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TMI Blog2024 (3) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Creditor. Further, the expression includes a person to whom such debt is legally assigned or transferred to is only incidence of further elaboration of person to whom the financial debt is owed. In the facts of the present case, there can be no denying that financial debt, which was owed by Akme to the allottees is now the debt owed by Grandstar Reality Pvt. Ltd. The Grandstar Reality Pvt. Ltd. is fully covered by the definition of Section 5, sub-section (7), who owed the debt towards the allottees. The financial debt can be owed in more than one manner. Assignment or transfers are two modes, which has been expressly included in the definition. In cases of amalgamation and demerger under the Companies Act, 2013 of a Corporate Debtor with another entity is obviously considered as Corporate Debtor on account of transfer/ vesting of assets and liabilities to the amalgamated/ transferee Company. Transferee Company cannot be permitted to escape the rigours of the Code by claiming that disbursement was not done to it directly. In the present case, where Grandstar Reality Pvt. Ltd. has taken over the Project under the SARFAESI Act, cannot escape the rigours of the Code and defeat the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 7 Application. The Appeal is dismissed. - [ Justice Ashok Bhushan ] Chairperson And [ Barun Mitra ] Member ( Technical ) For the Appellant : Mr. Arun Kathpalia, Sr. Advocate, Ms. Shivani Kher, Mr. Rakesh Lakra, Ms. Bhavya Sharma, Advocates For the Respondents : Ms. Pooja Mahajan, Ms. Arveena Sharma, Ms. Shreya Mahalwan, Advocates. Mr. Abhishek Anand, Mr. Karan Kohli, Mr. Abhishek Sinha, Ms. Jasleen Singh Sandha, Advocates for IRP JUDGMENT ASHOK BHUSHAN, J. This Appeal by Suspended Director of the Corporate Debtor has been filed challenging the order dated 26.09.2023 passed by National Company Law Tribunal, New Delhi Bench, Court-V admitting Section 7 Application filed by Respondents allottees herein. The Appellant aggrieved by the order admitting Section 7 Application has come up in this Appeal. 2. Brief facts of the case, necessary for deciding this Appeal are : (i) On 31.10.2003, the land in question was purchased by one M/s Subros Ltd. from various land holders. On 27.08.2004, a Notification under Section 4 of Land Acquisition Act, 1894 was issued by the Govt. of Haryana, proposing to acquire certain land for setting up Industrial Township. The land in question was initial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (vi) Akme filed Writ Petition, challenging the auction sale proceedings, where on 05.10.2016, the Hon ble High Court of Delhi directed to maintain the status quo with regard to sale in favour of the Corporate Debtor. (vii) A Corporate Insolvency Resolution Process ( CIRP ) was commenced against Akme, in which Respondent home allottees filed the claim on 09.05.2018. The Appellant also filed proceedings before the Debt Recovery Tribunal in the year 2019 seeking setting aside the Sale Confirmation, which was dismissed on 07.01.2020. In Writ Petition No.1271 of 2018, before the Hon ble Punjab and Haryana High Court, the Director Town and Country Planning ( DTCP ), was personally present and made a statement and the said land is covered within the judgment dated 12.03.2018 passed by the Hon ble Supreme Court in Civil Appeal No.8788 of 2015. The Appellant also challenged the order of DRT before the DRAT by filing Regular Appeal No.72 of 2020 (viii) The Respondent herein, who are allottees of Project filed an Application under Section 7 on 25.09.2020 for initiation of CIRP against the Corporate Debtor for default of INR 78,09,94,385.56/-. (ix) An Application for clarification was filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that in Writ Petition No.9229 of 2016 titled as M/s Akme Projects Ltd. vs. Yes Bank and Anr., the Delhi High Court passed an interim order on 05.10.2016, which continued till 01.09.2017. It is further submitted that before the DRT-II, Delhi in SA No.148 of 2017 titled as Akme Projects Ltd. vs. Yes Bank Ltd., an interim order was passed on 15.09.2017, which continued till 07.01.2020. It is submitted that it was only on 21.07.2022, the Hon ble Supreme Court in MA No.50 in Civil Appeal No.8788 of 2015 clarified that the said property is not covered by its covered dated 24.04.2015. The learned Senior Counsel for the Appellant also relied on the statement made on behalf of the DTCP recorded in the order dated 04.03.2020 before the High Court, where the DTCP stated that the matter is covered by judgment of Rameshwar Ors. Vs. State of Haryana and Ors. Hence, it was even the understanding of the DTCP also that land is covered in view of of the order of the Hon ble Supreme Court in Civil Appeal No.8788 of 2015. Hence, there was no question of carrying out any construction or committing any default by the Corporate Debtor. The land was subsequently released on 09.05.2023 by an administra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion purchaser, who is the successor of the Corporate Debtor. Disputing the submission of the Appellant that no default is committed by the Appellant, it is contended that land in question was never covered by the judgment of the Hon ble Supreme Court in Rameshwar case, infact it only covered the transfers and purchase of the land between 27.08.2004 till 29.01.2010. The Subros acquired the land before 2003 and the land was sold to Akme in 2012, i.e. after the aforesaid period. The judgment of the Hon ble Supreme Court in Rameshwar case makes it clear that land is not covered by the proceedings before the Hon ble Supreme Court. It is submitted that the Corporate Debtor took the property in auction in the year 2016 and never took any steps to start construction or obtain necessary license etc. and it was the homebuyers, who file an Application before the Hon ble Supreme Court seeking a clarification that the land of the Project is not covered by the direction of