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TMI Blog2022 (9) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... e submits that the moratorium qua the defendant No. 1 company is still in operation. He further submits that the plaintiff has already submitted its claims before the RP. 3. Learned counsel appearing for the RP has handed over copy of judgment passed by Hon'ble Supreme Court dated 01.02.2021 in Civil Appeal No.2842/2020 and Civil Appeal No. 3063/2020 to contend that the present suit is not maintainable in view of the aforesaid judgment. 4. Aforesaid judgment passed by Hon'ble Supreme Court discloses the facts that are material in the present case also. 5. National Company Law Tribunal (NCLT) had held that the plaintiff herein i.e. Spade Financial Services Limited ('Spade') along with AAA Landmark Private Limited ('AAA') have to be excluded from the Committee of Creditors ('CoC') formed in relation to the Corporate Insolvency Resolution Process ('CIRP') initiated against AKME Projects Ltd. i.e. defendant No. 1 herein, the Corporate Debtor before Hon'ble Supreme Court. NCLT by its order dated 19.07.2019 excluded both AAA and Spade from the COC upon applications filed by Phoenix Arc Private Limited ('Phoenix') and YES Bank under Section 60(5)(C) of the Insolvency and Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcluded from the Committee of Creditors ("CoC") formed in relation to the Corporate Insolvency Resolution Process ("CIRP") initiated against AKME Projects Ltd. ("Corporate Debtor"). NCLT passed its order dated 19-7-2019 [Hari Krishan Sharma v. AKME Projects Ltd. CP (IB) No. 55/ND/2018, decided on 19-7-2019 (NCLT)] on applications [ CA No. 337 of 2018 and CA No. 338 of 2019 (Phoenix); CA No. 268 of 2018 and CA No. 269 of 2018 (Yes Bank).] filed by Phoenix Arc Pvt. Ltd. ("Phoenix") and YES Bank under Section 60(5)(c) IBC. 2. Phoenix, in Civil Appeal No. 2842 of 2020, submits that though the NCLAT correctly dismissed the appeal filed by Spade and AAA, holding that they are related parties of the corporate debtor and are hence to be excluded from the CoC, there is an erroneous finding that they are financial creditors. In para 11 of its judgment, the NCLAT has observed that: "11. ... admittedly appellants are the financial creditors of the corporate debtor AKME Projects Ltd. ..." It has been submitted that there was never any admission on the part of Phoenix that AAA and Spade are financial creditors. The appeal by Phoenix seeks to challenge the above finding on the ground that: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des- (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire-purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; Explanation.-For the purposes of this sub-clause- (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of Section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Phillips), that for acts or documents to be a "sham", with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a "shammer" affect the rights of a party whom he deceived..." (emphasis supplied) XXXXXXX G.3.4. Spade and AAA 49. Mr Kaul argued that the transactions entered into between the corporate debtor and Spade and AAA are collusive in nature and do not constitute a financial debt. Mr Viswanathan has urged that the eligibility of Spade and AAA as financial creditors has conclusively been determined by the NCLT in its order dated 31 May 2018. We have already concluded that the above order would not operate as res judicata and it was within the jurisdiction of the NCLT to consider this issue afresh. NCLT in its order dated 19 July 2019 has undertaken a detailed analysis of the transactions to arrive at a finding that the transactions were collusive. We are inclined to agree with the findings of the NCLT in its order dated 19 July 2019. NCLAT has also made an observation that: .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument was created for specifying the rate of interest on the ICDs given by Spade to the corporate debtor. However, despite the creation of a formal document, the rate of interest being charged on the ICDs was 12% as mentioned in the claim before the IRP, which is half of the interest rate of 24% stipulated in the memorandum of understanding. During the arguments, Mr Kaul and Mr Sen have also brought to the notice of this Court that the memorandum of understanding is unregistered and unstamped. The IRP in his letter dated 25-5-2018 has noted that as per the ledger provided by Spade, no interest was claimed on the alleged debt and no adjustment was made regarding the payment of principal or interest by the corporate debtor to Spade. It has been submitted in the written submissions filed on behalf of Spade and AAA that the auditors of the corporate debtor had been putting a note in its balance sheets stating that the interest of 12% was not being paid to Spade due to a dispute. This submission in fact further fortifies the finding of the IRP that no interest has been paid on the alleged loan. The IRP has also noted in his letter that the memorandum of understanding does not stipulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there was no partnership clause in the agreement to sell. However, Clause 3 of the side letter dated 25-10-2012 shows that the intent of the parties was to continue to co-develop the land. Clause 3 of the side Letter provides: "3. It is agreed that ALPL shall share the cost of the Project in the same ratio as the share of respective development in the Property [i.e. Villas- 50% and other developments (group housing, etc.) - 36.33%]. The cost of the Project shall include: (a) Land cost (b) Licence and approval costs (c) Construction cost (d) Direct project management costs (people at the site) (e) Marketing & sales promotion cost (f) Liaison cost (g) Maintenance cost for unsold inventory (h) Government levies and charges including EDS & IDC and any enhancement thereof." It appears that the parties converted the development agreement into an agreement to sell executed along with a side letter to circumvent the legal prohibition on splitting a development licence in two parts. The transaction between AAA and the corporate debtor was collusive in nature. 52. Since the commercial arrangements between Spade and AAA, and the corporate debtor were collusive in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion of the NCLAT that Mr Arun Anand would be a related party of the corporate debtor in accordance with Section 5(24)(h) and Sections 5(24)(m)(i). Mr Viswanathan has tried to refute this argument by relying on the definition of "control" in Arcelor Mittal (India) (P) Ltd. vs. Satish Kumar Gupta (supra). However, it is important to note that the discussion there was in the context of ineligible resolution applicants under subsection (c) of Section 29-A IBC, which specifically prescribes this test. Presently, we have to determine whether the corporate debtor's board, Directors, etc. are accustomed to act on Mr Arun Anand's advice/direction/instruction and if he participates in the policy-making process of the corporate debtor. While a strict determination of intent or mens rea may not always be possible by the NCLT and NCLAT in summary proceedings, it is possible to draw the inference from the facts at hand. These facts are that there was a deep entanglement between the entities of Mr Arun Anand and Mr Anil Nanda, and Mr Arun Anand did hold positions during this period which could have been used by him to guide the affairs of the corporate debtor. This finding is furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand disposed of." 10. Perusal of the aforesaid judgment shows that Hon'ble Supreme Court has given very clear finding that the commercial arrangements between Spade i.e. the plaintiff herein, AAA and the Corporate Debtor i.e. the defendant No. 1 herein, were collusive in nature and that they would not constitute a 'financial debt'. Thus, Hon'ble Supreme Court has held that the plaintiff herein is not the financial creditor of the Corporate Debtor i.e. the defendant No. 1 herein. 11. In view of the aforesaid clear findings by the Hon'ble Supreme Court, the present suit for recovery cannot continue against the defendants. Defendant No. 1 is the Corporate Debtor as referred to by Hon'ble Supreme Court in its judgment dated 01.02.2021 Civil Appeal Nos. 2842/2020 and 3063/2020, defendant No. 2 herein is the erstwhile Director of defendant No. 1. Once Hon'ble Supreme Court having categorically held that commercial arrangements between the plaintiff and the defendant No. 1 were collusive in nature and that they would not constitute a 'financial debt', there is no question of any suit being maintainable against either the defendant No.1 or defendant No.2, who is the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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