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2022 (7) TMI 148 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - share application money - nature of transaction - Financial Debt or advance amount - contingent contract or not - enforceable by law or not - amount paid to Financial Creditor was towards Deal Fee payable to Appellant as per Agreement or not. Whether amount of Rs.3.5 crore disbursed by the Financial Creditor to the Corporate Debtor between 02.12.2016 to 15.12.2016 is a financial debt within the meaning of Section 5(8) of the I B Code or the amount was advanced towards 50% equity share in M/s SPT the US Company? - HELD THAT - Section 5(8) Sub-clause (f) covers any amount raised under any other transaction having the commercial effect of a borrowing. There cannot be any denial to the commercial effect of the transaction since it is on the record that the amount which was given by the Financial Creditor was credited in the IDBI Bank account of the Corporate Debtor from which the EMD for participation in the auction of M/s Sona BLW Precision Forge. Inc was paid. The case of the Appellant that the said amount of Rs.3.5 crore given by the Financial Creditor was purchase price of the 50% equity share in M/s SPT is not supported by the materials on the record. The amount of USD 1.5 Million was sent by the Financial Creditor to the M/s SPT directly on 23.12.2018 as share application money which amount can be said to be amount sent for equity shares which equity shares was never given to the Financial Creditor. Thus, the case of the Appellant that amount of Rs.3.5 crore be treated as investment only towards purchase of equity share is not supported from the record rather materials including acknowledgement of the Corporate Debtor clearly prove that the aforesaid amount comes within the definition of financial debt under Section 5(8)(f) of the I B Code - thus, the amount of Rs.3.5 crore is a financial debt and application filed under Section 7 was fully maintainable by the Financial Creditor. Whether the liability of the Corporate Debtor to return Rs.3.5 crore received from the Financial Creditor could have arisen only when the Corporate Debtor received the amount of USD 0.80 Million from the Investor Ajay Kumar Jain and the Agreement dated 14.07.2018 being a contingent contract in so far as payment of Rs.3.5 crores of Financial Creditor is not enforceable by virtue of Section 33 of the Contract Act? - HELD THAT - The Financial Creditor being not part of the Agreement dated 14.07.2018, the submission that payment to the Financial Creditor was contingent contract is without any foundation. Agreement dated 14.07.2018 was agreement between third parties of which Financial Creditor was not part therefore the question of non-payment by Corporate Debtor to the Financial Creditor on the basis of such agreement does not arise, nor by Agreement dated 14.07.2018 the liability to pay debt of the Financial Creditor can be diluted. Any Agreement by the Corporate Debtor with third parties cannot dilute the debt due to Financial Creditor - there are no substance in this submission of the Appellant. Whether the amount of Rs.3.5 crore paid by the Financial Creditor to the Corporate Debtor was towards Deal Fee payable to Appellant as per Agreement dated 04.12.2016? - HELD THAT - The Appellant referred to agreement dated 04.12.2016 to submit that said agreement refers to Deal Fee of USD 1 Million. In the Agreement dated 04.12.2016, Deal Fee was referred to fee of USD 1 Million which was included in the total project cost which was the total project cost for acquiring M/s Sona BLW Precision Forge. Inc. M/s Sona BLW Precision Forge. Inc. was under Bankruptcy Laws of USA. The said company was to be acquired by bidding. There is no indication in the Agreement that any Deal Fee is to be paid to the Appellant who claims to be technocrat by the Financial Creditor. Learned counsel for the Respondent, Mr. Ravi Chirania has rightly in his submission stated that this argument has been raised in this Appeal only and before the Adjudicating Authority never such plea was raised nor any submission made regarding this. The Reply filed by the Corporate Debtor before the Adjudicating Authority clearly indicates that the submission regarding Deal Fee payable to the Appellant was never taken. In the entire detailed Reply filed by the Corporate Debtor which runs into 41 pages at no place even indication have been given that any Deal Fee was to be paid to the Appellant by the Financial Creditor. The Adjudicating Authority did not commit any error in admitting the Application under Section 7 - Appeal dismissed.
