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TMI Blog2023 (9) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 61 of Insolvency and Bankruptcy Code, 2016 ("IBC" in short) by the Appellant which arises out of two orders dated 01.11.2021 and 04.08.2022 (hereinafter referred to as "first and second impugned orders") passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi) in CP(IB) No. 354/2021 and related IAs. Aggrieved by the said impugned orders, the present appeals have been preferred. 2. The brief facts of the case which are necessary for deciding this appeal are as outlined below: - * The Corporate Debtor - M/s Drishti India Limited ("Drishti" in short) had entered into a Development Agreement ("DA" in short) with SAJ Housing Private Limited ("SHPL" in short) on 29.05.2012. The DA was for development of a piece of land for a housing society. The sole ownership of the land was with the Corporate Debtor. * As per terms and conditions of the DA, SHPL as the Developer was to bear the cost of construction. The developer paid a total consideration amount of Rs.16.15 cr to the Corporate Debtor in lieu of purchase/acquisition of irrevocable development rights. The SHPL had 56% ownership rights while the Corporate Debtor had 44% rights in the built-up area of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2021 on 04.03.2022 against rejection of their claim by the Resolution Professional on the ground that their claim was within time as the Adjudicating Authority had excluded 57 days from the CIRP period because of the interim stay granted by this Tribunal. * Pursuant to 3rd CoC deliberations, the Resolution Professional filed IA 960/PB/2022 in CP(IB) No. 354(PB)/2021 on which the Adjudicating Authority ordered liquidation of the Corporate Debtor on 04.08.2022 hereinafter referred to as the "second impugned order". * Vide the second impugned order, the Resolution Professional was appointed as the Liquidator and IA 1447/2022 filed by SHPL was disposed of by giving them an opportunity to make their claim before the liquidator. The other reliefs sought by SHPL regarding revival of CIRP was held as not surviving any longer in view of the approval of the liquidation proceedings. * Aggrieved by the two impugned orders, following four sets of appeal have been preferred with the following prayers. * CA (AT)(Ins.) No. 377/2022 has been filed by the suspended Director of the Corporate Debtor praying for setting aside the first impugned order of the Adjudicating Authority dated 01.11.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip of debtor and creditor between the Corporate Debtor and the Respondent No.2. Hence, the consideration amount does not fall under the definition of financial debt under Section 5(8) of the IBC. In the absence of any contract or understanding fastening any liability upon the Corporate Debtor, the filing of Section 7 petition by Respondent No.2 was an abuse of the process of law. 6. Emphasizing that the key feature of financial transaction as postulated by Section 5(8) of the IBC is consideration for time value of money, this feature is glaringly amiss in the transaction of Rs.1.90 crore made by the Respondent No.2. Moreover, the Respondent No.2 has failed to produce any document that discloses the nature of transaction to be a loan carrying any interest. Under such circumstances, it cannot be claimed that there was a time value of money and therefore the transaction cannot be viewed as a financial debt. 7. Rebutting the above arguments, the Learned Senior Counsel for Respondent No.2 submitted that the Respondent No.2's passbook of Canara Bank clearly shows that there was a disbursal of an amount of Rs.1.90 crores on 20.12.2011 directly to the bank account of the Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings under Section 33(2) of the IBC having commenced, the appeal has become infructuous by efflux of time. CA (AT) (Ins.) No.967/2021 10. It is contended by Learned Senior Counsel of Corporate Debtor that there was no demand of money made by the Corporate Debtor on Respondent No.2. Neither was any agreement/ document executed with Respondent No.2 with regard to the transaction of Rs.1.90 crore. It was also submitted that there was no consent or agreement on the payment of any interest on the alleged deposit. The said money was not utilized by the Corporate Debtor for its own advantage or earnings. Moreover, the deposit being in the nature of non-refundable security deposit having no commercial effect of borrowing, it cannot be treated as debt amount. Respondent No. 2 does not fall under the definition of Financial Creditor under Section 5(7) of the IBC and the amount paid as consideration by them do not fall under the definition of financial debt under Section 5(8) of IBC. Since the amount paid by Respondent No.2 is not a debt, it is neither liability nor obligation in respect of a claim as defined in Section 3(11) of IBC. It has also been contended that the Adjudicating Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Corporate Debtor but a consideration amount under the DA which was to be executed between Corporate Debtor and SHPL. Hence even if any liability arose, it was against SHPL and not against Corporate Debtor. 