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TMI Blog2019 (5) TMI 1959X X X X Extracts X X X X X X X X Extracts X X X X ..... tancy, architectural design and furnishing services to the Operational Creditor. Clause 7 of the LOI clearly provides for an interest free security deposit (IFSD) equivalent to six months rental of which part deposit equivalent to three months rent is payable within 7 days of signing the letter of intent. The rental per month as per Clause 4 of the LOI is Rs.48 Lacs including Rs.8 lacs toward maintenance charges - the IFMS in respect of maintenance charge is separately provided for and is also payable when the maintenance agreement is executed. In these circumstances, three months rent as IFSD comes to Rs.40 lacs per month x 3 = Rs.1, 20, 00,000/-. It is accepted in Part V of form 5 (Para 1(iv)) that pursuant to the condition of the IFSD, the Operational Creditor deposited a sum of Rs.1,20,00,000/-. Therefore, the plea of the Learned Counsel for the Operational Creditor that the amount of Rs.1,20,00,000/- is not IFSD and an actually an advance cannot be accepted. Thus, the plea of the Learned Counsel for the Operational Creditor that there was an advance of Rs.1,20,00,000/- in respect of provision of goods or services by the Corporate Debtor cannot be accepted - In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editor is in the business of operating scheduled private airlines for passengers and cargo. It is stated that the Corporate Debtor and Operational Creditor executed a letter of intent on 31/07/2015 (LOI) for construction, furnishing and signing of Servicing Lease Agreement for Plot no.249-G, Phase IV, Udyog Vihar, Gurugram (Haryana)-122016 and that as per the terms of the agreement, interest free deposit (IFSD) equivalent to six months rental, of which part deposit equivalent to three month rental was payable within 7 days of signing the LOI and the remaining deposit equivalent to three months rent was to be paid upon execution of the definitive lease. It is submitted that pursuant to the said condition, the Operational Creditor deposited a sum of Rs. 1,20,00,000/- as deposit with the Corporate Debtor being equivalent to three months of rent through RTGS on 08/09/2015. It is stated that as per Clause 21 of the LOI, both the parties agreed that if the conditions precedent set forth in the LOI were not satisfied on or prior to 31/08/2015, the LOI would stand terminated and the Operational Creditor and Corporate Debtor shall have no further obligations and it was agreed that any amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be given by the Operational Creditor to the Corporate Debtor for the purpose of entering into a lease deed and the deposit of three months rent of Rs.48,00,000/- per month (minus maintenance charges of Rs.8,00,000/- per month) coming to Rs.1,20,00,000/- was to be paid at the time of execution of the LOI and that the deposit was paid simply as a security to secure the performance by the Corporate Debtor under the LOI, under a transaction of real estate. It is submitted that it is settled position of law that IFSD paid in relation to a simple real estate transaction is not an operational debt under the Code. It is further submitted that the entire purpose of giving a security deposit in a transaction is to ensure and secure the performance of the LOI and that in the event of the party giving the security deposit falling to fulfil its obligation toward the security holder, there is an inherent right to forfeit the security which accrues in favour of the security holder for the losses sustained by the security holder due to the acts of the party rendering the security. It is submitted the IFSD was validly forfeited by the Corporate Debtor and without prejudice, the same is a valid an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd notice under Section 8 has admitted in unequivocal terms that it provided services to the Operational Creditor. Reference in this regard has been made to the Memorandum of Understanding dated 15.06.2015 stated to be executed by the Corporate Debtor with Jan Sewa Trust and engagement of architect La Archplan Pvt. Ltd. It has been denied that the amount of Rs.1,20,00,000/- paid by the Operational Creditor to the Corporate Debtor was a refundable security deposit and it is further denied that the transaction between the parties was a purely real estate Transaction. It is submitted that the LOI is not a lease agreement but an agreement to provide design, consultancy, architectural and furnishing services. It is submitted that as per the LOI dated 31.07.2015, it was expressly agreed between both the parties that the LOI is not intended to and does not create any binding obligation on the parties to enter into a lease agreement and since there was no obligation on any party to enter into a lease deed, how did the Corporate Debtor forfeit the alleged security amount and that