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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 ..... on 7 Application and the same has not been denied by the Appellant herein - 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 adhere to the terms of the Agreement, the said consideration amount was to be repaid by the Corporate Debtor alongwith interest in the event the transaction did not materialize. It is seen from the record that a Right to Payment accrued to the first Respondent in terms of Clause 11 of the Agreement. The consideration for the purchase of the Scheduled Property structure together with the plant and machinery standing thereon shall move to the Lender from the first Respondent, at the instance of the Corporate Debtor . Hence, it is seen from the clauses that the Agreement to Sell emanates from the One Time Settlement entered into between the Corporate 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 subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Corporate Debtor , deposited ₹ 83,60,000/-(5% of the OTS amount) and a further amount of ₹ 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 plant and machinery, for the same consideration that was agreed between the parties to be the OTS amount payable to the Lender. 3. As per the key terms of the Agreement of Sale, it is stated that the Corporate Debtor shall obtain all the necessary permissions, including obtaining an NOC from TSIIC, the statutory authority, which had allotted the said land to the Corporate Debtor . It is stated that in the event of not obtaining the NOC, (as per Clause 6-A of the Agreement) the Corporate Debtor had to indemnify the first Respondent under Clause 11 of the Agreement by refunding the amount paid together with interest @ 24% per annum. It was averred that as the Corporate Debtor had failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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 this Adjudicating Authority. On the other hand, the Petitioner has established the existence of a Financial Debt which the Corporate Debtor was liable to pay, but failed to do so. Considering these facts and circumstances, this Adjudicating Authority is inclined to admit the instant Petition. (Emphasis Supplied) Submissions of the Learned Counsel for the Appellant: 5. Learned Counsel appearing for the Appellant vehemently contended that the first Respondent does not fall within the meaning and definition of a Financial Creditor ; that the first Respondent did not disburse the money against consideration of time value for money , that the word disbursed assumes special importance which the Learned Adjudicating Authority had failed to apprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Learned Counsel for the first Respondent strenuously argued that a Financial Debt is a debt , against consideration for time value of money , and debt includes a claim which is a Right to Payment or a Right to Remedy for breach of contract; that in the present case though money has been paid under an Agreement of Sale, the same was paid by the first Respondent to the Lender Bank on behalf of the Corporate Debtor which was to be repaid by the Corporate Debtor alongwith interest in the event the transaction did not materialize and hence it is in the nature of a debt which is disbursed for the time value of money ; that a Right to Payment accrued to the Financial Creditor in terms of Clause 11 of the Agreement, as the Corporate Debtor could not procure the NOC from TSIIC, a requisite, for transfer of the said land by the Corporate D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pport 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 squarely applicable as the Corporate Debtor had failed in performing its reciprocate promises and cannot now seek shelter stating that the debt which has the commercial effect of borrowing is not a Financial Debt . Assessment: 11. The main point for consideration in this Appeal is:- Whether the amounts paid by the first Respondent on behalf of the Corporate Debtor to the Lender Bank for compliance of the terms of the OTS would fall within the definition of Financial Debt under the Code. Whether the first Respondent being a Purchaser under an Agreement to Sell, executed pursuant to an OTS can claim to be a Financial Creditor as defined under Section 5(7) of the Code. 12. At this juncture, we find it pertinent to reproduce the relevant definitions as defined in the Code; Section 5(8) financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Financial Creditor in October, 2018 seeking repayment of the amount of ₹ 2.35/- Crores paid by the first Respondent to the Lender on behalf of the Corporate Debtor alongwith interest @ 24% per annum. 