9911796707
TMI Blog2025 (2) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2023. 2. Mr. Abhay Narayan Manudhane who is the Resolution Professional of Housing Development and Infrastructure Ltd. (Corporate Debtor) is the Respondent No.1 herein. 3. The Appellant submitted that on 19.12.2015, a Memorandum of Understanding ('MoU') was duly executed between the Appellant and the Corporate Debtor concerning the land identified as CTS No. 551/27, 552 (PT), 552/1, 552/5 to 552/12, situated in Village Nahur, Taluka Kurla, M.S.D. LBS Marg Mulund (West), Mumbai. This land measures approximately 7632.10 square meters and is referred to as the "said Land". The MoU stipulated that the Corporate Debtor is responsible for constructing a "built to suit" building on the said Land, which is intended for the establishment and operation of a school by the Appellant. The Appellant emphasizes that this MoU outlines the mutual obligations and expectations of both parties. 4. The Appellant submitted that, as per clause 8.1(i) of MoU, the Appellant was obligated to pay a sum of Rs. 2,37,61,440 to the Corporate Debtor which is undisputed fact. 5. The Appellant submitted that, in accordance with the terms of the MoU, the Corporate Debtor was required to fulfil certain Conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refund of the Principal Amount when the Corporate Debtor agreed to the Appellant's request for a refund. The Appellant submitted that soon after his meeting with the Corporate Debtor, the CIRP for the Corporate Debtor commenced following an order dated August 20, 2019, issued by the Adjudicating Authority in C.P. (IB) -27/I&BP/MB/2019 on an application filed by the Bank of India, against the Corporate Debtor under Section 7 of the Code. 10. The Appellant submitted that on August 29, 2019, the Respondent issued a Public Announcement, as required under Regulation 6 of the CIRP Regulations, inviting all creditors to submit their claims along with supporting proof and then only the Appellant became aware of the CIRP of the Corporate Debtor and submitted Form C on August 20, 2020 claiming of Rs. 3,16,18,339 comprising Rs. 2,37,61,440 as the Principal Amount and Rs. 78,56,899 as simple interest calculated at a rate of 9% per annum from December 19, 2015 (the date on which the Principal Amount was lent) until the commencement of CIRP on August 20, 2019. 11. The Appellant submitted that, in response to the Form C, the Respondent, through an email dated September 1, 2020, unlawfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 28.03.2023 14. The Appellant submitted that the Adjudicating Authority failed to appreciate that the Applicant's claim is clearly a 'Financial Debt' as defined under Section 5(8) of the Code. The claim pertains to a debt, along with interest, disbursed by the Appellant to the Corporate Debtor against the time value of money. The disbursement of the Principal Amount was specifically for financing the construction of a building on the said land, and this amount was utilized by the Corporate Debtor as a means of finance for the said construction. The transaction, therefore, has a clear commercial effect of borrowing, satisfying the requirements under Section 5(8) of the code. 15. The Appellant submitted that the MoU constituted a commercial transaction between the parties, with profit as its primary objective and both the Appellant and the Corporate Debtor had a vested commercial interest in the MoU, making it evident that the Principal Amount provided by the Corporate Debtor falls within the definition of 'Financial Debt' under Section 5(8) of the Code. The Corporate Debtor effectively availed financing from the Appellant to fund the construction of a bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch outlines the Conditions Precedent, reveals that the Corporate Debtor was required to obtain various approvals, certificates, sanctions, and permissions from the Municipal Corporation of Greater Mumbai ('MCGM'), banks, financial institutions, and other government authorities. However, as indicated in Clause 8.1(i) of the MoU regarding the Security Deposit, an amount of Rs. 2,37,61,440/- was to be deposited with the Corporate Debtor as six months' rent for Phase I Premises. Since the building was never constructed and the lease agreement was never executed, the rent was never due. Consequently, the amount paid by the appellant to the Corporate Debtor of Rs. 2,37,61,440 should be considered merely an "advance." Therefore, it is asserted that there is no meaningful connection between the funds disbursed and any operational services provided by the Corporate Debtor. The Appellant stated that the lack of correlation implies that the debt owed does not qualify as an operational debt. 20. The appellant submitted that the fully refundable security deposit of Rs. 2,37,61,440 as outlined in Clause 3.3 of the MoU, constitutes a financial debt under Section 5(8)(f) of the code as this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be recognized as a financial debt under Section 5(8)(f) of the Code, consistent with precedents established by the Supreme Court. 23. Concluding his arguments, the Appellant urged this Appellate Tribunal to dismiss the Impugned Order and allow his appeal. 24. Per contra, the Respondent denied all the averments made by the Appellant in the present appeal. 