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TMI Blog2019 (3) TMI 1191X X X X Extracts X X X X X X X X Extracts X X X X ..... to reverse the transaction by purchasing the shares within a specified time along with the payment of 15% accrual on 20th August, 2009. We hold that the amount if disbursed by IL FS Financial Services Limited - ( Financial Creditor ) comes within the meaning of financial debt , therefore, the IL FS Financial Services Limited - ( Financial Creditor ) has been rightly claimed to be a Financial Creditor and filed Form-1 under Section 7 of the I B Code . Limitation - HELD THAT:- In the present case, it is not in dispute that right to apply under Section 7 accrues to IL FS Financial Services Limited - ( Financial Creditor ) since 1st December, 2016, when I B Code came into force. Therefore, the application under Section 7 being within the period of three years from the date of right to accrue the application, we hold that the application under Section 7 was well within the time. Whether the claim was barred by limitation or not? - HELD THAT:- There is a continuous cause of action and the Corporate Debtor never raised the question of limitation and on the other hand, a reply vide letter dated 18th November, 2015 intimating that the suit is pending and therefore, to withd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocates JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. These appeals arise out of common Corporate Insolvency Resolution Process and have been preferred by shareholders of La-Fin Financial Services Pvt. Ltd. - ( Corporate Debtor ) against common order and, therefore, they were heard together and are disposed of by this common judgment. 2. At the instance of IL FS Financial Services Limited - ( Financial Creditor ), Corporate Insolvency Resolution Process has been initiated against La-Fin Financial Services Pvt. Ltd. - ( Corporate Debtor ) by order dated 28th August, 2018 read with addendum-cum-corrigendum order dated 30th August, 2018. The Appellants have challenged the same on different grounds. 3. IL FS Financial Services Limited - ( Financial Creditor ) filed petition under Section 433(e), (f) and Section 434 of the Companies Act, 1956 on 21st October, 2016, bearing Company Petition No. 847/2016 before the Hon ble Bombay High Court. The said petition was transferred before the National Company Law Tribunal, Mumbai Bench, Mumbai, pursuant to Notification dated 29th June, 2017 issued by the Central Government under Section 434 of the Companies Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mohan, who has expressed his agreement with the verdict pronounced. A remark on the last page No.20 of the Order is made under his signature as below:- I agree and hereby give my consent. 3. Consequently this Addendum-cum-Corrigendum is signed by both the Members to be made part and parcel of the Order dated 28.08.2018 (supra). Henceforth to be read as amended. 7. Learned counsel appearing on behalf of the Appellants has challenged the impugned orders mainly on the following grounds: - There is no financial debt and there is no relationship of debtor and creditors between the Corporate Debtor and IL FS Financial Services Limited - ( Financial Creditor ), for the following reasons: a. The principal documents from which the present controversy emanates are titled Share Purchase Agreement ( SPA ) and Letter of Undertaking ( LoU ) . b. In the SPA , the parties are referred to as purchasers and sellers and the monies paid by the Corporate Debtor to Multi Commodity Exchange of India Limited ( MCX ) is referred to as the purchase consideration. c. The LoU only casts an obligation on the Corporate Debtor to offer to purchase the shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S Financial Services Limited - ( Financial Creditor ) to Securities and Exchange Board of India , wherein it has described the arrangement as an exit arrangement. 11. According to the learned counsel for the Appellant, there was no disbursement of money to IL FS Financial Services Limited - ( Financial Creditor ) by La-Fin Financial Services Pvt. Ltd. - ( Corporate Debtor ). 12. Referring to one or other decision of this Appellate Tribunal, it was submitted that the Adjudicating Authority wrongly held that the IL FS Financial Services Limited comes within the meaning of Financial Creditor . 13. It was also contended that the application was barred by limitation and was not maintainable. Reliance has been placed on the decision of the Hon ble Supreme Court in B.K. Educational Services Pvt. Ltd. v. Parag Gupta Associates (2018) SCC Online SC 1921 . 