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TMI Blog2024 (10) TMI 726X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Company Law Tribunal, Kolkata Bench, Court - I), by which order, Section 7 application filed by the Respondent - Avani Towers Pvt. Ltd. has been admitted. Aggrieved by the admission of the Section 7 application, this appeal has been filed. 2. Brief facts of the case necessary to be noticed for deciding the appeal are: i. The Corporate Debtor is an owner of land measuring 10.19 acres, situated at Ramrajtala, district Howrah. In the year 2008 the Corporate Debtor purchased the assets from sale conducted by UCO Bank under SARFAESI Act 2002. ii. On 16.06.2008, the Corporate Debtor entered into a Development Agreement with Avani Towers Pvt. Ltd. iii. According to the Clause 8.1 of the Development Agreement, Avani Towers Pvt. Ltd. was required to provide the refundable Security Deposit of Rs.12 Crores with option to add an extra Rs.3 Crores. The initial deposit of Rs.12 Crores would not accrue interest while any additional deposit up to maximum Rs. 3 Crores (increase to Rs.3.5 Crores mutually by the conduct between the parties) bear the interest at the rate of 18% compounded and payable quarterly. iv. The repayment of refundable Security Deposit was also provided for in Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Counsel for the Appellant challenging the order submits that subject matter of the application filed under Section 7 is not a Financial Debt within meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as `The Code'). No default was committed with regard to payment of Security Deposit under the terms Development Agreement. The Respondent having asserted subsistence of Development rights under the Development Agreement in the Corporate Insolvency Resolution Process (CIRP) of the Respondent, which Development Rights have been confirmed by the Supreme Court vide its Judgment dated 14.03.2023, Respondent is estopped from asserting the claim for refund of Security Deposit without completing the development work under the Development Agreement. Respondent having been provided for interest only till 2014-15 on its book, it cannot claim default after more than three years from last date of provision of interest on his book. Respondent has classified the refundable Security Deposit together with the interest as the inventory in his books, cannot now claim the amount to be Financial Debt. 6. It is submitted that in the CIRP of the Corporate Debtor, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the parties, it is useful to notice certain clauses of Development Agreement dated 16.06.2008, which is the basis of application filed under Section 7. Development Agreement dated 16.06.2008 was entered between Energy Properties Pvt. Ltd., the owner of land and Avani Towers Pvt. Ltd who is referred as developer. Clause 8 of the Development Agreement deal with Security Deposit and refund. Clauses 8, 8.1, 8.2 and 8.3 are as follows: "8 Security Deposit and Refund: 8.1 Refundable Deposit: The Developer will keep in deposit with Owner a sum of Rs. 12,00,00,000/- (Rupees twelve crore) (hereinafter referred to as the Security Deposit) which will not carry interest and will be payable & refundable in the manner as would appear from the Part-I of the Third Schedule hereunder written. The Developer as on date has already paid Rs. 7,86,83,108/- (Rupees seven crores eighty-six lac eighty three thousand one hundred eight). The said sum of Rs. 12,00,00,000/- (Rupees twelve crore) agreed to be paid by the Developer will be treated as the Security Deposit. However any further sum, subject to a maximum of Rs. 3,00,00,000/- (Rupees three crore), if advanced by Developer to Owner, shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable quarterly. Thus, the further sum in addition to Rs. 12 Crores of Security Deposit was given a different treatment and it was treated as advance by developers which was part of Security Deposit but was to carry interest at agreed rate of 18%. Clause 8.1 uses the expression "carry interest at agreed rate of 18% p.a., compounded and payable quarterly". Thus the Interest of 18% was payable quarterly which was unrelated to the Security Deposit of Rs. 12 Crores. Clause 8.2 deal with refund of refundable deposit and clause 8.3 recovery of Security Deposit in event the owner fails to refund said Security Deposit. In the present proceeding, we are not concerned with Clauses 8.2 or 8.3, since the application which was filed by Financial Creditor was not for the