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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 ..... n between the parties and looking to the Clauses of Development Agreement, it is clear that transaction has commercial effect of the borrowings. Payment of 18% interest compoundable and payable quarterly clearly indicate time value of money. Corporate Debtor has clear understanding that advance made over and above of Security Deposit Rs. 12 Crores carry interest @ 18% interest p.a. compounded and payable quarterly. Letter further said that since even after more than five an half years of signing of Development Agreement, Project has not taken off, hence they are not in a position to make provision for interest for the time being on the additional part of Security Deposit received. An application was filed before the Adjudicating Authority by first Respondent seeking a direction to IRP to admit the claim as Financial Creditor. Adjudicating Authority held that first Respondent was a Financial Creditor and not an Operational Creditor. Appeal was filed by challenging the order of the Adjudicating Authority. In the above context, Hon ble Supreme Court has occasion to consider the ingredients of a Financial Debt. Development Agreement clearly contains the details of transaction entered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Part II of Third Schedule of Development Agreement. Subsequent to the Development Agreement, Corporate Debtor executed two separate Memorandum of Agreement dated 02.03.2010 and 24.06.2010 handing over the possession of subject to the Avani Towers Pvt. Ltd. v. As per the Development Agreement, development could not be carried. Avani Towers Pvt. Ltd. filed a Section 7 application in September 2019 being C.P. (IB) 1711/2019, alleging a Financial Debt of 10,90,72,565/- . vi. The date of default was mentioned in the application as 01.10.2010. vii. In the applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, in the Committee of Creditors (CoC), Avani Towers Pvt. Ltd. has now 99.97% vote shares. The CoC being consisted of only three Operational Creditors, the Financial Creditors being related party. 7. Sh. Abhijeet Sinha appearing for the Respondents refuting the submission of the Appellant submits that as per the Development Agreement dated 16.06.2008, although refundable Security Deposit of Rs.12 Crores was to be paid as per Part II of the Third Schedule of the Development Agreement, however, any further amount i.e., amount Rs. 3.5 Crores advanced by the developers to owners carry the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reinafter 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 form part of Security Deposit and shall carry interest at agreed rate of 18% per annum compounded and payable quarterly. 8.2 Refund of Refundable Deposit: The Security Deposit shall be refunded by the Owner to the Developer in the manner provided in the Part-II of the Third Schedule. The Owner agrees to ensure timely repayment of the said Refundable Deposit in the manner as hereinbefore stated and in the event of failure to refund an interest @ 18% p.a. compounded quarterly shall become payable calculated from the due date of refund. 8.3 Recovery of Security Deposit: In event the Owner fails to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 10,90,72,565.00 (Rupees Ten Crores Ninety Lakhs seventy-two thousand five hundred and sixty five only) The above amount of claim is interest portion @ 18% p.a. Compounded and payable quarterly till 31st August, 2019 (excluding the principle amount of Rs. 3,50,00,000) The first date of default was 01.10.2010 when the interest amount for the quarter ending 30.09.2010 was not paid and defaulted. Thereafter the corporate debtor was in continuous default, every first day of the subsequent first quarter in respect of the compounded interest of the previous quarter. The said default continues till date of the filing of this application. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit 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 commercial effect of the borrowing . The Development Agreement is a transaction between the parties and looking to the Clauses of Development Agreement, it is clear that transaction has commercial effect of the borrowings. Payment of 18% interest compoundable and payable quarterly clearly indicate time value of money. 18 . Treatment of Security Deposit of Rs. 12 Crores and advance of Rs. 3 Crores were separately treated under the Clause 8.1. The Agreement was a commercial transaction between the parties. 19 . Letter dated 31.03.2014 written by the Corporate Debtor to the Avani Towers Pvt. Ltd. is part of appeal filed at Page 150. Letter 31.03.2014 is as follows: Ref No. Date . To, Avani Towers Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 review and the company has intimated in writing to the lender in this regard. 23 . Judgment of the Hon ble Supreme Court in ` Global Credit Capital Ltd. Anr. (Supra) needs to be noted. In the above case Agreements were entered between the Corporate Debtor and first Respondent where Respondent No. 1 was referred as sale promoter who was to deposit minimum security with Corporate Debtor out of which security, on certain part of security interest was payable. Against the Corporate Debtor, CIRP commenced in which Respondent filed his claim. An application was filed before the Adjudicating Authority by first Respondent seeking a direction to IRP to admit the claim as Financial Creditor. Adjudicating Authority held that first Respondent was a Financial Creditor and not an Operational Creditor. Appeal was filed by challenging the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 money. Now, we come to clause (f) of sub-section (8) of Section 5 of the IBC. The first condition of applicability of clause (f) is that the amount must be raised under any other transaction. Any other transaction means a transaction which is not covered by clauses (a) to (e). Clause (f) covers all those transactions not covered by any of these sub-clauses of sub-section (8) that satisfy the test in the first part of Section 8. The condition for the applicability of clause (f) is that the transaction must have the commercial effect of borrowing. Transaction has been defined in sub-section (33) of Section 3 of the IBC, which includes an agreement or arrangement in writing for the transfer of assets, funds, goods, etc., from or to the corporate debtor. In this case, there is an arrangement in writing for the transfer of funds to the corporate deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 the said submission in Paragraph 64 of the order, which is as follows: 64. Hence, the debt and default has been established, let us now consider if the said Petition is barred by limitation. The first date of the default is stated to be 01 October 2010, hence the period of limitation ends on 01 October 2013. The Corporate Debtor has acknowledged the accounts on 01 April 201331. Thereafter, the Corporate Debtor has further acknowledged that the interest is due in the Financial Statements for the financial years 2013-2014, 2014- 2015, 2017-2018. The Company Petition was filed on 30 September 2019. 28. The acknowledgement made on 01.04.2013 and thereafter acknowledgement in the Financial Statements of 2013 14, 2014 15, 2017 18 have been noticed which makes the application filed on 30.09.2019, clearly within time. The fact that the Financial Creditor has 99% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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