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TMI Blog2021 (11) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... filed Axis Bank Statement of Sunteck Realty Ltd. as Exhibit-I of the petition, showing a payment of ₹ 25 crore to the Respondent. If at all, somebody can file Insolvency petition against the Respondent under section 7 or under section 9 of IBC-2016, it is Sunteck Realty Limited, of course subject to satisfying the criteria of being a financial or an operational creditor. As there is no financial debt owed by the respondent to the petitioner being a Joint Developer, the Joint Developer becomes a Joint Venture Partner in the project, the question of default does not arise. The date of default as mentioned in the Part-IV of the Form 1 of Petition is 31.07.2020 whereas, as per NeSL record of default the date of default is shown as 04.01.2020 as submitted by the petitioner himself. The respondent issued two cheques in favour of the petitioner amounting to ₹ 25,00,00,000/- and ₹ 1,74,57,534/- totalling to ₹ 26,74,57,534/-. These cheques were dishonoured. For dishonouring of the cheques, there is a specific remedy available to the petitioner under section 138 of the Negotiable Instrument Act 1881. The petitioner chose not to proceed against the respondent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out in the Recitals of the MOU and Clauses D, E F a/w Clause 3 to 5 thereof, which read as under: D. In this regard, the Developers and the Joint Developer after deliberations and discussions have mutually decided to develop/re-develop the said Property and execute the Project based on Joint Developer's (i) several years of experience and expertise in developing real estate projects of large magnitude, (ii) financial and technical resources, expertise and experience. E. The Joint Developer has agreed that the Joint Developer shall cause to arrange third party capital ( Third Party Capital ) to discharge existing liabilities of the Developer to an extent of ₹ 609,76,82,720/- (Rupees six hundred nine crore seventy-six lakh eighty-two thousand seven hundred twenty only) ( Existing Liabilities ) and further amounts as required to meet the Project Cost. F. Pending the finalization of the Definitive Documents (as defined below), the Parties agreed that the Joint Developer shall pay an amount of ₹ 25,00,00,000/- (Rupees twenty-five crore only) as and by way of refundable security deposit ( the Refundable Security Deposit ) to the Developers in the manner a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective of the loan was arranged or the transaction did not go through, the sum of ₹ 25 crore advanced was to be refunded by the Respondent together with interest at the rate stipulated in the MOU. The time period for making repayment was also clearly specified. (v) On May 9, 2019, the sum of ₹ 25 crore was paid by the Petitioner through its parent company, Sunteck Realty Ltd. to the Respondent and was duly received by the Respondent. The proof of payment is borne out from the Axis Bank statement placed on record by the Petitioner [Pg. 43/Petition]. Thus, the starting point for the repayment i.e. the 60/90 days' period referred to in Clauses 4 and 5 of the MOU commenced with effect from May 9, 2019. (vi) As the parties were unable to conclude the definitive documents, the transaction came to a close and the same came to be mutually terminated and the Respondent became obligated to refund to the Petitioner the aforesaid sum of ₹ 25 crore together with interest thereon as provided in the MOU with effect from August 7, 2019 i.e. within 90 days from the payment made to the Respondent coterminous with execution of the MOU as pleaded in the Petition [Pg. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circle, Sion, Mumbai - 400 022 ( the said Property ) as per the applicable provisions of law ( the Project ). 2.2 In or around January 2019, the Petitioner approached the Respondent for joint development of the said Property. The Petitioner informed the Respondent that it has necessary financial resources, technical know-how capability to undertake the joint development of the said Property. 2.3 One of the terms for the appointment of the Petitioner as the joint developer by the Respondent for development of the said Property, was that the Petitioner shall cause to arrange third party capital ( Third Party Capital ), inter alia, to discharge existing liabilities of the Respondent to an extent of ₹ 609,76,82,720/- (Rupees six hundred nine crore seventy six lakh eighty two thousand seven hundred twenty only) ( Existing Liabilities ) and further amounts as required to meet the project cost. 2.4 The Respondent in-principally agreed to appoint the Petitioner as the joint developer of the said Property, subject to (i) finalization of the transaction documents, and (ii) the Petitioner arranging third party capital of an amount of ₹ 400,00,00,000/- (Rupees four h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as interest ( said cheques ) to be retained as security till the Respondent arranges for the funds by undertaking a transaction with a third party. 