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TMI Blog2019 (5) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the nature of a financial transaction against consideration of time value of money as the building raised in pursuance of such agreement would fetch fortunes for the Appellant. The project however fell through on account of market considerations. If there were any doubt in the nature of transaction, same got cleared as even according to Respondent interest was paid on the advance money. There is no impediment in holding that the debt in question fell within the purview of financial debt and the Appellant s status was that of a financial creditor and not an operational creditor as erroneously held by the Adjudicating Authority. Once we hold that the Appellant was a financial creditor qua the Respondent Corporate Debtor and the application under Section 7 being in the prescribed format and not being defective was required to be admitted on proof of default, we find that the Respondent has failed to discharge onus of proof of discharge of debt. The impugned order holding the Appellant as operational creditor and declining to initiate Insolvency Resolution Process on account of pre-existence of dispute is unsustainable - Application admitted. - Company Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued thereon for the financial year 2014-15 after deducting tax at source though the same was not remitted to Income Tax Department. According to Appellant, the Respondent issued three cheques dated 13th March, 2015, 18th March, 2015 and 30th April, 2015 each valuing ₹ 5 Lakhs, thereby repaying a sum of ₹ 15 Lakhs out of ₹ 1.5 Crores and further issued a cheque dated 30th June, 2015 for the balance loan amount of ₹ 1.35 Crores. However, the cheque bounced when presented on 22nd September, 2015 for encashment at State Bank of Travancore, Taramani Branch, Chennai with endorsement exceeds arrangement as reflected vide Memo dated 22nd September, 2015. Subsequently, Respondent issued three cheques for ₹ 25 Lakh each and one cheque for ₹ 50 Lakh favouring the Appellant, some of which were antedated and others post dated. On presentation at the State Bank of Travancore, Taramani Branch, Chennai these cheques were dishonored due to insufficient funds . According to Appellant, Respondent confirmed the details of repayment of Principal Amount together with interest in confirmation of accounts dated 6th July, 2016 covering the period ending March, 2016. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proved at the trial. The Adjudicating Authority also appears to have been influenced by pendency of cross civil suits between the parties before Hon ble High Court of Madras. This despite the fact that the Respondent had admitted the factum of interest having been paid on the amount disbursed by Appellant to it to implement the agreement. 5. We have heard the learned counsel for the parties and fathomed through the depths of material on record. 6. Section 3(11) of I B Code defines debt as a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt . The term claim defined under Section 3(6) of the same Code means a right to payment in any of its manifestations including right to remedy for breach of contract giving rise to a right to payment. Section 5(7) of I B Code defines the legal expression financial creditor as a person to whom a financial debt is owed which also includes an assignee or a transferee. Section 5(8) of I B Code defines the term financial debt as a debt along with interest, if any, which is disbursed against the consideration for the time value of mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market and the risks to which it is exposed, a Company may at times feel the heat of resource crunch and the stakeholders like Promoter, Director or a Shareholder may, in order to protect their legitimate interests be called upon to respond to the crisis and in order to save the company they may infuse funds without claiming interest. In such situation such funds may be treated as long term borrowings. Once it is so, it cannot be said that the debt has not been disbursed against the consideration for the time value of the money. The interests of such stakeholders cannot be said to be in conflict with the interests of the Company. Enhancement of assets, increase in production and the growth in profits, share value or equity enures to the benefit of such stakeholders and that is the time value of the money constituting the consideration for disbursement of such amount raised as debt with obligation on the part of Company to discharge the same. Viewed thus, it can be said without any amount of contradiction that in such cases the amount taken by the Company is in the nature of a financial debt . 7. Dwelling on the scope of provisions of Section 7 of I B Code dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debt is so disputed, such application would be rejected. 8. Adverting to the facts of the case in hand be it seen that initially parties entered into an agreement of construction on 10th November, 2014 in terms whereof the Respondent was to raise construction of a residential building as per design provided by the Appellant for a turnkey price of ₹ 4 Crore. The Appellant was required to pay an advance of ₹ 1.5 Crore within a month with stipulation that the balance payment will be made in equal instalments over the construction period, the agreed time frame for completing the construction being 18 months from the date of approval. What emerges from the stipulations in the agreement is that the construction was to be raised at the site of Appellant at Koturpuram. The factum of Appellant having paid the advance amount of ₹ 1.5 Crore to the account of Respondent on 4th December, 2014 has not been controverted by the Respondent. It emerges from the material on record that the project had been abandoned by the Appellant as the market conditions did not favour going ahead with the proposed construction. She sought repayment in regard to balance amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Bank of Travancore, Taramani Branch for lack of funds. Respondent, while responding to the notice stated that an amount of ₹ 25 Lakhs was paid towards the interest @ 15% per annum while the debt was discharged by issuing a cheque worth ₹ 25 Lakhs and further three cheques totalling to ₹ 37,50,000/- in the name of one Mr. Ashok, styled as Appellant s stooge . It further emanates from the reply of respondent to the notice of Appellant that the Appellant was advised to hold back the cheque for ₹ 1.35 Crore being no longer valid on account of discharge of debt. It is manifestly clear that the Respondent has not denied the transaction which initially related to execution of a construction project for which the Appellant had disbursed amount of ₹ 1.5 Crores as advance money but on the project becoming commercially unviable got transformed into a financial debt and was treated so. Payment of interest thereon, as admitted by the Respondent is compatible with this proposition and speaks of no exception. The money disbursed by the Appellant cannot be said to have been bestowed upon the Respondent as largesse nor as alms. It was disbursed in pursuance of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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