25. The respondent submitted that, promptly following his appointment as the interim resolution professional pursuant to the Admission Order, he published the Public Announcement on 29.08.2019, in accordance with Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process) Regulations, 2016 ("CIRP Regulations"). This announcement called upon all creditors to submit their respective claims along with supporting documentation using the prescribed forms outlined in the CIRP Regulations. 26. The respondent submitted that on 20.08.2020, the appellant submitted a belated claim in Form C, nearly a year after the cut-off date for filing claims, which was 08.09.2019. This claim amounted to Rs. 3,16,18,339/-, consisting of the principal amount of Rs. 2,37,61,440/- and Rs. 78,56,899/- as simple interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed against interest or any amount raised with a commercial effect of borrowing. The Hon'ble Supreme Court in Pioneer Urban Land and Infrastructure Limited (Supra) has established that for a debt to qualify as financial debt, three criteria must be satisfied: (i) there must be a disbursal of money, (ii) the transaction must have a commercial effect of borrowing, and (iii) there must be consideration for the time value of money. This position was reaffirmed in New Okhla Industrial Development Authority v. Anand Sonbhadra [(2023) 1 SCC 724], which upheld the principles laid down in Pioneer Urban Land and Infrastructure Limited (Supra). 31. The Respondent submitted that, while it is true that the Appellant disbursed an amount, the other two conditions stipulated in Section 5(8) of the Code have not been satisfied in this case and the transaction lacks a commercial effect of borrowing as there is no consideration for the time value of money. Therefore, the claim cannot be classified as a financial debt under the provisions of the Code. 32. The Respondent submitted that Clause 8 of the MoU states that the security deposit is fully refundable without any interest upon the termination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the security deposit was intended solely to secure rent payments and does not exhibit a commercial effect of borrowing. Additionally, the interest clause in the MoU aligns with Section 74 of the Indian Contract Act, 1872, which pertains to liquidated damages and further reinforces that it cannot be classified as a financial debt. Therefore, the presence of this interest clause does not transform the security deposit into a financial debt under the provisions of the Code. 37. The Respondent submitted that the law laid down by the Hon'ble Supreme Court in Global Credit Capital Limited (Supra), is not applicable to the facts of the present case. In Global Credit, the agreement contained a specific clause for payment of interest on the security deposit from the very first day of deposit, which was not contingent on any event. Additionally, there was no forfeiture clause in the agreement. The agreement, structured as a letter, provided for a fixed monthly remuneration of Rs. 4,000/- against a security deposit of Rs. 53,15,000. The Hon'ble Supreme Court held that the security deposit in Global Credit constituted financial debt due to several factors: (i) the fixed interest clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of liquidated damages or penalties for a timely refund of the security deposit upon termination. The Respondent stated that Appellate Tribunal in Budhpur Buildcon Pvt. Ltd. (Supra) has held that penal interest does not meet the criteria for financial debt and cannot be claimed as such. 41. The Respondent submitted that, since the Appellant has not terminated the MoU to date, the clause regarding the refund of the security deposit along with interest has not come into effect. Consequently, the claim made by the Appellant does not qualify as a financial debt under the provisions of the Code. 42. The Respondent further submitted that any delays in fulfilling the Conditions Precedent on the part of the Corporate Debtor were attributable to the delay in the notification of the Development Plan 2034 and the Development Control and Promotion Regulation 2034 by the Government of Maharashtra. The Development Plan 2034 was officially notified on 08.05.2018, and the Development Control and Promotion Regulation 2034 came into effect on 13.11.2018. The parties were aware of these developments from the time they entered into the MoU, as they specifically included provisions regarding changes i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the MoU. 48. It is the case of the Appellant that since the Corporate Debtor failed to perform his part of obligation, the advance given by the Appellant assumed the character of financial debt in terms of Section 5(8) of the Code. He highlighted the relevant clauses of the MoU to buttress his point. 49. The Appellant submitted that his relationship with the Corporate Debtor was of financial creditor and financial debtor therefore, the amount given by him should have been treated as a financial debt. 50. The Appellant argued that since lease agreement was never executed as such there has been no co-relation between the amount paid under MoU as security deposit as claimed by the Respondent. It is the case of the Appellant that in terms of Clause 8.1(i) of the MoU Rs. 2,37,61,440/- was deposited by the Appellant with the Corporate Debtor as six months rents of property of phase-I but since no building was constructed by the Corporate Debtor, the deposit could not have been treated as operational debt. The Appellant further argued with this was more in nature of mobilisation advance for helping the Corporate Debtor to construct school building which is akin to financial debt. 51 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rit in the appeal. 