2.10 The cheques were handed over with a clear understanding, that the Petitioner would deposit the said Cheques only after the Corporate Debtor would obtain payment from third party. However, the Petitioner maliciously deposited the said Cheques in or around 3rd January 2020, in complete contravention of the understanding between the Petitioner and the Respondent. 2.11 To the shock and surprise of the Respondent, the Respondent received the captioned Petition filed by the Petitioner. 2.12 At the cost of repetition, the Respondent submits that it is pertinent to note that none of the aforesaid facts set out by the Respondent has been controverted by the Petitioner by filing any affidavit. Hence, the same are deemed to be admitted. 2.13 In the aforesaid factual background, it is submitted that the Petitioner has failed to make out a case for admission of the captioned Petition under section 7 of the Insolvency and Bankruptcy Code, 2016 ( said Code ) and the captioned Petition deserves to be dismissed, inter alia, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not covered under any other article- 3.3 On the aspect of a claim made basis an unstamped document the following judgements are relevant- (i) The NCLT, Ahmedabad Bench had in its judgement dated 8th March 2019 ( Essar Judgment ) observed as follows: 8. We carefully examined that issue and perused the material available on record including the documents in question, which shows that the applicants' claims have not been admitted by the RP due to non-payment of requisite stamp duty and for non-completing the statutory formalities for not without furnishing the proof of making payment of requisite stamp duty as per the Indian Stamp Act. Hence, such agreement cannot be looked into as evidence, nor it can be treated as valid claim. Therefore, in our view the RP cannot be found fault with due to non-admission of such claims of the applicants for want of proper stamp duty. Further, this being a disputed issue whether such agreements in question (i.e. intercorporate deposit letters) has been properly stamped or otherwise at the time of producing it before the RP for consideration or not can only be looked into by the RP or by competent authority for registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garh Bench has in the matter of Edelweiss Asset Reconstruction Company Versus Winsome Yarns Limited [CP (IB) No. 291/CHD/2018] held as follows: .... the Hon'ble Supreme Court of India while holding that an insufficiently stamped instrument cannot be relied upon for any purpose, however, observed that the concerned court has to follow the procedure provided under the Indian Stamp Act, 1899 for impounding the instrument before permitting a party to enforce the said insufficiently stamped instrument. 29. However, this Adjudicating Authority under the summary procedure provided under the Code cannot adopt such a procedure applicable to regular courts of law. Once the respondent-corporate debtor by placing reliance on the orders of the relevant Revenue Authorities able to show that the Annexure P-1 Assignment Agreement dated 10.12.2015 is unenforceable and when the petitioner not disputed the existence of said orders and not able to produce any stay order thereof, this Adjudicating Authority has no other option except to reject the CP. (iv) Further, NCLT Kolkata Bench has in the matter of Srikanta Sarda Vs. Tansway Marketing Private Limited [CP (IB) 400/KB/2017] held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a proceeding under Section 11 of the Arbitration and Conciliation Act, 1996. However, on the issue of any other agreement (not being an arbitration agreement), the law is clear, as set out in Garware and Dharmaratnakar, that an unstamped document cannot be 'acted upon'. 3.4 At the time of final hearing of the captioned matter, it was brought to the notice of the learned Counsel of the Respondent the view taken by this Tribunal in the judgement and order passed by this Tribunal in the matter of Mangalam Vanijya Private Limited Versus Reward Business Solutions CP.1168/IBC/MB/MAH/2020 ( Mangalam ), which deals with the aspect of proceeding in an application under section 7 of the Code, with respect to a claim where reliance is placed on an insufficiently stamped document. (i) At the outset, it is submitted that the Mangalam judgement may not be applicable to the present facts and the captioned matter... (ii) The Mangalam judgement is clearly distinguishable from the present matter on several facts and grounds, which are inter-alia as follows: (a) Firstly, the question which was decided in the Mangalam judgment by the Tribunal was with respect to inadequac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in paragraph 4.7 hereinabove. (e) Fifthly, in the Mangalam judgment the Petitioner therein had relied upon several other documents which were executed by the Corporate Debtor therein 'which demonstrated the confirmation of the debt and creation of additional security in favour of the financial creditor'. However, the Petitioner herein has not executed any document (save and except the said MOU, which as aforesaid cannot be relied upon) which demonstrate the purported debt as a financial