14. It was also contended that even the balance sheet entries do not reflect time value of money as it is captioned 'security deposit for development of land" which is non-refundable. This clearly shows that it was merely security deposit and not in the nature of a debt which is subsisting or presently due. It was stoutly denied that this amount had been given to them as credit with interest rate of 24% for if it was so there would have been a separate agreement to that effect. It was therefore contended that the application under Section 7 of the IBC to initiate CIRP is an abuse of the process of law which has been overlooked by the Adjudicating Authority. 15. It was also submitted that the prerequisite to initiate liquidation under Section 33(1)(a) of IBC is that no resolution plan is received before the expiry of the maximum period permitted for completion of CIRP. In the present case, the Resolution Professional without exploring the possibility to revive and rehabilitat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of IBC for liquidation of the Corporate Debtor. CA(AT)(Ins.) No.1093 of 2022 19. It has been submitted by the Learned Senior Counsel of SHPL, that they were approached by the Corporate Debtor with the proposal of developing a land for a housing society. For this purpose, a DA was entered into in 2011 with the Corporate Debtor with 56% ownership rights to SHPL in the built-up area. A total consideration amount of Rs.16.15 crore was paid by SHPL and other constituents which also included their share of Rs. 10 crore in lieu of which the possession of land with irrevocable development rights was to vest with SHPL with all authority from the Corporate Debtor. It is submitted that the Corporate Debtor admitted the consideration amount to be an unsecured loan under the heading of "long-term borrowing" in the balance sheet of the Corporate Debtor. Since the consideration amount paid by SHPL as well as the Respondent No.2 was for the same purpose and also appears under the same heading in the balance sheet of the Corporate Debtor, the Adjudicating Authority committed a mistake by according differential treatment to SHPL as Operational Creditor and Respondent No.2 as a Financial Creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r possession of the land given to them and file their claim respectively. Hence SHPL was fully aware of the CIRP proceedings. However, they remained silent and did not file their claim within the prescribed time. Therefore, the Resolution Professional rejected the claim since SHPL was not vigilant in filing the claim on time within the statutorily prescribed period. 23. On the stance taken by SHPL that the Adjudicating Authority having excluded 57 days from the CIRP period and hence the claim filed by them on 25.02.2022 was much on time, it was contended that by then the CoC had already approved the liquidation of the Corporate Debtor and hence the claim could not have been accepted by the Resolution Professional. In any case the SHPL was in no ways restrained from filing their claim even during the period of time they had applied for exclusion of time before the Adjudicating Authority. Nothing prevented them from filing their claims but instead they chose to adopt a wait and watch strategy. 24. We have duly considered the rival submissions and arguments advanced by respective parties and perused the records carefully. 25. The main issues for our consideration are as outlined be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licants had considered this amount as the loan given to the respondent which is reflected in the Balance Sheet as on 31.03.2020 at note 3 page 50 under the head note of "Long term borrowing". 13. This Bench is not satisfied with the arguments of the respondent with respect to the security deposit paid by the applicant to the respondent under the heads of long-term borrowing for development of the Land Agreement reflected in the Balance Sheet. It is nowhere proven by the respondent in the absence of any document how it is considered as the security deposit which is non-refundable to the applicants. 14. Therefore, there is an acknowledgment of debt by way of entries passed in the balance sheets, financial statements. The Respondent has defaulted in the repayment of the amount taken in the form of long-term borrowing even after duly acknowledging the same in the balance sheet prepared by it......" (Emphasis supplied) 27. The Learned Senior Counsel of Corporate Debtor contended that the DA signed on 29.05.2012 with SHPL was for a non-refundable consideration amount of Rs.16.15 crore. A Table finds place in the DA which shows two RTGS payments of Rs.95 lakhs each dated 20.12.