2022 (7) TMI 1251 - AT - Insolvency and Bankruptcy

Approval of resolution plan - Rejection of the claim of the appellant as Financial Creditors - payment of Earnest Money - disbursement is against the consideration for the time value of money - Appellant submitted that, the CoC by approving the plan has not taken into account the interest of all the stakeholders. - HELD THAT - There is nothing on record to indicate that proposal submitted by the Appellant by letter dated 14.09.2018 was accepted or agreed by the Corporate Debtor. Earnest Money was paid by the Appellant after submitting a proposal by the Appellant himself without their being any acceptance. There is neither any agreement between the parties nor any agreement has been brought on record. It is true that contract between the parties can be oral as well as in writing however, there is no foundation in the Application filed by the Appellant or materials brought by him to indicate that there was even an oral agreement with the Corporate Debtor for sale of the land to the Appellant - The Adjudicating Authority has even observed that there is no proof that this letter dated 14.09.2018 was served on the Corporate Debtor. Time value of money thus means the price received for the length of time for the money for which the money has been disbursed - The law as laid down by the Hon ble Supreme Court in 2020 (2) TMI 1259 - SUPREME COURT clearly lays down that root requirement is disbursement against the consideration for the time value of money which is an essential condition to be proved to accept debt to be financial debt. Whether the payment of Earnest Money even if it is accepted as disbursement whether disbursement is against the consideration for the time value of money? - HELD THAT - The disbursement made by the Appellant to the Corporate Debtor was only a payment of Earnest Money which was to be adjusted in sale of the land. The disbursement was not in consideration for the time value of money - Essential condition for accepting a debt to be financial debt being absent, we are of the view that Adjudicating Authority has not committed any error in rejecting the claim of the Appellant as Financial Creditor. The claim of the Appellant of Earnest Money of Rs. 7 Crores has been admitted by the Resolution Professional as under the category of other creditors. The Resolution Plan envisages that amount for other Creditors is Nil. Thus the submissions that all stakeholders have not been dealt with in the plan cannot be accepted. CoC in his commercial decision has decided not to allocate any amount to the other creditors which cannot be questioned since Appellant has not been able to prove violation of any provision of code in the Resolution Plan - the Resolution Plan which has been approved by the Adjudicating Authority on 27th May, 2020 does not require any interference. Present is not a case where any interest free loan has been advanced to the Corporate Debtor. Present is the case where Earnest Money was paid by the Appellant to the Corporate Debtor - Appeal dismissed.

Summary

Issues Involved:
1. Whether the payment of earnest money of Rs. 7 Crores by the Appellant to the Corporate Debtor is a financial debt within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC).
2. Whether the approval of the Resolution Plan by the Committee of Creditors (CoC) and the Adjudicating Authority violated the provisions of Section 30(2) of the IBC and adequately addressed the interests of all stakeholders, including the Appellant.

Issue-wise Detailed Analysis:

1. Financial Debt Classification:
The primary issue was whether the payment of Rs. 7 Crores by the Appellant to the Corporate Debtor constituted a "financial debt" under Section 5(8) of the IBC. The Appellant argued that the payment was earnest money for the purchase of surplus land and should be considered a financial debt. However, the Adjudicating Authority and the Appellate Tribunal found that there was no contract or agreement between the parties for the sale of land. The payment was made by the Appellant without any acceptance of the offer by the Corporate Debtor. The Tribunal emphasized that for a debt to be classified as a financial debt, it must be disbursed against the consideration for the time value of money, which was not the case here. The Tribunal referred to several judgments, including "Pioneer Urban Land and Infrastructure Ltd. Vs. Union of India" and "Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited Vs. Axis Bank Limited," to highlight that the essential element of disbursal against the consideration for the time value of money was absent. Consequently, the Tribunal upheld the Adjudicating Authority's decision to classify the Appellant's claim as that of an "other creditor" rather than a financial creditor.

2. Approval of Resolution Plan:
The second issue was whether the Resolution Plan approved by the CoC and the Adjudicating Authority violated the provisions of Section 30(2) of the IBC and adequately addressed the interests of all stakeholders, including the Appellant. The Appellant contended that the Resolution Plan did not earmark any amount for him and failed to balance the interests of all stakeholders. The Tribunal, however, noted that the Resolution Plan envisaged Nil payment to other creditors, including the Appellant. The Tribunal referred to the Supreme Court's judgment in "Essar Steel India Ltd. Committee of Creditors Vs. Satish Kumar Gupta," which emphasized that the CoC's commercial decision should reflect the maximization of the value of the assets of the Corporate Debtor and adequately balance the interests of all stakeholders. The Tribunal found that the CoC had considered the interests of all stakeholders and that the Resolution Plan did not contravene any provisions of the IBC. The Tribunal also referred to the judgment in "Hammond Power Solutions Pvt. Ltd. Vs. Sanjit Kumar Nayayk and Ors.," distinguishing it from the present case, as the Resolution Plan in the current case had dealt with all stakeholders, even if it did not allocate any payment to them. The Tribunal concluded that the Resolution Plan approved by the Adjudicating Authority did not require any interference.

Conclusion:
The Tribunal dismissed both appeals filed by the Appellant, upholding the Adjudicating Authority's decisions. The Tribunal found no error in rejecting the Appellant's claim as a financial creditor and in the approval of the Resolution Plan, which did not allocate any payment to the Appellant as an "other creditor." The Tribunal emphasized that the essential condition of disbursal against the consideration for the time value of money was absent, and the Resolution Plan had adequately addressed the interests of all stakeholders as required by the IBC.