debt. (f) Further, in the Mangalam judgment the Tribunal has opined that the loan agreement therein was executed by the Corporate Debtor, who was (a) therein required to pay the adequate stamp duty, being the beneficiary of the said amount of ₹ 45 crore lent to the Corporate Duty under the Loan Agreement and (b) was under a legal obligation to pay the adequate stamp duty to the extent of ₹ 9,50,000/-. Thereby implying that the Corporate Debtor cannot take benefit of its own wrong. However, it appears that paragraph 38 of the judgment passed by the Supreme Court in the matter of Garware Wall Ropes Limited Vs. Coastal Marines Constructions and Engineering Limited [ (201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal, there is no financial debt owed to the Petitioner by the Respondent and the captioned Petition is not maintainable and ought to be dismissed. In the absence of a debt there can be no default and therefore the captioned Petition ought to be dismissed. 3.7 The Security Deposit and the said Compensation is not a 'Debt' as defined in the said Code 3.7.1 The said Code defines debt as follows: 'debt' means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt . 3.7.2 As has been stated hereinabove no amounts are presently due and payable to the Petitioner by the Respondent. Therefore, the said Security Deposit and the said Compensation do not amount to a 'debt'. 3.7.3 Further, the Insolvency and Bankruptcy Board of India (Insolvency Regulation Process for Corporate Persons) Regulations, 2016 ( CIRP Regulations ) classify three kinds of creditors viz. Financial Creditors, Operational Creditors and Other Creditors. The Petitioners are, albeit wrongly, claiming as Financial Creditors. Further, it is pertinent to note that the Corporate Insolvency Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Joint Developer shall pay an Amount of ₹ 25,00,00,000/- (Rupees twenty-five crore only) as and by way of a refundable security deposit ( the Refundable Security Deposit ) to the Developers in the manner and on the terms and conditions as set out herein 6. This MOU shall be kept confidential till the execution of definitive documents. It is submitted that the aforesaid terms of the said MOU make it amply clear that the nature of the said MOU was such that a financial debt was never contemplated, and the said Security Deposit was made by the Petitioner for securing its obligation and not to create a financial debt. Further, the fact that the said MOU was to be kept confidential further corroborates the Respondents submission that the said MOU was undated as the Petitioner did not want to trigger the timelines in the said MOU. Further, the fact that Annexure 'A' referred to in the said MOU has not been annexed thereto. (v) The aforesaid proposition is corroborated by the decision of the NCLAT in the matter of Sanjay Kewalramani Versus Sunil Kewalramani, where the NCLAT has held as follows: 12. There is nothing on the record to suggest that 2nd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepting a cheque towards the said Compensation of ₹ 1,93,97,260/- (Rupees one crore ninety-three lakh ninety-seven thousand two hundred and sixty only) as compensation and thereafter acting upon it by depositing it (albeit in malafide manner and contrary to the express understanding between the Petitioner and the Respondent), the Petitioner has acted in contravention of the said MOU and has abandoned the said MOU and therefore cannot be permitted to rely on the said MOU. Without prejudice to the above, having regard to the fact that the Petitioner and the Respondent had cancelled the transaction, the claim of the Petitioner, if any, would be in the nature of contractual restitution under Section 65 of the Indian Contract Act, 1872 which is not a Financial Debt. 3.8.2 No Commercial effect of borrowing i. The word 'commercial' has been defined in the Collins English dictionary as follows: commercial - adj. 1. of or engaged in commerce. 2. sponsored or paid for by an advertiser: commercial television. 3. having profit as the main aim: commercial music. 4. (of chemicals, etc.) unrefined and produced in bulk for use in industry. 5. a commercially sponsore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the said Compensation viz., an amount of ₹ 1,93,97,260/- (Rupees one crore ninety-three lakh ninety-seven thousand two hundred and sixty only) duly accepted by the Petitioner is an amount much less than the purported interest of ₹ 2,04,34,093/- (Rupees two crore four lakh thirty-four thousand and ninety-three only). It is submitted that the Respondent is not disputing the quantum of interest but is denying its liability to pay any interest. ii. It is submitted that the acceptance and subsequent deposit (albeit malafide and contrary to the express understanding between the Petitioner and Respondent) of the said Cheques by the Petitioner clearly establishes the fact that even as per the Petitioner's own conduct it was/is not entitled to any interest, as alleged or at all. Without prejudice to the above, it is submitted that the purported claim to interest, if any, stands abandoned by the Petitioner and cannot now be made