeSL record indicated 04.01.2020. Given the undated nature of the MoU and the lack of a clear starting point for the repayment obligation, the Tribunal found no conclusive evidence to establish the occurrence of a default. 5. Impact of dishonoured cheques on the existence of Financial Debt and Default: The respondent issued two cheques totaling ?26,74,57,534, which were dishonoured. The Tribunal noted that dishonouring of cheques provides a specific remedy under Section 138 of the Negotiable Instruments Act, 1881. The petitioner did not pursue this remedy. The Tribunal concluded that the mere dishonouring of cheques could not be construed as evidence of the existence of financial debt and default sufficient to admit a petition under Section 7 of the IBC. Conclusion: The Tribunal dismissed CP(IB) No. 1167/MB-IV/2020 filed by Magnate Industries LLP against Safal Developers Private Limited under Section 7 of the IBC, 2016. The Tribunal clarified that observations made in the order should not prejudice the petitioner's rights before any other judicial forum.
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