14. At the outset, we do not find any illegality or infirmity in the observation made by the Learned Adjudicating Authority that issuance of Notice prior to Section 7 Application is not mandatory as per the provisions of the Code as noted by the Hon ble Supreme Court in Innoventive Industries Ltd. Vs. ICICI Bank and Anr. (2018) 1 SCC 407. Further, the first Respondent has got issued a legal Notice in October, 2018 prior to filing of the Section 7 Application and the same has not been denied by the Appellant herein. With regard to the second objection raised by the Appellant that Dr. Mrs. Krishnaveni has not been made a party and therefore, the Petition ought to have been dismissed for non-joinder of parties cannot be sustained as it can be seen from the Agreement of Sale that it is executed only between the Appellant and the first Respondent and there is no privity of contract with the said Dr. Mrs. Krishnaveni and therefore, we hold that she is not a necessary party to adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re on the part of the Corporate Debtor to adhere to the terms of the Agreement, the said consideration amount was to be repaid by the Corporate Debtor alongwith interest in the event the transaction did not materialize. It is seen from the record that a Right to Payment accrued to the first Respondent in terms of Clause 11 of the Agreement. 17. The Hon ble Supreme Court in Pioneer Urban Land and Infrastructure Ltd. Anr. (Supra) while dealing with the scope of Section 5(8)(f) of the Code held as follows; 75. And now to the precise language of Section 5(8)(f). First and foremost, the Sub-clause does appear to be a Residuary Provision which is catch all in nature. This is clear from the words any amount and any other transactions not covered by any of the other clauses, would amount to a financial debt if they had the commercial effect of a borrowing . The expression transaction is defined by Section 3(33) of the Code as follows: (33) transaction includes an agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor; As correctly argued by the Learned Additional Solicitor General, the expression any other transaction wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me buyer would have the commercial effect of a borrowing, in that, money is paid in advance for temporary use so that a flat/apartment is given back to the lender. Both parties have commercial interests in the same the real estate developer seeking to make a profit on the sale of the apartment, and the flat/apartment purchaser profiting by the sale of the apartment. Thus construed, there can be no difficulty in stating that the amounts raised from allottees under real estate projects would in fact, be subsumed within Section 5(8)(f) even without adverting to the explanation introduced by the Amendment Act. 18. The Hon ble Supreme Court in the aforenoted Judgement has clearly held that sub-Clause (f) of Section 5(8) is a Residuary Provision which is catch all in nature . It is observed that amounts that are raised in transactions would amount to a Financial Debt if they had a commercial effect of borrowing . Apex Court further went on to elaborate in Para 86 of the Judgement that; noscitur a sociis being a mere rule of construction cannot be applied in the context of Section 5(8) of the Code as it is clear that wider words have been deliberately used in a Residuary Provision, to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Apex Court with respect to Financial Debt in Pioneer Urban Land and Infrastructure Ltd. Anr. (Supra) is squarely applicable to the facts of this case. 20. As regarding the argument of the Learned Appellant Counsel that there was no Profit involved, it is only because of the One-Time Settlement entered into between the Lender Bank and the Corporate Debtor , that the Corporate Debtor had benefitted in terms of waiver of interest, payment of a lesser amount of ₹ 11.70/- Crores as against the ledger outstanding amount of ₹ 16.72/- Crores and therefore it has to be safely construed that the Corporate Debtor has benefitted/profited from the said transaction. 21. Now, we address ourselves to the contention of the Learned Counsel for the Appellant that there is no involvement or direct engagement of the first Respondent in the affairs of the Company of the Corporate Debtor and therefore cannot be termed as a Financial Creditor . The Learned Counsel placed reliance on the Principle laid down by the Hon ble Supreme Court in Anuj Jain, IRP for Jaypee Infratech Ltd. (Supra) and drew our attention to the following Paras:- 50 . A conjoint reading of the statutory provisions with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supra) the Corporate Debtor Jai Prakash Infrastructure Ltd. (JIL) mortgaged some of its assets in favor of the Lender Banks/Financial Institutions for loans advanced to the Parent Company Jai Prakash Associates Infrastructure Ltd. (JAL) thereby constituting third party security. The borrower and the security provider bore a parent and Subsidiary relationship. In this third party security, the Creditor has not disbursed any funds to the person creating the security, but instead has disbursed the funds to the Parent entity of the Corporate Debtor . One of the issues in that case was whether the Respondents (Lenders of JAL ) could be recognized as Financial Creditors of the Corporate Debtor JIL on the strength of the mortgage created by the Corporate Debtor , as collateral security of the debt of its holding Company JAL . The Hon ble Supreme Court held that such Lenders of JAL , on the strength of the mortgages in question, may fall in the category of the Secured Creditors, but such mortgages being neither towards any facilities or advance to the Corporate Debtor nor towards protecting any facility or the security of the Corporate Debtor , it cannot be stated that the Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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