by the Petitioner. iii. It is submitted that the parties to the said MOU have mutually acted contrary to the terms thereof and have abandoned the said MOU and therefore the said MOU cannot be the basis of initiating Corporate Insolvency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.9.4 In any event, aspect of payment of interest was never acted upon. This is primarily because one of the cheques given as security was for an amount of ₹ 1,93,97,260/- (Rupees one crore ninety-three lakh ninety-seven thousand two hundred and sixty only) (including Tax Deducted at Source) which is not the amount in terms of the calculation as provided under the said MOU i.e. 14% interest per annum compounded annually from 9th May, 2019 to 30th November which would amount to ₹ 2,04,34,093/- (Rupees two crore four lakh thirty four thousand and ninety three only) (as set out at Exhibit 'F' of the said Petition). It is for this reason clear and apparent that the cheque issued by the Respondent was a onetime compensation, which was to be retained by the Petitioner as security. There was no element of profit in the context of compensation. It is for this reason that the Petitioner despite the said Cheques being dishonoured never served the Respondent with a demand notice or initiated proceedings under Section 138 of the Negotiable Instrument Act, 1881. 3.10 Petition is defective and ought to be dismissed 3.10.1 The Petition is defective as the Petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... went through or failed, because in either of the circumstances the sum of ₹ 25 crore advanced by the Petitioner to the Respondent was to be repaid by the Respondent with interest thereon. 2. In paragraph 5(g) of the Affidavit in Reply [Pg. 3/Affidavit in Reply], the Respondent has expressly accepted and admitted that the Respondent was liable to refund the said amount to the Petitioner. It is, however contended that there was some alleged agreement by which the Respondent was to refund the said amount only after it entered into a transaction with a third party. However, the admitted position is that the debt owing to the Petitioner by the Respondent is due and payable. 3. The Respondent furnished cheques towards repayment to the Petitioner, which they would never have done, had the debt not been due and payable to the Petitioner. It is nobody's case that the said cheques were undated, and therefore, it was obvious to the Respondent at the time of issuing the cheques that the same would have to be deposited within 3 months from the dates thereof or else the cheques themselves would lapse. Thus, at the time of issuing the cheques, the Respondent was well aware tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s defined to include something, the definition is prima facie extensive. C. Event of default: 7. In this case, the default first occurred upon the failure of the Respondent to refund the sum of ₹ 25 crore within 90 days of its payment i.e. by August 7, 2019. Thereafter the default occurred on the dishonour of the cheques on January 4, 2020, when the cheques were returned for the reason of Funds Insufficient . It is clear that the failure of the Respondent to pay the Petitioner the sum of ₹ 25 crore together with interest thereon is a default of the terms of the MOU. 8. The Hon'ble Supreme Court in Innovative Industries Limited v. ICICI Bank Anr. [ (2018) 1 SCC 407] (paragraphs 28 and 30) has made it clear that in the case of a Corporate Debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the Financial Creditor to satisfy itself that a default has occurred. As held by the Hon'ble Supreme Court, it is of no matter that the debt is disputed, so long as the debt is 'due' i.e. payable unless interdicted by law or not yet become du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 25 crore would be repaid by the Respondent after a period of 60 days from its payment, within which period the definitive documents was to be executed or the transaction would be terminated. Thereafter, on the expiry of 60/90 days from the payment, whether or not the transaction had culminated in the execution of definitive documents, the said sum was to be refunded together with interest thereon as per the timelines and on the terms and conditions as set out in Clauses 4 and 5 of the MOU. (iii) Even assuming arguendo that the date of May 9, 2019 ought not to be taken as the starting point, (which is not accepted as correct by the Petitioner), as per the Respondent's own case in paragraph 5(g) of the Affidavit in Reply, the transaction between the parties had been mutually terminated by October 2019. Assuming for argument's sake that, this is the date upon which the transaction came to an end, clause 4 contemplates that within 30 days of the transaction being terminated (i.e. 90 days - 60 days), the sum of ₹ 25 crore plus interest was to be refunded. Thus, at very minimum, after the termination, which the Respondent claims took place in October 2019, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatsoever which remotely indicates any such alleged oral agreement. Indeed, it would be entirely untenable to even imagine that notwithstanding the