2022 (9) TMI 275 - AT - Insolvency and Bankruptcy

Initiation of CIRP - Operational Debt or not - Nature of transaction between the parties for taking over the Company - HELD THAT - The payment which was made by the Operational Creditor was in contemplation of Development Agreement dated 01.10.2016 which ultimately could not fructify since the Corporate Debtor refused to sign the Agreement. It is clear that the transaction which was made by the Operational Creditor was towards the joint venture development agreement between the parties under which the Operational Creditor offered to provide necessary infrastructure and man-power to construct and market the Residential Flats/Apartments. When the Operational Creditor acted in pursuance of the Proposed Development Agreement between the parties, the amount paid by the Operational Creditor of Rs. 3 Crores plus Rs. 1 Crore was towards providing services by the Operational Creditor, the same is clearly an Operational Debt - there are no substance in the submissions of Learned Counsel for the Appellant that Corporate Debtor did not owe any Operational Debt . Tthe submissions of Learned Counsel for the Appellant that the Corporate Debtor did not owe any Operational Debt to the Operational Creditor, is rejected - appeal dismissed.

Summary

Issues Involved:
1. Whether the Corporate Debtor owed any Operational Debt to the Operational Creditor.
2. Validity of Term Sheet dated 25th April, 2017.
3. Whether the Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 was served on the Corporate Debtor.

Issue-wise Detailed Analysis:

1. Whether the Corporate Debtor owed any Operational Debt to the Operational Creditor:

The case revolves around a Development Agreement dated 01.10.2016, where the Corporate Debtor intended to develop a Group Housing Project and sought necessary infrastructure and manpower from the Operational Creditor. The Operational Creditor paid Rs. 3 Crores to the Corporate Debtor, which included two cheques of Rs. 1 Crore each and an additional Rs. 1 Crore through RTGS. Further, four half-yearly post-dated cheques of Rs. 5.15 Crores each were issued but not signed. The Corporate Debtor did not sign the Development Agreement and later demanded additional payment. Despite the Operational Creditor beginning site construction and incurring expenses, the Corporate Debtor did not sign the Term Sheet, leading the Operational Creditor to demand a refund of Rs. 5 Crores. The Adjudicating Authority held that the claim of the Operational Creditor related to services provided, thus qualifying as an 'Operational Debt' under the Insolvency and Bankruptcy Code, 2016.

2. Validity of Term Sheet dated 25th April, 2017:

The Appellant argued that the Term Sheet dated 25th April, 2017 indicated that the payment of Rs. 3 Crores was towards taking over the Corporate Debtor for Rs. 23.60 Crores, not an Operational Debt. However, the Respondent refuted this, claiming the document was fabricated. The Tribunal noted that the Corporate Debtor's initial defense mentioned an Agreement to Sell dated 19th April, 2017, not the Term Sheet dated 25th April, 2017. The Tribunal found the Term Sheet dated 25th April, 2017 to be a fabricated document and rejected the Appellant's submission. The Tribunal emphasized that the transaction was based on the Development Agreement dated 01.10.2016, which was the genesis of the transaction between the parties.

3. Whether the Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 was served on the Corporate Debtor:

The Appellant contended that the Section 8 Notice was never served. However, the Tribunal found that the Demand Notice and evidence of service were brought on record in the Section 9 Application filed by the Operational Creditor. The Tribunal rejected the Appellant's submission and upheld the Adjudicating Authority's order admitting the Section 9 Application.

Conclusion:

The Tribunal concluded that the transaction between the parties was towards a joint venture development agreement, and the amount paid by the Operational Creditor was for providing services, thus constituting an 'Operational Debt'. The Term Sheet dated 25th April, 2017 was deemed fabricated, and the Demand Notice under Section 8 was found to have been duly served. The appeal was dismissed, affirming the Adjudicating Authority's order admitting the Section 9 Application under the Insolvency and Bankruptcy Code, 2016.