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TMI Blog2021 (3) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... ('the Lender') to an extent of Rs. 21.50/- Crores for the purpose of setting up a unit for manufacturing bulk drugs, formulation etc. The 'Corporate Debtor' defaulted in repaying the amounts and was classified as an NPA on 30.11.2012. Subsequently, the Lender filed an Application under Section 19 of the RDDB Act with the Debt Recovery Tribunal, Hyderabad on 23.07.2014 for recovery of an amount of Rs. 23.37/- Crores. The Lender and the 'Corporate Debtor' entered into a One-Time Settlement (OTS) on 08.09.2017 for an amount of Rs. 11.70/- Crores. In compliance with the terms of the OTS letter dated 13.11.2017, the first Respondent in Agreement with the 'Corporate Debtor' and on behalf of the 'Corporate Debtor', deposited Rs. 83,60,000/-(5% of the OTS amount) and a further amount of Rs. 1,50,96,000/- (20% of the OTS amount) in December 2017. Subsequently on 10.12.2017, the first Respondent and the 'Corporate Debtor' entered into an Agreement of Sale whereby and whereunder the 'Corporate Debtor' had agreed to sell to the first Respondent the land allotted by Telangana State Industrial Infrastructure Corporation ('TSIIC') together with the structure standing on the property and the plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned land. Thus, as per the Agreement, the Corporate Debtor had to return the amount paid on its behalf by the Petitioner, with interest as agreed upon between parties, indicating time value of money. Therefore, we are of the considered view that the Petitioner herein squarely falls within the definition of 'Financial Creditor' under Section 5(7) of the Code and the contention of the Corporate Debtor fails. 15. The other contention of the Corporate Debtor that no proper notice served on the Corporate Debtor by the Petitioner is to be considered in the light of the legal position that there is no requirement of a demand notice to be served before filing a Petition under Section 7 as is the case with an Operational Debt. Therefore, this contention cannot be taken to be a ground for rejection of the instant application. 16. In view of the discussions in the foregoing paragraphs this Adjudicating Authority is satisfied that the Petitioner herein is a Financial Creditor to the Corporate Debtor. The Corporate Debtor has not disputed the receipt of the impugned amounts including interest, but has only taken a legal argument, which has found to be not acceptable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Company and mere disbursal of a loan with the disbursement of interest would not qualify the person to be a 'Financial Creditor'. The money was not utilized by the second Respondent but was paid to the Lender in terms of the covenants in the Agreement to Sell; since utilization of money by the 'Corporate Debtor' was a sine qua non, the fact that the money was not utilized by the 'Corporate Debtor' itself implies that the disbursal does not fall within the realm of 'Financial Debt'; that there is no 'date of default' in the Application and hence it ought to have been dismissed as non-maintainable; that the second Respondent did not make any 'Profit' by way of this 'Transaction' and therefore, the 'Transaction' cannot be said to have a 'Commercial effect of borrowing' and therefore was not in the nature of a 'Financial Debt'. 7. It is further submitted that no 'Notice' was issued prior to filing of the Section 7 Application and that the first Respondent did not implead Dr. Mrs. Krishnaveni, though some of the amount was admittedly paid by her and hence the petition was bad for non-joinder of parties. Submissions of the Learned Counsel for the first Respondent: 8. Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no provision in the entire IBC, 2016 or its Rules and Regulations which mandates service of advance notice by a 'Financial Creditor' prior to instituting a Petition under Section 7 of the Code, that the Agreement to Sell envisages that the 'Financial Creditor' shall make the payment of consideration directly to the Lender towards the amount payable under the OTS and no amount shall be payable directly to the 'Corporate Debtor', there is no Iota of doubt that there was a standing instruction by the 'Corporate Debtor Company' to deposit the amount directly to the bank on its behalf; that Clause 16 shall be applicable in a case where a Clause/covenant in the Agreement is unworkable and in the present case the entire Agreement is a nullity if the 'Corporate Debtor Company' failed to either get NOC or sell the land. Learned Counsel placed reliance on Section 32 of the Indian Contract Act, 1872, in support of his contention that the Contingent Contract mandatorily requires NOC from TSIIC and since the first limb of the Contract dated 10.12.2017 is impossible to perform as the allotment was cancelled, the same is void ab initio; that Section 35 of the Indian Contract Act, 1872, is squa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebtor' for an amount of Rs. 11,73,22,501/-, the terms of which stipulate that 20% of the OTS would have to be deposited within 12.12.2017 and the balance amount within 6 months' from 13.11.2017. * The 'Corporate Debtor' and the Respondent entered into an Agreement of Sale on 10.12.2017 whereunder, the 'Corporate Debtor' agreed to sell to the first Respondent the land allotted by TSIIC together with the structure and plant and machinery in consideration of the first Respondent paying the OTS amount. * The first Respondent paid an amount of Rs. 