56. The Respondent refuted the claim of the Appellant that interest @9% p.a. has been provided in the MoU and submitted that this stipulated interest is in nature of penalty in case of default of by the Corporate Debtor for payment of lease rentable and thus, the same cannot be treated as having commercial effect of the borrowing in terms of the Code. 57. The Respondent pleaded that even assuming but not accepting that in terms of Clause 3 of the MoU, the Appellant had right to terminate and seek the money back, however, the fact remains that the Appellant till date has not terminated the MoU invoking Clause 22 of the MoU. The Respondent highlighted that the email dated 04.03.2019 sent by the Appellant to the Corporate Debtor does not mention anything about the termination of MoU. 58. The Respondent argued that the interest provided under the MoU is not against any debt but is only in form of the liquidated damages or penalty for timely refund of the security deposit upon termination of MoU. 59. The Respondent highlighted that in terms of judgment of this Appellate Tribunal delivered in the case of Budhpur Buildcon Pvt. Ltd. (Supra) it has been held that pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e till the Lessor refunds the same. However, if upon the expiry, or termination, or earlier determination, of Lease Term the Lessee fails, refuses, or neglects to vacate and hand over the said Property to the Lessor and/or fails, refuses or neglects to observe, perform, comply with, and/or satisfy any of its obligations under the Lease Deed, (i) the Lessor shall be entitled to withhold the entire Security Deposit (without any interest liability thereon) and (ii) the Lessee shall be liable to pay to the Lessor, in addition to the prevailing Rentals and all other amounts payable by the Lessee under the lease deed, the entire property rates and taxes, cesses, outgoings, statutory impositions etc. levied/charged in respect of the Property together with pre-estimated liquidated damages of such amount being twice the per day rent and/or Revenue (which the lessor and the Lessee consider to be reasonable, and not as a penalty) for wrongful use of the Building and the said Land calculated from the date of the expiry, or termination, or earlier determination of the Lease, till the Lessee vacates and hands over charge of the Building and the said Land to the Lessor and complies with all its o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction should have commercial effect of borrowing and there must be time value of money. 65. We note that a similar view was taken by the Hon'ble Supreme Court of India in the matter of New Okhla Industrial Development Authority vs. Anand Sonbhadra [(2023) 1 SCC 724] which had concurred with the view taken in the Pioneer Urban Land and Infrastructure Limited (Supra) thus we are duty bound to the ratio stipulated in the said judgment. 66. In the present case, we have already noted that there has been disbursal of money by the Appellant to the Corporate Debtor. However, what is to be seen is as to whether the other two conditions of Section 5(8) are satisfied by the Appellant or not i.e., whether the transaction got commercial effect of the borrowing and whether there is time value of money. For commercial effect, the intent between the lenders and the Corporate Debtor/ Borrower should be clear which indicate the purpose of such financial facilities. Such financial facilities/ loans are typical when the financial creditors lent money, stipulating the period for which money is lent, purpose for such money and also stipulate the returns on the financial debt in terms of interest, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was meant as mobilisation advance. 70. As far as the case cited by the Appellant i.e., Global Credit Capital Limited (Supra), we note that the Hon'ble Supreme Court of India has held that the test to determine whether the financial debt is within the meaning of Section 8(5) of the Code, the real nature of the transaction should be looked into. The Hon'ble Supreme Court of India further stipulated that it could be an operational debt if the subject matter of the debt has some connection of co- relation with the service subject matter of transaction. Taking clue from this, we find that to subject matter of MoU was renting the school premises by the Corporate Debtor to the Appellant on monthly rental basis and therefore it does not fall within the definition of financial debt in terms of Section 5(8) of the Code. Thus, we do not find Global Credit Capital Limited (Supra) is applicable in the present case. 71. Thus, we hold that in the present case the money disbursed by the Appellant is clearly security deposit given under MoU for securing the monthly rental from the Appellant. 72. We further note that Clause 8 of MoU provide for security deposit is fully refundable without any int ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