refund of the Security Deposit. In Part IV in the Column 2 with regard to amount claim to be in default and the date on which default has been occurred, following has been stated: PARTICULARS OF FINANCIAL DEBT 2. AMOUNT CLAIMED TO BE IN DEFAULT AND THE DATE ON WHICH THE DEFAULT OCCURRED (ATTACH THE WORKINGS FOR COMPUTATION OF AMOUNT AND DAYS OF DEFAULT IN TABULAR FORM) Total amount of claim to be in default is Rs. 10,90, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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);] (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;" 17. For a transaction to be covered under Section 5(8) first requirement is disbursal against the consideration of the time value of money. Sub section (f) of Clause 8 is a residuary Clause which provides for "any amount raised under any other transaction having the commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Security Deposit as per Clause 8.1. 21. Learned Counsel for the Respondent has also referred to notes of Financial Statements of the Corporate Debtor as on 31.03.2015, Note 4 of the notes which deals with long-term borrowings is as follows: NOTE 4-Long Term Borrowings Particulars 31.03.2015 31.03.2014 Rs. Rs. Secured Loan- HDFC Car Loan - 54,536 Less: Current Maturities of Long Term Debt [Refer Note No. 5] - 54,536 - - Unsecured Loan- From Associate 55,424,439 55,424,439 55,424,439 55,424,439 Total 55,424,439 55,424,439 22. In the above Financial Statements under Note 19, which deal with additional disclosures, there is clear acknowledgement that Company has taken loan. IV in Note 19 is as follows: "(iv) The company has taken a loan from Avani Towers Private Limited amounting Rs. 5,54,24,439/- (including interest payable amounting Rs. 2,04,24,439/-) as on 31.03.2014. Since the project has been delayed for over 7 years the company is unable to pay interest on such unsecured loan hence the management has taken the decision that interest shall not be provided for the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding forfeiture of the security deposit or part thereof, the corporate debtor was liable to refund the security deposit after the period specified therein was over with interest @21% per annum. Since the security deposit payment had no correlation with any other clause under the agreements, as held by the NCLAT, the security deposit amounts represent debts covered by subsection (11) of Section 3 of the IBC. The reason is that the right of the first respondent to seek a refund of the security deposit with interest is a claim within the meaning of subsection (6) of Section 3 of the IBC as the first respondent is seeking a right to payment of the deposit amount with interest. Therefore, there is no manner of doubt that there is a debt in the form of a security deposit mentioned in the said two agreements." 24. In Paragraphs 16 and 17 Hon'ble Supreme Court has laid down as follows: "16. Now, coming back to the definition of a financial debt under sub-section (8) of Section 5 of the IBC, in the facts of the case, there is no doubt that there is a debt with interest @21% per annum. The provision made for interest payment shows that it represents consideration for the time value of mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the first respondent." 25. Conclusion has been recorded by the Hon'ble Supreme Court in Paragraph 18, Hon'ble Supreme Court held that amount covered by the Security Deposit under the Agreement constitutes Financial Debt. In the said case also Corporate Debtor has provided interest in the Books of Accounts of the Corporate Debtor. Hon'ble Supreme Court has also noticed the Clause 10 of the Agreement dated 01.04.2014 between the parties in which Clause provides as follows: "10. You have to deposit minimum security of Rs. 53,15,000/- with the Company which will carry interest @21% p.a. We will provide you interest on Rs. 7,85,850/- @21% per annum." 26. Hon'ble Supreme Court has held that right of the first Respondent to seek refund of the Security Deposit with interest was a claim within a meaning under sub-Section (6) sub-Section (3) of the Code. The Judgment of the Hon'ble Supreme Court in `Global Credit Capital Ltd. & Anr.' (Supra), fully support the submission advanced by the learned Counsel for the Respondent. 27. Insofar as the submission that default took place on 01.10.2010 and application filed in the year 2019 is `barred by time'. Adjudicating Authority has dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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