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TMI Blog2021 (9) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of default. Even if a debt is disputed, if the same is more than ₹ 1,00,000/- then the application filed under Section 7 of the Code is maintainable in Law. The actuality of debt was proven by virtue of the concerned terms which formed part of the order of the Adjudicating Authority dated 24.09.2020. When a Settlement was arrived at between the parties, it is the pre-module duty of the Corporate Debtor to effect payments proposed by virtue of the Settlement after committing default, the Appellant cannot take altogether different stand, especially when the tenor and spirit of Share Purchase Agreement was not adhered to - when the Appellant had promised to repay the advanced sum paid by the Respondent/Applicant to it, then there is not only a violation of the Share Purchase Agreement dated 21.11.2012 but also the non-payment of amounts comes squarely under definition of Section 5(8) of the I B Code pertaining to Financial Debt. In the instant case, it is quite clear that the order admitting the application under Section 7 of the Code, filed by the Respondent/Applicant has not been assailed by the Appellant. In fact, in the Impugned Order dated 30.03.2021 passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that after considering all the contentions raised in the IBA by the Corporate Debtor, this Tribunal admitted the Application and ordered Corporate Insolvency Resolution Process. 8. During arguments the learned counsel for the Corporate Debtor raised the objection which he took while arguing IA/02/KOB/2021 regarding the disqualification of the Directors. Since the issue regarding the disqualification has been settled vide the judgement of the Hon ble High Court in WPC No. 18641 of 2020 and WMP Nos. 23123, 23125, 23127 and 23129 of 2020 and that the matter was once admitted, considering all contentions raised by the Corporate Debtor, in my opinion this contention has no legs to stand at present. 9. In this case the existence of debt is reasonably evidenced in the consent terms that were also made part of the order of this Tribunal dated 24.09.2020 as well as the averments made by the Corporate Debtor themselves regarding the amount of debt outstanding to the Financial Creditor, admitting the existence of a debt. The Applicant having proved the existence of a debt as well as existence of default, as elaborately discussed in the order dated 25.08.2020 admitting the Applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or but in the Application filed under section 7 of the Code, he claims to be a Financial Creditor . 7. The other line of attack of the Appellant is that the Adjudicating Authority had committed an error in determining the application filed by the Respondent/Applicant/ Financial Debt as per section 7 of the Code, when there was neither repayment nor time value of money as consideration for the money advanced contemplated in the arrangement between the parties. 8. The Learned Counsel for the Appellant submits that the Adjudicating Authority in the impugned order had not considered any of the contentions raised in the counter filed, but relied on the order dated 24.09.2020 to arrive at the findings. In fact, the order dated 24.09.2020 ceases to exist and therefore, placing reliance on the same is not correct. 9. The Learned Counsel for the Appellant adverts to the judgment of the Tribunal in Comp App (AT) (Ins) Nos.521 and 643 of 2019 dated 09.01.2019 wherein, the issue whether an advance paid towards Share Purchase Agreement can be characterised as a financial debt or not has been answered, whereby and whereunder it was observed that by virtue of there existing a cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition occurring in Section 5(8) of the Code, we have not an iota of doubt that for a debt to become financial debt for the purpose of part II of the Code, the basic elements are that, it ought to be a disbursal against the consideration for time value of money. It may include any of the methods for raising money or incurring liability by the modes prescribed in clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in clauses (a) to (h). The requirement of existence of a debt which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of disbursement against the consideration for the time value of money could be forsaken in the mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 17. The Learned Counsel for the Appellant emphatically points out that what is significant for the purpose of Section 5(8) of the Code, is the nature of debt at the time of disbursal and as such, placing reliance by the Respondent, upon the subsequent communications between the parties whereby the Appellant had purportedly agreed to refund the money with interest is a misplaced one. 18. The Learned Counsel for the Appellant contends that the subsequent arrangements between the parties at the time of exploring a commercial settlement after the Share Purchase Agreement failed to fructify does not close the monies advanced under the Share Purchase Agreement with the characteristic of a financial debt . Therefore, an argument is projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the methods for raising money or incurring liability by the modes prescribed in clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in clauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of disbursement against the consideration for the time value of money could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any 