2,34,65,000/- on behalf of the 'Corporate Debtor' to the Lender. * As per the terms of the Agreement to Sell the 'Corporate Debtor' ought to obtain all necessary permissions including NOC from TSIIC and in the event, the 'Corporate Debtor' had failed to do so, under Clause 11 of the Agreement, the 'Corporate Debtor' had to indemnify the 'Financial Creditor'. * TSIIC cancelled the allotment vide letter dated 09.02.2018 and the OTS offer letter expired on May 2018. * A Notice was issued by the first Respondent to the 'Financial Creditor' in October, 2018 seeking repayment of the amount of Rs. 2.35/- Crores paid by the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke the payment of the consideration directly to the Lenders towards the amount payable under the OTS by the Vendor, and no amount shall be payable directly to the Vendors. The consideration for the Purchase of the Scheduled Property, structures together with the plant and machinery standing theron shall move to Lender, from the Purchaser, at the instance of the Vendor"..... V. Indemnity "12. In case of failure on the part of the Vendor to execute and register and sale deed in favor of the Purchaser in spite of the Purchaser intimating the Vendor, the Purchaser shall be entitled to seek all such remedies, including moving the court of law for specific performance of this Agreement against the Vendor. The Purchaser shall also be entitled for refund of amount along with 24% of interest p.a. from the date of payment along with the amounts specified in Clause 10 above". (Emphasis Supplied) 16. It is evident that though money has been paid under an Agreement to Sell, it is seen that the same was paid by the first Respondent to the Lender Bank only on behalf of the 'Corporate Debtor' and furthermore in the event of the failure on the part of the 'Corporate Debtor' to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision. 3. having profit as the main aim: commercial music. 4. (of chemicals, etc.) unrefined and produce in bulk for use in industry. 5. a commercially sponsored advertisement on radio or television. 77. A perusal of these definitions would show that even though the Petitioners may be right in stating that a "borrowing" is a loan of money for temporary use, they are not necessarily right in stating that the transaction must culminate in money being given back to the lender. The expression "borrow" is wide enough to include an advance given by the home buyers to a real estate developer for "temporary use" i.e. for use in the construction project so long as it is intended by the Agreement to give "something equivalent" to money back to the home buyers. The "something equivalent" in these matters is obviously the flat/apartment. Also of importance is the expression "commercial effect". "Commercial" would generally involve transactions having profit as their main aim. Piecing the threads together, therefore, so long as an amount is "raised" under a real estate agreement, which is done with profit as the main aim, such amount would be subsumed within Section 5(8)(f) as the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate Debtor' and the Lender Bank and it is only in lieu of the consideration paid by the first Respondent to the Lender Bank on behalf of the 'Corporate Debtor', that the Agreement of Sale for the subject property was executed. Therefore, the contention of the Learned Counsel appearing for the Appellant that the money was not utilized by the 'Corporate Debtor', but paid to the Lender and as the utilization of money by the 'Corporate Debtor' is a sine qua non and therefore, the 'debt' does not fall within the definition of 'Transaction' as defined under Section 3(33) or under 'Financial Debt' as defined under Section 5(8)(f), is untenable. A combined reading of Sections 5(8), 3(33), 3(11) and 3(6) together with the admitted fact that the amount was paid by the first Respondent on behalf of the 'Corporate Debtor' to the Lender Bank pursuant to the time bound OTS Settlement and further Clause 12 of the Agreement to Sell stipulates that the 'Corporate Debtor' shall refund the amount with 24% interest per annum in case of failure on their behalf to execute and register the sale deed, establishes that the 'debt' in the instant case satisfies the threefold criteria:- a) 'disbur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of repaying the debts and to attend on its other obligations. Protection of the rights of all other stakeholder, including other creditors, would obviously be concomitant of such resurgence of the corporate debtor. 50.1. Keeping the objectives of the Code in view, the position and role of a person having only security interest over the assets of the corporate debtor could easily be contrasted with the role of a financial creditor because the former shall have only the interest of realizing the value of its security (there being no other stakes involved and least any stake in the corporate debtor's growth or equitable liquidation) while the latter would, apart from looking at safeguards of its own interests, would also and simultaneously be interested in rejuvenation, revival and growth of the corporate debtor. Thus understood, it is clear that if the former i.e. a person having only security interest over the assets of the corporate debtor is also included as a financial creditor and thereby allowed to have its say in the processes contemplated by Part II of the Code, the growth and revival of the corporate debtor may be the casualty. Such result would defeat the very objectiv ..... 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