TaxTMI 
TaxTMI 
2019 (5) TMI 331
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.... the prayer of Appellant after recording a finding that the Appellant was an 'Operational Creditor' and there being an existence of dispute on account of civil suits pending between the parties initiation of Corporate Insolvency Resolution Process was not warranted. Aggrieved thereof the Appellant has preferred the instant appeal assailing the impugned order as being legally unsustainable. 2. The only question arising for consideration in this appeal relates to the status of Appellant and initiation of Corporate Insolvency Resolution Process at her instance. 3. A brief resume of the factual matrix for comprehending the real controversy inter-se the parties is inevitable. The Appellant and the Respondent entered into an agreement for construction of a residential building on a turnkey basis at a cost of Rs. 4 Crore. The Appellant transferred a sum of Rs. 1.5 Crore to the Respondent pursuant to the aforesaid agreement executed on 10th November, 2014. This happened on 5th December, 2014. However, the Agreement could not be implemented. The Respondent retained the money received from the Appellant as loan and started paying interest thereon w.e.f. 5th December, 2014. Respondent is ....
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.... Rs. 1.25 Crores, the Appellant was within her rights to initiate Corporate Insolvency Resolution Process. 4. At the very outset, we may observe that the Adjudicating Authority has given a short shrift to the matter and virtually failed to apply its mind to determine that the nature of transaction inter-se the parties would embrace the definition of 'Financial Debt'. The Adjudicating Authority, briefly referred to the agreement dated 10th November, 2014 executed inter-se the parties but without deliberating upon the facts and circumstances leading to termination of the agreement and issuance of balance confirmation on 1st April, 2015 by the Respondent as also the issuance of cheques to discharge the liability, proceeded to hold that the claim of Appellant essentially falls under the category of 'Operational Creditor' under Section 9 of I&B Code with regard to which there was an existence of dispute. In arriving upon such conclusion the Adjudicating Authority appears to have been influenced by the observations of Hon'ble High Court of Madras which quashed the FIR filed by the Appellant alleging cheating and criminal breach of trust on the part of Respondent, after holding that the....
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....rsed against the consideration for the time value of money. Use of expression 'if any' as suffix to 'interest' leaves no room for doubt that the component of interest is not a sine qua non for bringing the debt within the fold of 'financial debt'. The amount disbursed as debt against the consideration for time value of money may or may not be interest bearing. What is material is that the disbursement of debt should be against consideration for the time value of money. Clauses (a) to (i) of Section 5(8) embody the nature of transactions which are included in the definition of 'financial debt'. It includes money borrowed against the payment of interest. Clause (f) of Section 5(8) specifically deals with amount raised under any other transaction having the commercial effect of a borrowing which also includes a forward sale or purchase agreement. It is manifestly clear that money advanced by a Promoter, Director or a Shareholder of the Corporate Debtor as a stakeholder to improve financial health of the Company and boost its economic prospects, would have the commercial effect of borrowing on the part of Corporate Debtor notwithstanding the fact that no provision is made for interest ....
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....o Section 7(1) also makes it clear that the Code may be triggered by such persons in respect of a default made to any other financial creditor of the corporate debtor, making it clear that once triggered, the resolution process under the Code is a collective proceeding in rem which seeks, in the first instance, to rehabilitate the corporate debtor. Under Section 7(4), the Adjudicating Authority shall, within the prescribed period, ascertain the existence of a default on the basis of evidence furnished by the financial creditor; and under Section 7(5), the Adjudicating Authority has to be satisfied that a default has occurred, when it may, by order, admit the application, or dismiss the application if such default has not occurred. On the other hand, under Sections 8 and 9, an operational creditor may, on the occurrence of a default, deliver a demand notice which must then be replied to within the specified period. What is important is that at this stage, if an application is filed before the Adjudicating Authority for initiating the corporate insolvency resolution process, the corporate debtor can prove that the debt is disputed. When the debt is so disputed, such application would....
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.... nature of transaction and debt has to be determined in the aforesaid context. 9. Agreement executed inter-se the parties on 10th November, 2014 envisaged construction of a residential building at the site of Appellant at Koturpuram. The construction was to be raised by Respondent on the design provided by the Appellant for a turnkey price of Rs. 4 Crore. The Appellant was under obligation to pay an advance of Rs. 1.5 Crore within 30 days of the execution of the Agreement which admittedly she paid to Respondent. Balance payment was to be made in equal instalments over the construction period spread over 18 months from the date of approval. Admittedly, the project was abandoned by the Appellant due to market considerations. This is clearly borne out from the statutory notice dated 1st October, 2015 served by Appellant on the Respondent. The Appellant has admitted receipt of Rs. 15 Lakhs from Respondent while alleging that the cheque issued by Respondent towards refund of the balance amount of Rs. 1.35 Crore was dishonoured when presented for encashment twice at the State Bank of Travancore, Taramani Branch for lack of funds. Respondent, while responding to the notice stated that a....