8 (2020) 8 SCC 401 of the transactions stated in the said clauses (a) to (i) of Section 5(8) would be falling within the ambit of financial debt only if it carries the essential elements stated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and includes in these clauses, on the very same principles of interpretation as indicated above, makes it clear that for a person to become a creditor, there has to be a debt, i.e., a liability or obligation in respect of a claim which may be due from any person. A secured creditor in terms of Section 3(30) means a creditor in whose favour a security interest is created; and security interest, in terms of Section 3(31), means a right, title or interest or claim of property created in favour of or provided for a secured creditor by a transaction which secures payment for the purpose of an obligation and it includes, amongst others, a mortgage. Thus, any mortgage created in favour of a creditor leads to a security interest being created and thereby, the creditor becomes a secured creditor. However, when all the defining clauses are read together and harmoniously, it is clear that the legislature has maintained a distinction amongst the expressions financial creditor, operational creditor, secured creditor and unsecured creditor. Every secured creditor would be a creditor; and every financial creditor would also be a creditor but every secured creditor may not be a financial creditor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrowing, should be excluded from the purview of a financial debt. 30. In Prabhudas Damodar Kotecha Vs. Manhabala Jeram Damodar, this Court interpreting Section 41(1) of the Presidency Small Cause Courts Act, 1882, as amended by the Maharashtra Act XIX of 1976, observed that the golden rule is that the words of a statute must prima facie be given their ordinary meaning when the language or phraseology employed by the legislature is precise and plain'. Since Section 41(1) does not specifically exclude a gratuitous licensee or make a distinction between a licensee with material consideration or 9 (2013) 15 SCC 358 without material consideration, the expression licensee in Section 41(1) was held to also include a gratuitous licensee. 31. At the cost of repetition, it is reiterated that the trigger for initiation of the Corporate Insolvency Resolution Process by a Financial Creditor under Section 7 of the IBC is the occurrence of a default by the Corporate Debtor. Default means non-payment of debt in whole or part when the debt has become due and payable and debt means a liability or obligation in respect of a claim which is due from any person and includes financial debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied its liability, but stated that it is not an operational debt . Indeed, the Respondent issued a notice dated 20.02.2019 for proceeding as a Financial Creditor . 27. It is projected on the side of the Respondent that the Respondent / Financial Creditor filed an application IBA/13/KOB/2020 before the Adjudicating Authority (National Company Law Tribunal, Kochi Bench) and the said application was admitted on 25.08.2020 and in fact, the Adjudicating Authority had observed the following: i. That the application filed under 7(4) of the IBC Code on 20.01.2020 is not barred by Limitation. ii. That the validity of share purchase agreement due to non-registration is not under Hon ble Tribunal s jurisdiction. iii. That the scope of IBC is limited to see whether there is debt due to non-payment and if any default has occurred, hence the application is filed by Respondent for alleged breach of share purchase agreement dated 21.11.2012 and Corporate Debtor failed to honour the share purchase agreement and no payment was made. iv. That the debt arises out of the share purchase agreement dated 21.11.2012, the said amount is a debt disbursed against the considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.03.2015, email dated 28.11.2018 and reply notice dated 31.01.2019 wherein the liability was not denied. 33. The Learned Counsel for the Respondent puts forward a submission that the Appellant has accepted the Respondent as Financial Creditor and approached for a settlement and after arriving at the settlement made a part payment, to an extent of ₹ 11,00,000/- and the order dated 25.08.2020 of the Adjudicating Authority is not challenged by the Appellant . Moreover, the present debt arises out of the Share Purchase agreement dated 24.11.2012, the said amount is a debt disbursed against the consideration for advance payment as per the Agreement and that the Appellant promised to refund along with interest. Therefore, it is the fervent plea of the Respondent that the debt in question is covered under the definition of Financial Debt and that the Respondent is treated as Financial Creditor . 34. The Learned Counsel for the Respondent points out that a debt may not be due if it is not payable in law or in fact. Also, that it is the stand of the Respondent that it is of no matter that the debt is disputed so long as the debt is due i.e. payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, a person is prevented by way of his conduct or action or silence when it is his prime duty to avail the opportunity of claiming or asserting his right which he would otherwise had. Discussions: 40. At the outset this Tribunal points out that the Respondent/Applicant had entered into a Share Purchase Agreement with the Corporate Debtor on 21.11.2012 to purchase 100% shares of the Corporate Debtor for a consideration of ₹ 33,08,00,000/-. It is not in dispute that the Respondent/Applicant had paid an advance of ₹ 1,00,00,000/- to the Corporate Debtor , which was duly acknowledged by the Corporate Debtor as per various letters dated 05.09.2014, 17.03.2015, 28.11.2018. 