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of this Tribunal in Nikhil Mehta and Sons v. AMR Infrastructure Ltd. 2017 SCC OnLine NCLAT 859 ("Nikhil Mehta" in short) to emphasize that the key feature of financial transaction as postulated by Section 5(8) of the IBC is its consideration for time value of money which is lacking in the present case. It has also been denied by the Corporate Debtor that any directorship was offered to Respondent No.2. 30. The Learned Senior Counsel for the Respondent No. 2 vehemently contesting the above arguments submitted that the entire amount of Rs 1.90 crores has been paid directly to the bank account of the Corporate Debtor by RTGS on 20.12.2011. Secondly it was pointed out that the claim of the Corporate Debtor that the payment was done in pursuance to the DA is misconceived since the DA between SHPL and the Corporate Debtor was entered into on 29.05.2012 while Rs. 1.90 crore was paid to the Corporate Debtor three months prior to the DA. Thirdly, it was stated that even the letter of 26.03.2012 being prior to the DA, it would be far-fetched to link the payment of Rs.1.90 crore to the DA as the DA was not even in existence on 26.03.2012. 31. After perusing the DA, we find credence in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect an application and not otherwise." 33. Viewed against this broad backdrop, we now dwell upon the facts of the present case to find out whether in this case debt was due and payable. There is sufficient material on record to prove that there was disbursal of funds by Respondent No.2 to the Corporate Debtor in their account. Admittedly, the amount so disbursed is Rs.1.90 crore. The bank transaction details were made a part of Part IV before the Adjudicating Authority. In addition, balance sheet of the Corporate Debtor also acknowledged receipt of this disbursal as "long-term borrowings". Neither has any claim been made that any part of this sum was repaid by the Corporate Debtor. That being the case there arises no doubt in our mind that there was a debt on the part of the Corporate Debtor qua Respondent No.2 for an amount of Rs.1.90 crore. The Learned Senior Counsel for the Corporate Debtor has failed to adduce any material on record to establish that this amount was payable by SHPL and not by the Corporate Debtor. Hence the submission advanced that Corporate Debtor was not required to repay Respondent No.2 does not inspire our confidence as it is a mere assertion not supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25.11.2021 is reproduced below: - "Learned Counsel for the Appellant submits that he accepts that Respondent Nos. 1 and 2 had given the amount of Rs. 1.9 Crore and he is ready to return their amount with reasonable interest. To show his bonafide let the Appellant deposit an amount of Rs. 3 Crores by way of Demand Draft of a Nationalized Bank before the concerned Adjudicating Authority within one month. After deposit of the amount, let an Affidavit along with the photocopy of the demand draft be placed before this Tribunal. 2. List the Appeal on 10.01.2022. In the meantime, no further proceedings shall take place in pursuance of the impugned order." However, we also notice that the Corporate Debtor later took a stand that it never made a commitment before the Appellate Authority to pay interest and that they had desired to contest the appeal filed against the first impugned order admitting them into CIRP. We may for a moment agree to give benefit of doubt to the Corporate Debtor that they had not admitted before the Appellate Authority to pay any interest amount. Be that as it may, it does not take away the character of financial debt merely on the ground that there was no in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommencement of CIRP. The Learned Senior Counsel for the SHPL submitted that this Tribunal in Nikhil Tandon (Supra) had set aside the order initiating liquidation on the ground of material irregularity when the CoC had hurriedly pushed for liquidation. The CoC in the present case failed to abide by the timelines of CIRP and frivolously passed the resolution to liquidate the Corporate Debtor. The Adjudicating Authority by approving the same acted against the objective of IBC which is to provide an enabling climate for timely resolution and revival of the Corporate Debtor. Further, the CoC by sending the Corporate Debtor abruptly into liquidation, the intent was clearly to sell off the sole asset of the Corporate Debtor and utilize the proceeds for the personal benefit of Respondent No.2. 