14. It was further submitted that the petition stood abated on 5th February, 2017 in view of the Notification dated 7th December, 2016 issued by the Central Government whereby Companies (Transfer of Pending Proceedings) Rules, 2016 were framed, Form-1 as required as per Section 7 of the I B Code was not filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LOU ) was executed on 20th August, 2009 by the La-Fin Financial Services Pvt. Ltd. - ( Corporate Debtor ) to purchase the IL FS Financial Services Limited - ( Financial Creditor ) share in MCX-SX any time after a period of one year but not later than three years from the date of IL FS Financial Services Limited - ( Financial Creditor ) investment pursuant to said SPA . 16.3. A premium or a price was also indicated that the purchase price of the IL FS Financial Services Limited - ( Financial Creditor ) share would be higher of (i) the price that would give the IL FS Financial Services Limited - ( Financial Creditor ) an internal rate of return of 15% on its investment; or (ii) the price at which the most recent transaction of MCX-SX s equity shares was carried out by the MCX Group . Further, as per the Letter of Undertaking dated 20th August, 2009 the La-Fin Financial Services Pvt. Ltd. - ( Corporate Debtor ) without the IL FS Financial Services Limited - ( Financial Creditor ) written consent forbidden to issue MCX-SX share to any person(s) at a price below ₹ 35/- per equity share. The IL FS Financial Services Limited - ( Financial Creditor ), therefore, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trued as a dilution of the terms of the SPA and the Letter of Undertaking and all the terms of the said documents would continue to be true and valid; (iii) requesting the Petitioner to approve the Scheme of Reduction at the EOGM in light of the above. 16.6. Certain legal formalities were completed. The Hon ble Bombay High Court had passed an Order dated 12th March, 2010 sanctioning the Scheme of Reduction. Thereafter, on 26th March, 2010 MCX duly purchased the warrant issued in favour of the IL FS Financial Services Limited - ( Financial Creditor ) for the share extinguished. 16.7. The controversy erupted when the IL FS Financial Services Limited - ( Financial Creditor ) received a letter dated 23rd August, 2010 from the MCX-SX stating inter-alia that Financial Technologies India Limited ( FTIL ) had informed MCX-SX that the La-Fin Financial Services Pvt. Ltd. - ( Corporate Debtor ) obligations under the Letter of Undertaking had become infructuous on account of the Scheme of Reduction being approved by the Hon'ble High Court. Further, the said letter stated that in compliance of the order of Hon'ble Bombay High Court dated 10th August, 2010 pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssumed an obligation to offer to purchase either through itself or its nominee the shares which were sold to IL FS after the expiry of a stipulated period. In both cases, the option to sell rested in the unilateral decision of PNB and IL FS, as the case may be. 75. In a buy back agreement of the nature involved in the present case, the promissor who makes an offer to buy back shares cannot compel the exercise of the option by the promisee to sell the shares at a future point in time. If the promisee declines to exercise the option, the promissor cannot compel performance. A concluded contract for the sale and purchase of shares comes into existence only when the promisee upon whom an option is conferred, exercises the option to sell the shares. Hence, an option to purchase or repurchase is regarded as being in the nature of a privilege. 80. In the present case, there is no contract for the sale and purchase of shares. A contract for the purchase or sale of the shares would come into being only at a future point of time in the eventuality of the party which is granted an option exercising the option in future. Once such an option is exercised, the contract would be compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IL FS Financial Services Limited filed a suit (Suit No.449/2013), pending before the Honble High Court and the matter being subjudice payment could not be made. 16.12. The IL FS Financial Services Limited , therefore, filed a Petition under the old provisions of the Companies Act, 1956 seeking relief that the La-Fin Financial Services Pvt. Ltd. - ( Corporate Debtor ) be wound up by the directions of the Hon'ble High Court and the La-Fin Financial Services Pvt. Ltd. - ( Corporate Debtor ) or its Promoter be directed to deposit an amount due as on 19th October, 2016 at ₹ 266,39,08,560/- inclusive of interest for clearing the amount due. During the Pendency, the said Petition was transferred to National Company Law Tribunal in terms of Notification dated 29th June, 2017. 