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2022 (9) TMI 440 - AT - Insolvency and BankruptcyInitiation of CIRP - period of limitation - NCLT admitted the application - whether the Application filed by Respondent No.1 on the ground that Corporate Debtor has committed breach of terms and conditions of the MoU hence liable to refund the amount with liquidated damages was filed within the period of limitation as prescribed under Article 137 of the Limitation Act 1963? - whether a transaction entered between the parties under the MoU is a transaction within the meaning of Section 5(8) of the Code so as to hold the transaction as a financial transaction? - transaction under MoU pertained to sale and purchase of the real estate property with motive of profit is in the nature of financial debt or not - Application filed under Section 7 by Respondent No.1 is for the claim of damage under the MoU and not for the claim of any financial debt? Whether the Application filed by Respondent No.1 on 06.11.2020 on the ground that Corporate Debtor has committed breach of terms and conditions of the MoU hence liable to refund the amount with liquidated damages was filed within the period of limitation as prescribed under Article 137 of the Limitation Act 1963? - Whether exercising the option to void the MoU dated 25.01.2013 on 07.03.2020 can be said to be in exercise of option by the Second Party as per MoU dated 25.01.2013 in accordance with law? - HELD THAT - The maximum period for which the agreement was to continue was 36 months. In event there is breach of Clause 10 that is 180 days if the First Party has not launched the scheme the cause of action become available to the Second Party. Further the entire period of agreement being 36 months at maximum when a breach is committed by Corporate Debtor of compliance of terms and conditions of the MoU that is handing over possession of flats/ units or transfer / assignment of the entire super built up area/ flats within 36 months the cause arose to Second Party that is Respondent to sue for its breach. Right to exercise of option arose to the Second Party after 180 days and also after 36 months when period of contract came to an end. By not exercising the option when right to exercise of option arose the Second Party cannot stop running of period of limitation on the pretext that it exercised its option only on 07.03.2020. The exercise of option after seven years from entering into the MoU and filing of the Application after seven years from the date when right to exercise of option arose is unsustainable. The time is not the essence of contract with regard to sale of immovable property unless there are special features and terms and conditions in the contract which makes the time as essence of the contract - the right to sue accrued to Respondent for breach of Clause-10 of the MoU dated 25.01.2013 on 25.07.2013 thereafter on 25.01.2016 and the application filed on 06.11.2020 is clearly barred by time. Whether a transaction entered between the parties under the MoU dated 25.01.2013 is a transaction within the meaning of Section 5(8) of the Code so as to hold the transaction as a financial transaction? - Whether transaction under MoU pertained to sale and purchase of the real estate property with motive of profit is in the nature of financial debt within the meaning of Section 5(8) of the Code? - Whether the Application filed under Section 7 by Respondent No.1 is for the claim of damage under the MoU and not for the claim of any financial debt? - HELD THAT - There is no dispute regarding payment of an amount of Rs.1, 26, 00, 000/- by Respondent No.1 to the Corporate Debtor on 25.01.2013. The Appellant has deposited the Bank Draft including the interest @ 12%. In the interest of justice we are of the view that the amount deposited under orders of this Tribunal dated 03.06.2022 be refunded to Respondent No.1 to avoid further litigation between the parties. The impugned order was passed on 04.05.2022 and the Appeal was immediately filed on 09.05.2022 and this Tribunal passed an interim order on 13.05.2022 directing the IRP not to constitute the CoC. Subsequently by another order dated 03.06.2022 a direction was issued not to take any further steps in the CIRP process. In the impugned order Adjudicating Authority has directed the Financial Creditor to deposit Rs.2, 00, 000/- with the IRP. In addition to amount directed by Adjudicating Authority of Rs.2, 00, 000/- the IRP shall be entitled to actual expenses incurred by her in publication and other actual expenses incurred by her. On submission of bill for actual expenses incurred by the IRP Respondent No.1 (who filed Section 7 Application) shall make the payment of expenses within a period of two weeks. The order dated 04.05.2022 passed by the Adjudicating Authority is set-aside - Appeal allowed.
Issues Involved:
1. Whether the Application filed by Respondent No.1 on 06.11.2020 was within the period of limitation as prescribed under Article 137 of the Limitation Act, 1963. 2. Whether exercising the option to void the MoU dated 25.01.2013 on 07.03.2020 was in accordance with law. 3. Whether the transaction under the MoU dated 25.01.2013 is a financial transaction within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016. 4. Whether the transaction under MoU pertained to sale and purchase of real estate property with the motive of profit is in the nature of 'financial debt' within the meaning of Section 5(8) of the Code. 5. Whether the Application filed under Section 7 by Respondent No.1 is for the claim of damage under the MoU and not for the claim of any financial debt. Detailed Analysis: Issue 1: Limitation Period for Filing Application The primary question was whether the Application under Section 7 filed by Respondent No.1 was barred by time. The MoU dated 25.01.2013 stipulated that if the First Party failed to launch the scheme within 180 days, it would be liable for default. The agreement was to continue for 36 months. The cause of action for the Second Party arose after 180 days and further after 36 months if the possession was not handed over. The Respondent No.1 claimed that the cause of action arose after exercising the option on 07.03.2020. However, the Tribunal held that the right to sue arose after 180 days and further after 36 months, making the Application filed on 06.11.2020 barred by time. Issue 2: Exercising the Option to Void the MoU The Tribunal examined whether the option to void the MoU exercised on 07.03.2020 was valid. It was held that the right to exercise the option arose after 180 days and also after 36 months. The exercise of the option after seven years from the MoU was unsustainable. The Tribunal concluded that the right to sue accrued to Respondent No.1 after 180 days and further after 36 months, and the exercise of the option on 07.03.2020 was not valid. Issue 3: Financial Transaction under Section 5(8) of the Code The Tribunal did not find it necessary to consider whether the transaction under the MoU dated 25.01.2013 was a financial transaction within the meaning of Section 5(8) of the Code, as the Application was already found to be barred by time. Issue 4: Nature of 'Financial Debt' Similarly, the Tribunal did not delve into whether the transaction under the MoU pertained to the sale and purchase of real estate property with the motive of profit was in the nature of 'financial debt' within the meaning of Section 5(8) of the Code, given the finding on the limitation issue. Issue 5: Claim for Damages vs. Financial Debt The Tribunal did not address whether the Application filed under Section 7 was for the claim of damages under the MoU and not for the claim of any financial debt, due to the conclusion on the limitation period. Conclusion: The Tribunal allowed the Appeal, setting aside the order dated 04.05.2022 passed by the Adjudicating Authority. The Application filed under Section 7 of the Code was dismissed as being barred by time. The Tribunal also directed the amount deposited under the Tribunal's orders to be refunded to Respondent No.1 and addressed the fees and expenses of the Interim Resolution Professional (IRP).
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