too without any notice or information to the Operational Creditor. It is stated that the Corporate Debtor has ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the LOI, interest free deposit inter alia of three months rental was payable within 7 days of signing the LOI and that pursuant to the condition, the Operational Creditor deposited a sum of Rs,1,20,00,000/- as deposit with the Corporate Debtor, being equivalent to three months of rent through RTGS on 08.09.2015. It is further stated that no Servicing Lease Agreement in terms of the LOI dated 31.07.2015 was executed between the parties on or before 21.09.2015 and therefore, the Corporate Debtor was under an obligation to refund the deposit amounting to Rs.1,20,00,000/- to the Operational Creditor in terms of Clause 21 of the LOI. 9. The present application is filed under Section 9 of the Code. Therefore, the issue of consideration is whether the deposit amounting to Rs,1,20,00,000/- is an Operational Debt as defined in Section5(21) of the Code. Section 5(21) of the Code reads as follows: Operational Debt means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority. 10. As dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit. 2. Lessor to finalise design as per lessee architect team and complete fit out in 3 months from design and BOQ finalization. 3. 30 days of rent free post lessor completing Fit-outs and offering possession to the lessees for a fully furnished facility as per the specification of the Lessee. Rent commencement from the 31st day from the date of such possession. 12. The above Clause is to be seen with reference to Clause 5 of the LOI which states that the demised premises shall be offered on a fully furnished condition with the annexed layout on basement, 1 Ground and all 3 floors above ground as per lessee specification and as per the design of lessee architect. It is in this context that Clause 15 of the LOI provides for the demised premises to be offered fully fitted out as per clients specification and as per attached Layout and the lessor was to finalize the design as per lessee architect team and complete fit out in three months from design and BOQ finalization. Therefore, Clause 15 of the LOI only places a restriction on the lessor to finalize the design as per the lessee architect team and thereby, the fully furnished demised premises are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished premises. The engagement and payment to the Architect is only for providing fully furnished premises under the LOI for the purpose of receiving rental per month of Rs.48 lacs including Rs.8 lac toward maintenance charges (refer Clause V of the LOI). The Operational Creditor has not proved that any architectural design and furnishing services, independent of the leasing of the furnished premises, were to be provided to it. 15. The Learned Counsel for the Operational Creditor has pleaded that the amount of Rs.1,20,00,000/- was not an interest free deposit but an advance for providing consultancy, architectural design and furnishing services to the Operational Creditor. Clause 7 of the LOI clearly provides for an interest free security deposit (IFSD) equivalent to six months rental of which part deposit equivalent to three months rent is payable within 7 days of signing the letter of intent. The rental per month as per Clause 4 of the LOI is Rs.48 Lacs including Rs.8 lacs toward maintenance charges. Clause 11 o the LOI provides for an Interest Free Maintenance Security Deposit (IFMS) equivalent to three months maintenance charges payable on the date of execution of main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es raised with reference to the addendum, including the addendum not being signed by the Corporate Debtor, are not been examined. 19. The Learned Counsel for the Corporate Debtor has referred to clause 21 of the LOI and has stated on termination of LOI, the amount paid by the Operational Creditor to the Corporate Debtor is to be promptly refunded by the lessor. On the other hand, the Learned Counsel for the Corporate Debtor argued that the LOI is conditionally accepted by the Operational Creditor and the reason for accepting the LOI conditionally was the unacceptance of the clause containing the provision of refund. In view of the decision taken by us above about that the amount of Rs.1,20,00,000/ is not an Operational Debt, the claims of the two parties regarding refund/forfeiture of the IFSD are not being examined. Similarly, the application for condonation of delay in filing the application under Section 9 of the Code as well as the issue of the limitation are not examined. 20. In conclusion, it is held that the amount of Rs.1,20,00,000/- is not proved to be an operational debt and therefore, the application under Section 9 of the Code is rejected and dismissed. - - Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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