16.13. A Legal Notice dated 3rd November, 2015 was issued by the Advocate of IL FS Financial Services Limited addressed to the La-Fin Financial Services Pvt. Ltd. - ( Corporate Debtor ). In a reply to the said Legal Notice, it was responded on 18th November, 2015 that a suit had already been filed bearing Suit No. 449/2013 in the Hon'ble Bombay High Court pending for adjudication, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that the terms of transaction involved not only the purchase of shares but it shows the date by which the amount of transaction was to be repaid by the Corporate Debtor which had fallen due on 19th August, 2012. There was an element of time value of money , particularly, when one of the conditions related to internal rate of return of 15% on the transaction, therefore, the time value of money having already shown, we hold that the amount disbursed by IL FS Financial Services Limited - ( Financial Creditor ) and the Corporate Debtor had agreed to reverse the transaction by purchasing the shares within a specified time along with the payment of 15% accrual on 20th August, 2009. We hold that the amount if disbursed by IL FS Financial Services Limited - ( Financial Creditor ) comes within the meaning of financial debt , therefore, the IL FS Financial Services Limited - ( Financial Creditor ) has been rightly claimed to be a Financial Creditor and filed Form-1 under Section 7 of the I B Code . LIMITATION: - 19. The Limitation Act, 1963 is applicable, as held by the Hon ble Supreme Court in B.K. Educational Services Pvt. Ltd. (Supra) and also in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply had informed that there was no legal obligation and the demand of purchase was untenable. 23. A Writ Petition No. 213/2011 was filed by MCX-SX against SEBI , which was disposed of by judgment dated 14th March, 2012 by the Hon ble Bombay High Court wherein La-Fin LoU dated 20th August, 2009 was held to be lawful, binding and enforceable. 24. A legal notice dated 3rd November, 2015 was issued by the Advocate for IL FS Financial Services Limited - ( Financial Creditor ) to the La-Fin Financial Services Pvt. Ltd. - ( Corporate Debtor ). In reply to the said legal notice, it was responded on 18th November, 2015 that a suit had already been filed bearing Suit No. 449/2012 before the Hon ble Bombay High Court, pending for adjudicating the issue being subjudice no fresh suit be filed. It was suggested and called upon the IL FS Financial Services Limited - ( Financial Creditor ) to withdraw the petition in writing. It is only thereafter on 21st October, 2016, IL FS Financial Services Limited - ( Financial Creditor ) filed application under Sections 433 and 434 of the Companies Act, 1956 showing the due date as on 19th October, 2016. 25. The aforesaid fact shows that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of petition under Sections 7, 8 or 9 of the I B Code , as the case may be, all information other than the information forming part of records transferred including the details of the proposed insolvency professional is to be placed by Petitioner before the Tribunal within 60 days () () . from the date of the said Notification with clear understanding that failing the same the petition stands abated. It is in the said background that the counsel has taken plea that since Form 1 with the name of the Resolution Professional has not been filed under Section 7 by 5th February, 2017, the application under Sections 433 434 of the Companies Act on transfer stood abated. However, it has been brought to our notice that the said Rule 5 issued by Notification dated 7th December, 2016 was subsequently amended by Notification dated 28th February, 2017, it followed by Companies (Transfer of Pending proceedings) Second Amendment Rules, 2017 made vide Notification dated 29th June, 2017, relevant portion of which reads as follows: 5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts.- (1) All petitions relating to winding up under clause (e) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n West U.P. Sugar () () . Mills Assn. and Ors. Vs. State of U.P. and Ors. (2002) 2 SCC 645, State of Rajasthan Vs. Mangilal Pindwal (1996) 5 SCC 60, Koteswar Vittal Kamath Vs. K. Rangappa Baliga and Co. (1969) 1 SCC 255 and A.L.V.R.S.T. Veerappa Chettiar Vs. S. Michael Ors. AIR 1963 SC 933. In West U.P. Sugar Mills Association and Ors.'s case (supra) a three-Judges Bench of this Court held that the State Government by substituting the new rule in place of the old one never intended to keep alive the old rule. Having regard to the totality of the circumstances centring around the issue the Court held that the substitution had the effect of just deleting the old rule and making the new rule operative. In Mangilal Pindwal's case (supra) this Court upheld the legislative practice of an amendment by substitution being incorporated in the text of a statute which had ceased to exist and held that the substitution would have the effect of amending the operation of law during the period in which it was in force. In Koteswar's case (supra) a three-Judges Bench of this Court emphasized the distinction between supersession of a rule and substitution of a rule and held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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