the Hon ble Supreme Court and Hon ble Supreme Court issued such clarification on 21.07.2022. Thus, the default was committed by the Corporate Debtor in not carrying out the construction. The Corporate Debtor owed debt to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sale Notice was issued by the YES Bank, which provided: SALE NOTICE (TENDER) For Immovable Property Under sub rule (6) of rule 8 Whereas the undersigned, being the Authorized Officer {AO} of YES BANK Limited ( the Bank') under the Securitization And Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('the Act ) and in exercise of the conferred under Section 13(12) of the Act read with Rule 8 and of the Security Interest (Enforcement} Rules 2002 { the Rules ), issued a demand notice under Section 13(2) of the Act ('Demand Notice ) upon the belowmentioned borrower and guarantors, on the date mentioned hereunder, to repay the amount due. As the borrowed guarantors failed to repay the amount, the Bank took possession of the mortgaged property mentioned herein below on the date mentioned against the property. The borrower /mortgagors/ guarantors hereby requested to repay the outstanding amount as demanded in the said Demand Notice within 30 Days of publication of this notice, as per the provisions under the Rules 8 and 9 of the Rules. If the borrower/ guarantors fail to repay the debts, the property (including encumbrances, if any.) mentioned h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said 221 allotment, atleast 38 flats are financed by HDFC Ltd, and 42 flats are financed y different Banks/Financial Institution (FI). That you have to abide by the existing tripartite agreement executed between such Banks/FI/HDFC Ltd Akme Projects Ltd. and the lawful allottees of the said units or required shall enter into a fresh tripartite agreement with HDFC Ltd/Bank/FT, it is also clarified that the right of lawful allottees on respective Units flats is not undergoing any change in the auction process and the successful bidder will be required to honour and acknowledge all lawful allotment and such bidder will be entitled to receive the unpaid portion of the consideration of the allotted flats. It was further informed that pursuant to the Order dated November 23, 2015 of Honble High Court of Punjab Haryans in CWP NO. 24714 of 2015, YES Bank Ltd. has not taken the possession of Flat No.F-1702 allotted to Mr. Akhilesh Kumar and is not a part of auction proceedings. 10. The above Sale Confirmation Advice makes it clear that the right of lawful allottees on respective Units flats is not undergoing any change in the auction process and the successful bidder will be required to hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Counsel for the Appellant submits that Grandstar Reality Pvt. Ltd. is not party to the Flat Buyer s Agreement, which was between Akme and Flat Buyers, hence, the above description of Company is not binding on the Appellant. The Appellant has taken the assets as per auction sale conducted under the SARFAESI Act, 2002. The Sale Certificate and Sale Confirmation Advice have already been noticed by us. Sale Confirmation Advice dated 17.06.2016 contained following stipulation it is also clarified that the right of lawful allottees on respective Units flats is not undergoing any change in the auction process and the successful bidder will be required to honour and acknowledge all lawful allotment and such bidder will be entitled to receive the unpaid portion of the consideration of the allotted flats . The above stipulation clearly indicates that Grandstar Reality Pvt. Ltd., i.e., successful auction purchaser is obliged to honour and acknowledge all lawful acknowledgment. Thus, the obligation of Akme towards the allottees has been continued and attached with the purchase of assets by the Appellant. The obligation under Flat Buyer s Agreement is an obligation to be discharged by the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time value of money. Today's value of a stream of cash flows is worth less than the sum of the cash flows to be received or saved over time. Present value accounting is widely used in discounted cash flow analysis. ( emphasis supplied ) That this is against consideration for the time value of money is also clear as the money that is disbursed is no longer with the allottee, but, as has just been stated, is with the real estate developer who is legally obliged to give money's equivalent back to the allottee, having used it in the construction of the project, and being at a discounted value so far as the allottee is concerned (in the sense of the allottee having to pay less by way of instalments than he would if he were to pay for the ultimate price of the flat/apartment). 72. Shri Krishnan Venugopal took us to ACT Borrower's Guide to the LMA's Investment Grade Agreements by Slaughter and May (5th Edn., 2017). In this book financial indebtedness is defined thus: Definition of Financial Indebtedness (Investment Grade Agreements) Financial indebtedness means any indebtedness for or in respect of: (a) moneys borrowed; (b) any amount raised by acceptance under any ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epo agreements. Conditional and credit sale arrangements could also be covered here as could certain redeemable shares. The precise scope of this limb can be uncertain. Ideally, from the borrower's perspective, if there are additional categories of debt which should be included in financial indebtedness , these should be described specifically and this catch-all paragraph, deleted. A few strong borrowers do achieve that position. Most, however are required to accept the catch all and will therefore need to consider which of their liabilities might be caught by it, and whether specific exclusions might be required. 74. What is clear from what Shri Venugopal has read to us is that a wide range of transactions are subsumed by para (f) and that the precise scope of para (f) is uncertain. Equally, para (f) seems to be a catch all provision which is really residuary in nature, and which would subsume within it transactions which do not, in fact, fall under any of the other sub-clauses of Section 5(8). 