40. Similar views were echoed by the Learned Senior Counsel of the Corporate Debtor that the entire process of CIRP was vitiated since Resolution Professional failed to discharge her duties professionally and acted in collusion with Respondent No. 2 to hurriedly call the 3rd CoC meeting on 19.02.2022 to consider a resolution for liquidation of the corporate debtor. The Respondent No. 2 being the sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation under Section 33 of Insolvency and Bankruptcy Code, 2016. It is submitted that Corporate Debtor has only one major asset i.e Freehold Land of about 10 acres at Sector 39, Village Lakkarpur, Faridabad. Presently, there are no operations of the company and there have been no operations for at least last 4 years (the RP has the financial statements since FY 2018). Also, from the financial statements it appears that the Corporate Debtor does not have any employee. Further, from the available records, it appears that company entered into a development agreement with SAJ Housing Pvt. Ltd. in 2012 (the Developer) and no development has taken place since then on any application of the Corporate Debtor Developer to convert the land for group housing. The CoC was of the view that considering these circumstances, it is not feasible to keep the Corporate Debtor as going concern and also there is no possibility for Resolution Plans in the present matter. The CoC suggested to file an application for liquidation of the Corporate Debtor before this Hon'ble Tribunal and approved the said agenda by 100% voting in the meeting itself." (Emphasis supplied) 44. Clearly the CoC had deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of SHPL that they should have been treated as Financial Creditor and that not having taken place, CIRP should be started afresh with a newly constituted CoC. 48. It is the contention of SHPL that the payment made by them to the Corporate Debtor was identical in nature to the payment made by the Respondent No. 2 as both the payments were under the DA to develop the land of the Corporate Debtor. The audited financial statements of the Corporate Debtor also treated the payments made by SHPL and Respondent No.2 in a similar manner as unsecured loan under the heading of "long-term borrowing" in the balance sheet and these entries in the balance sheet have not been disputed by Respondent No.2. 49. We do not wish to repeat the reasoning as recorded at para 31 above for coming to our findings that the payments were made by the SHPL and the Respondent No. 2 was not for the same purpose. The DA entered into between SHPL and the Corporate Debtor was an agreement of reciprocal rights and obligations wherein both parties entered into a consortium of sorts for developing the subject land. SHPL clearly being a profit share owner, who in the event of the success of the project would have rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim in Form B as an Operational Creditor and not as Financial Creditor. Thus, having failed to file their claim in the appropriate format and in a timely manner due to their own negligence, they should be ready to suffer the consequences of late and improper filing. The bonafide of the Resolution Professional is also established by the fact that even when the statutory period prescribed for submission of claim had expired, the Resolution Professional had advised them in their email dated 28.02.2022 to seek condonation of delay from the Adjudicating Authority as they had no power to condone such delay with respect to their delayed claim as is reproduced below:- "From: Priyanka Chouhan [email protected] Subject: Re Claim on behalf of M/s SAJ Housing Pvt. Ltd against: M/s Dirshti India Ltd. Date: 28th February 2022 at 10:04 AM To: R.L Bhagat [email protected] Dear Sir, This is in reference to the submission of your claim dated 25th Feb, 2022. It is to inform you that in accordance with Section 15(1) (c) Regulation 6(2) (c) & (12(1) the last date of submission of claims was 17/11/2021 as per the public announcement made by the Resolution Professional. Further as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already been passed by the Adjudicating Authority. Further, we also notice that SHPL has been allowed by the Adjudicating Authority in the second impugned order to file claim before the liquidator. 55. Thus, to answer the third issue before us, we are of the considered view that in the given facts and circumstances of the case, SHPL cannot be accorded the status of Financial Creditor and therefore the prayer of SHPL to reconstitute the CoC does not merit consideration. Further, since the Adjudicating Authority has already approved the liquidation and allowed SHPL to file its claim, we are satisfied that the interests of SHPL have not been put to prejudice. 56. In result, we are of the considered view that the second impugned order of 04.08.2022 approving the liquidation of the Corporate Debtor has subsumed the first impugned order dated 01.11.2021 which had admitted the Corporate Debtor into CIRP. For the reasons discussed above, we find no reasons which warrant any interference in the second impugned order of the Adjudicating Authority. We direct the liquidator to continue with the liquidation process and inter-alia allow SHPL to submit their claim before the liquidator in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X
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