clearly defined timelines in the MOU, the Petitioner would agree to some indefinite, uncertain and future date for repayment as and when the Respondent manages to get funding, which may or may not ever occur. (iii) This stand has never been agitated or even remotely referred to until filing of the Reply on August 3, 2021 almost two years after the date of the default. (iv) This contention is also contrary to the conduct of the Respondent in issuing the cheques towards repayment of the dues. If no payment was due, there would have been no occasion to issue the cheques which as aforesaid were dated therefore valid only 3 months from the date of the cheques and would have had to be deposited. D. Interest was not payable as claimed by the Petitioner, but the Respondent had agreed that over and above ₹ 25 crore a lump sum compensation of ₹ 1,93,97,260/- would be paid to the Petitioner as full and final settlement: 13. First and foremost, this contention only pertains to the interest component and proceeds on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Maharashtra Stamp Act, 1958. The Respondent has also placed reliance on the judgment of the Ahmedabad Bench of NCLT in Resolution Professional for Essar Steel India Ltd. In the matter of: Standard Chartered Bank and Anr. v. Essar Steel India Limited and the judgment of the Hon'ble Supreme Court in Dharmaratnakar Rai Bahadur Arcot Narainswamy Mudaliar Chattram v. Bhaskar Raju Bros., [ (2020) 4 SCC 612]. The contentions raised by the Petitioner are unsustainable for the following reasons: (i) Even if a document is unstamped that will not prevent a Court from acting on the basis of the document for the purpose of admitting a Petition under Section 7 of the IBC, even assuming that the document ought to be impounded. (ii) Reliance has been placed by the Petitioner on the Hon'ble Bombay High Court decision in Morpheus Media Ventures Private Limited v. Anthony Maharaj [ (2017) 2 Bom CR 459] (paragraphs 24 and 27), Rupinder Singh Arora v. Kapil Puri [(2017) 2 Bom CR 459] (paragraphs 10 and 11) and Kapil Puri v. Rupinder Singh [ 2019 (3) Mh.L.J 155] (paragraph 12). Where objections on stamp duty were considered and the Hon'ble High Court proceeded to hold tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner Firm Magnate Industries LLP, a Limited Liability Partnership a different entity, entitles the Petitioner to file a Petition as Financial Creditor? iii) Does the Refundable Security Deposit given by a Joint Developer constitute a Financial Debt? iv) As to when the default has occurred? v) Can the dishonour of cheques issued by the Respondent in favour of the Petitioner constitute the existence of Financial Debt and Default due from Respondent to Petitioner? 8. Accordingly, the following is hereby ordered:- a) From the findings, on the basis of facts of the case and position of Law, it is constituted beyond doubt that the Petitioner entered as Joint Developer into an undated, unstamped and unregistered MoU with the Respondent, inter alia having a provision of payment of ₹ 25,00,00,000/- (Rupees twenty-five crore only) as refundable security deposit to be paid by the Petitioner to the Respondent. The Petitioner was to arrange third party capital of ₹ 400 crore required for the re-development project of the Respondent. This refundable Security Deposit of ₹ 25 crore was to be repaid, irrespective of the fact that Petitioner arranged the thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, if stamped, would be admissible in evidence against him, then such receipt shall be admitted in evidence against him, then such receipt shall be admitted in evidence against him on payment of a penalty of one rupee by the person tendering it; (c) where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of the letters bears the proper stamp, the contract or agreement shall be deemed to be duly stamped; (d) nothing herein contained shall prevent the admission of any instrument in evidence in any proceeding in a Criminal Court, other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898); (e) nothing herein contained shall prevent the admission of any instrument in any Court when such instrument has been executed by or on behalf of the Government or where it bears the certificate of the Collector as provided by section 32 or any other provision of this Act. In the present case, the MOU is itself undated, unstamped and unregistered. As this document is undated, unstamped and unregistered it cannot be relied upon by this Tribunal as a valid document to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other than any receivables sold on nonrecourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; d) As there is no financial debt owed by the respondent to the petitioner being a Joint Developer, the Joint Developer becomes a Joint Venture Partner in the project, the question of default does not arise. The date of default as mentioned in the Part-IV of the Form 1 of Petition is 31.07.2020 whereas, as per NeSL record of default the date of default is shown as 04.01.2020 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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