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TMI Blog2017 (8) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... vency process by invoking Section 7 of the 'I & B' Code read with Rule-4 and Rule-9(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority), Rules, 2016 (hereinafter referred to as 'Adjudicating Authority' Rules, 2016) is not maintainable. 2. The case of the appellants and the submission as made by learned counsel for the appellants are as follows:- The appellants reached different agreements/Memorandum of Understanding with respondent M/s. AMR Infrastructures Limited (hereinafter referred to as 'Corporate Debtor') for purchase of three units being a residential flat, shop and office space in the projects, Kessel-I Valley, One Mall and One Home which were being developed by and promoted by 'Corporate Debtor'. 3. The one of the unit was purchased by the Appellant(s) under the 'Committed Return Plan' as per which if the Appellant(s) were to pay a substantial portion of the total sale consideration upfront at the time of Execution of the MOU, and the Respondent undertook to pay a particular amount to the buyer/purchaser (The appellant(s) in this case) each month, as Committed Returns/Assured Returns from the date of execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt/Memorandum of Understanding and transaction between the Appellants and the Respondent were not a simple real-estate transaction. The Appellants have also placed on record the order dated 19.12.2014 passed by SEBI in the matter of M/s. MVL Limited wherein it has held that such transactions where the developer offers to pay assured returns to the buyers "are not pure real estate transactions, rather they satisfy all the ingredients of a Collective Investment Scheme as defined under Section 11AA of the SEBI Act," and has made other observations as well stating that the developer was engaged in "fund mobilization activity" by offering assured returns. Copy of the SEBI Order is at pages 451 to 473 of the Appeal. 8. It is the case of the Appellants that various winding up petitions have been filed and are pending against the Respondent for non-payment of the assured returns to various buyers wherein the Respondent has admitted liability and has offered to settle the claims but has not yet been able to do so. Therefore, since the provision of the Winding up under the Companies Act, stands substituted by the Insolvency and Bankruptcy Code, 2016, then the Appellants should be entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken therein particularly that number of petitions were wrongly mentioned in the original impugned judgment and on hearing the parties the delay of seven days in preferring the appeal is condoned. 14. The question arises for consideration in this appeal are: - (i) Whether the appellants who reached with agreements/Memorandum of Understandings with respondent for the purchase of three units being a residential flat, shop and office space in the projects developed, promoted and marketed by the respondent come within the meaning of 'Financial Creditor' as defined under the provisions of sub-section (5) of Section 7 of the I & B code and (ii) Whether an application for triggering insolvency process under Section 7 of I & B code' is maintainable where winding up petitions have been initiated and pending before Hon'ble High Court against the 'Corporate Debtor'. 15. To determine the first question it is desirable to notice and refer provisions of Section 5(7) and 5(8) and Section 7 of the 'I & B code', which are set out below:- "5. In this Part, unless the context otherwise requires, - (7) "financial creditor" means any person to whom a financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (3) The financial creditor shall, along with the application furnish- (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3). (5) Where the Adjudicating Authority is satisfied that- (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or (b) default has not occurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of financial transaction as postulated by section 5(8) is its consideration for time value of money. In other words, the legislature has included such financial transactions in the definition of 'Financial debt' which are usually for a sum of money received today to be paid for over a period of time in a single or series of payments in future. It may also be a sum of money invested today to be repaid over a period of time in a single or series of instalments to be paid in future. In Black's Law Dictionary (9th edition) the expression 'Time Value' has been defined to mean "the price associated with the length of time that an investor must wait until an investment matures or the related income is earned". In both the cases, the inflows and outflows are distanced by time and there is a compensation for time value of money. It is significant to notice that in order to satisfy the requirement of this provision, the financial transaction should be in the nature of debt and no equity has been implied by the opening words of Section 5(8) of the IBC. It is true that there are complex financial instruments which may not provide a happy situation to decipher the true natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforementioned properties and has got nothing to do with the requirement of sub-section (8) of section 5. It is the consideration for the time value of money which is mercifully missing in the transaction in hand. The classical transaction which would cover the definition of financial debts is illustrated in sub-clause (a) of sub-section (8) of Section 5 i.e. the money borrowed against the payment of interest. Learned Counsel of Applicants has not been able to show from any material on record or otherwise that it is a financial transaction in which a debt has been disbursed against the consideration for the time value of money and he being the Financial Creditor is entitled to trigger the insolvency process against the Respondent in accordance with Section 7 of the IBC." From the provisions of Law and discussion as made and quoted above, we find that following essential criteria's to be fulfilled for a Creditor to come within the meaning of 'Financial Creditor':- (i) A person to whom a 'Financial debt' is owed and includes a person whom such debt has been legally assigned or transferred to (ii) The debt along with interest, if any, is disbursed against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the INVESTOR. The Investor has given the first leasing rights to the Developer and Developer hereby assures the investor that they will assist the Investor in leasing out the shop as per general market trends and practices prevailing till time of possession. The developer further assures the investor that if they are not able to lease the unit till possession they will pay the amount of Rs. 1,10,000/-per month w.e.f. dated of possession till unit is first leased out." 20. From the aforesaid agreement/Memorandum of Understanding it is clear that appellants are "investors" and has chosen "committed return plan". The respondent in their turn agreed upon to pay monthly committed return to investors. Thus, the amount due to the appellants come within the meaning of 'debt' as defined in Section 3(11) of the I & B Code' which reads as follows:- "(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;" 21. The appellants have enclosed the annual return of Respondent-Corporate Debtor dated 31st March 2014. Therein the amount deposited by 'investors' including the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount paid by the appellants to the Corporate Debtor, fulfil the other condition of "disbursement against consideration of time value and money", to come within the definition of "Financial Creditor" having satisfied that the Corporate Debtor raised the amount through a transaction of sale and purchase of agreement having commercial effect of a borrowing (Section 5(8)(f)). 25. The agreement shows that the respondent agreed to complete the construction of shopping mall on or before December 2009, in all respects, and was required to complete and handover the shop in the shopping mall before the said date. It is not the case of the respondent that the construction was stopped or delayed on account of factors beyond the control of the respondent, as stipulated in the later part of the Memorandum of Understanding. It was agreed upon by the respondent that since the appellants have paid most of the amount the respondent was ready to pay "monthly committed returns" to the appellants. However, as the appellants were not required the monthly return till December 2008 i.e. for 9 months so the Respondent-Corporate Debtor undertook to make a consolidated payment of Rs. 99,600/- less TDS. F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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