75. And now to the precise language of Section 5(8)(f). First and foremost, the sub-clause does appear to be a residuary provision which is catch all in nature. This is clear from the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any 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 in the principal clause or at least has the features which could be traced to such essential elements in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as financial debt within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money. 47. As noticed, the root requirement for a creditor to become financial creditor for the purpose of Part II of the Code, there must be a financial debt which is owed to that person. He may be the principal creditor to whom the financial debt is owed or he may be an assignee in terms of extended meaning of this definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e two modes, which has been expressly included in the definition. In cases of amalgamation and demerger under the Companies Act, 2013 of a Corporate Debtor with another entity is obviously considered as Corporate Debtor on account of transfer/ vesting of assets and liabilities to the amalgamated/ transferee Company. Transferee Company cannot be permitted to escape the rigours of the Code by claiming that disbursement was not done to it directly. In the present case, where Grandstar Reality Pvt. Ltd. has taken over the Project under the SARFAESI Act, cannot escape the rigours of the Code and defeat the rights of the homebuyers under the Code. We, thus, are satisfied that there is a financial debt and the filing of the Application by the allottees under Section 7 cannot be faulted on this ground. Question No. ( II ) 20. The learned Senior Counsel for the Appellant submits that there is no default committed by the Appellant due to various orders passed by the Hon ble Supreme Court, Hon ble High Courts and DRTs, due to which the Grandstar Reality Pvt. Ltd. had no opportunity to carry out the construction. It is submitted that when there was a restraint by the judicial order, no default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions/ transfers made by land holders during the period 27.08.2004 to 29.01.2010. The Appellant s submission that the land in question was covered by the judgment of the Hon ble Supreme Court does not appeal to reasons. The learned Senior Counsel has placed reliance on the statement made by Counsel on behalf of DTCP before the Punjab and Haryana High Court, where the Counsel stated that land is covered under the Rameshwar s case. There was no direction or declaration by Punjab and Haryana High Court that the land was covered under the Rameshwar s case. Any statement of the Counsel cannot be accepted as against the express content of the judgment of the Hon ble Supreme Court. It is further relevant to notice that no steps at all were taken by Grandstar Reality Pvt. Ltd. to carry on the construction or to take the Project forward. The judgment of the Hon ble Supreme Court was delivered on 12.03.2018, hence, after the said date any doubt or dispute regarding the content of the order passed in Rameshwar s case, came to an end and there was no reason for the Appellant not to proceed any further towards the construction of the Project, which was the obligation undertaken by the Grands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on 13.06.2008. Subros did not enter into any collaboration agreement or sell its rights during the suspect period - it sold the lands to one Akme Projects Ltd. much later on 23.01.2012. 50. Having regard to the overall circumstances, this Court is of the opinion that the lands owned by both R.P. Estates and Subros should be excluded from the deemed award. The judgment of the Court dated 12.03.2018 is therefore clarified to the above extent. I.A. No. 111557/ 2020; I.A. No. 111562/2020; and I.A. No. 111563/ 2020 of M.A. No. 2067/2020; I.A. No. 116120/2021; I.A. No. 116128/2021 and I.A. No. 123690/2021 of M.A. No. 50/2019 are disposed off accordingly. 23. No steps were taken by the Grandstar Reality Pvt. Ltd. to start the construction or to seek any clarification or direction, clearly indicate inaction of the Grandstar Reality Pvt. Ltd., which is nothing but default committed by Grandstar Reality Pvt. Ltd. in proceeding to carry out its obligation under the auction purchase. 24. The learned Senior Counsel for the Appellant has also relied on order passed by Delhi High Court and orders passed by DRT. The Appellant has referred to order of the status quo passed by Delhi High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rying out construction, further was passed. We, thus, are satisfied that in the facts of the present case default was clearly proved on the part of the Grandstar Reality Pvt. Ltd. and the findings recorded by the Adjudicating Authority that Section 7 Application is complete and deserved to be admitted, does not warrant any interference. 25. The learned Senior Counsel for the Appellant has also submitted that in the CIRP of Akme Project, allottees have also filed their claim. The said arguments was rejected by the Adjudicating Authority in paragraph-19 of the order, which is as follows: 19. As regards to the Corporate Debtor s contention that CIRP has already been initiated against the Original Borrower and the Applicants had submitted their claims in the CIRP of the Original Borrower, this Adjudicating Authority is of the view that the admissibility of the Applicants claim in the CIRP of the Original Borrower shall not preclude the claim of the Applicants against the Corporate Debtor, as the Corporate Debtor herein is now in the ownership as well as in the physical possession of the Project land and also undertaken the liability to complete construction and deliver possession by re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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