41. It is represented on behalf of the Respondent/Applicant that the liability of the Corporate Debtor was not denied in the Reply Notice dated 31.01.2018 and that an amount of ₹ 4,25,32,016,405 along with interest at 24% per annum was due and payable. As a matter of fact, the Adjudicating Authority on 25.08.2020 had admitted the Application in IBA/13/KOB/2020 (filed under Section 7 of the Code) against the Respondent and appointed the Interim Resolution Professional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrowings of ₹ 1,00,00,000/-, the buyer agrees to buy the same. 47. Clause (e) of the Share Purchase Agreement dated 21.11.2012 enjoins that the seller has to pay a sum of ₹ 1,50,00,000/- to the contractor which the buyer agrees to pay on behalf of the seller , etc. Clause (g) of the Share Purchase Agreement envisages the Buyer agrees to pay the balance of consideration after settling the above items for the Share Capital Advance, within 90 days from the date of this Agreement directly to the shareholders. 48. Clause 3.2 of the Share Purchase Agreement proceeds to the effect that if the Residential customers (in clause b) demand for interest, then the Buyer agrees to pay such interest, but only up to a maximum of ₹ 2,40,00,000/- (Rupees Two Crores and Forty Lakhs only). The Buyer shall pay the interest only if the residential customers so demands. The Buyer shall not pay the interest exceeding the above said sum. This will be in addition to the purchase consideration. 49. The Addendum to the share purchase agreement dated 21.11.2012 entered into between the parties points out that the Respondent/Applicant had agreed to make the payment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed an application under Rule 11 of the NCLT Rules, 2016 to recall the order of the Adjudicating Authority dated 25.08.2020 and permit them to settle the matter. The Appellant along with the Application Form-FA for withdrawal of CIRP had duly filed the same in IBA/13/KOB/2020 stating that a settlement was arrived at for a sum of ₹ 2,25,00,000/- as Full and Final Settlement of the entire claim between the parties subject to the following terms: (b) Cheque dated 10.9.2020 bearing No.214323 for ₹ 10,00,000/- was given. However, returning the said cheque M/s Sree Bhadra Parks and Resorts Limited has made an electronic transfer through RTGS of ₹ 10,00,000/- to the account of M/s Sri Ramani Resorts and Hotels Pvt. Limited on 10.09.2020. (c) A cheque dated 30.11.2020 bearing No.214322 for ₹ 2,14,00,000/- drawn on South Indian Bank Limited, Kaniyakumari Main Branch is yet to be encashed and can be done only on 30.11.2020. 54. Added further, it was stated that the balance amount of settlement of ₹ 2,14,00,000/- arrived at between the parties is only for this Settlement and if the Corporate Debtor fails to pay the said sum on or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any debt to be described as financial debt is the time value of money as Borrowing is a name for money transaction . The word debt is applicable to a sum of money which has been promised at a future day as against a sum nor due and payable. In fact, a sum of money which is certainly and in all events payable is a debt , in regard to the fact whether it is payable now or at a future date. 64. Under the I B Code, 2016 the shift is from inability to pay to an existence of default . No doubt, the Adjudicating Authority is not required to decide the amount of default . Even if a debt is disputed, if the same is more than ₹ 1,00,000/- then the application filed under Section 7 of the Code is maintainable in Law. 65. It is to be pointed out that the plea of disqualification of Directors of the Respondent/Applicant was quashed by the Hon ble High Court in W.P. No.18641 of 2020 as per order dated 27.01.2020. 66. As far as the present case is concerned, the actuality of debt was proven by virtue of the concerned terms which formed part of the order of the Adjudicating Authority dated 24.09.2020. When a Settlement was arrived at between the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed to between the parties. The contention regarding the application is not maintainable as the order stipulates for filing a fresh application cannot be accepted because merely on technicalities the Corporate Debtor cannot wash away their hands from complying with the conditions stipulated in the final order passed by this Tribunal. Hence, the application IA/02/KOB/2021 is to be allowed. 69. In the instant case, it is quite clear that the order dated 25.08.2020 in IBA/13/KOB/2020 admitting the application under Section 7 of the Code, filed by the Respondent / Applicant has not been assailed by the Appellant . In fact, in the Impugned Order dated 30.03.2021 passed by the Adjudicating Authority in IBA/13/KOB/2020 whereby and whereunder the application filed by the Respondent / Applicant was admitted, the said Adjudicating Authority came to the conclusion that the Respondent / Applicant had proved the existence of a debt as well as existence of default and had discussed in detail about the same in the order dated 25.08.2020, which speaks for itself. 70. That apart, the Adjudicating Authority in the Impugned Order dated 30.03.2021 had opined that the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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