Issues Involved:
1. Whether the amount of Rs.3.5 crore disbursed by the Financial Creditor to the Corporate Debtor is a financial debt under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (I&B Code) or was it an investment/payment for acquiring 50% equity share in M/s SPT. 2. Whether the liability of the Corporate Debtor to return Rs.3.5 crore could have arisen only upon receipt of USD 0.80 Million from Investor Ajay Kumar Jain, making the Agreement dated 14.07.2018 a contingent contract not enforceable under Section 33 of the Indian Contract Act, 1872. 3. Whether the amount of Rs.3.5 crore paid by the Financial Creditor to the Corporate Debtor was towards Deal Fee payable to the Appellant as per Agreement dated 04.12.2016. Issue-Wise Detailed Analysis: Issue 1: Whether the amount of Rs.3.5 crore disbursed by the Financial Creditor to the Corporate Debtor is a financial debt under Section 5(8) of the I&B Code or was it an investment/payment for acquiring 50% equity share in M/s SPT. The core issue is whether the Rs.3.5 crore disbursed by the Financial Creditor qualifies as a financial debt. The Financial Creditor disbursed the amount between 02.12.2016 and 15.12.2016, which was credited to the IDBI account of the Corporate Debtor. The Corporate Debtor acknowledged the receipt but contested the nature of the transaction, claiming it was for acquiring 50% equity shares in M/s SPT. The Tribunal examined the Agreement dated 04.12.2016, which outlined equal equity participation for the acquisition of M/s Sona BLW Precision Forge Inc. However, subsequent acknowledgments, including an Agreement dated 21.10.2017 and emails dated 12.03.2018 and 28.05.2018, indicated the Corporate Debtor's commitment to return Rs.3.5 crore, treating it as a short-term loan. The Balance Sheet of 2017-18 also recorded this amount under 'Unsecured Loans.' Section 5(8) of the I&B Code defines financial debt as a debt disbursed against the consideration for the time value of money, which includes any amount raised under a transaction with the commercial effect of borrowing. The Tribunal concluded that the amount of Rs.3.5 crore qualified as a financial debt, as it was utilized for commercial purposes and acknowledged as a loan by the Corporate Debtor. Issue 2: Whether the liability of the Corporate Debtor to return Rs.3.5 crore could have arisen only upon receipt of USD 0.80 Million from Investor Ajay Kumar Jain, making the Agreement dated 14.07.2018 a contingent contract not enforceable under Section 33 of the Indian Contract Act, 1872. The Appellant argued that the Agreement dated 14.07.2018 made the repayment of Rs.3.5 crore contingent upon receiving USD 0.80 Million from Investor Ajay Kumar Jain. Section 33 of the Indian Contract Act states that a contingent contract can only be enforced when the event on which it is contingent happens. However, the Tribunal noted that the Financial Creditor was not a party to the Agreement dated 14.07.2018, which was between the US Company, the Appellant, and the Investor. The Financial Creditor's claim for Rs.3.5 crore was independent of this agreement. The Tribunal held that any agreement between the Corporate Debtor and third parties could not dilute the debt owed to the Financial Creditor. Therefore, the contingent nature of the Agreement dated 14.07.2018 did not affect the enforceability of the Financial Creditor's claim. Issue 3: Whether the amount of Rs.3.5 crore paid by the Financial Creditor to the Corporate Debtor was towards Deal Fee payable to the Appellant as per Agreement dated 04.12.2016. The Appellant claimed that the Rs.3.5 crore was a Deal Fee as mentioned in the Agreement dated 04.12.2016, which included a fee of USD 1 million in the total project cost. However, the Tribunal found no indication in the Agreement that any Deal Fee was to be paid to the Appellant by the Financial Creditor. Furthermore, this argument was raised for the first time in the appeal and was not part of the pleadings before the Adjudicating Authority. The Tribunal dismissed this argument as hollow and meritless, noting that the detailed Reply filed by the Corporate Debtor before the Adjudicating Authority did not mention any Deal Fee. Conclusion: The Tribunal upheld the Adjudicating Authority's decision to admit the Section 7 Application, concluding that the Rs.3.5 crore disbursed by the Financial Creditor was a financial debt. The arguments regarding the contingent nature of the Agreement dated 14.07.2018 and the Deal Fee were found to be without merit. The appeal was dismissed, and the interim order was discharged.
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