AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (4) TMI 775
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....wing: "In the present case, this Adjudicating Authority is satisfied with the submissions put forth by the Petitioner/Financial Creditor regarding existence of 'financial debt' and occurrence of 'default'. Further, the Financial Creditor has fulfilled all the requirements as contemplated under IB Code in the present Company Petition and has also proposed the name of IRP after obtaining his written consent in Form-2" and consequently admitted the petition by ordering the commencement of 'CIRP Process etc'., APPELLANT'S CONTENTIONS: 3. The Learned Counsel for the 'Appellant' submits that the First Respondent/Corporate Debtor approached the Second Respondent for 'Financial Assistance' and that a 'Lease Agreement' dated 03.04.2017 was entered into between the parties, in and by which, the Second Respondent/Petitioner/Financial Creditor leased out 'Furnitures and Fixtures' to the First Respondent. 4. According to the Learned Counsel for the Appellant, the 'Lease Agreement' does not indicate the 'Liability' thereunder is in consideration for the 'time value of money' and further that there is no indication in the 'Lease Agreement' that it i....
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....he question as to whether the 'Lease' is factually a 'Financial or Capital Lease' as required under Section 5(7), 5(8)(d), 5(20), 5(21) of the 'I&B Code' and the 'Accounting Standards'. 10. The Learned Counsel for the Appellant contends that the 'Definition' of "Financial Debt' as per Section 5(8) of the Code requires (1) 'Debt' along with 'Interest', if any, (2) which is disbursed (3) against a consideration of time value of money and that the aforesaid three requirements are to be satisfied for a 'Financial Debt'. Also, it is represented on behalf of the 'Appellant' that even 'Lease Agreements' falling under section 5(8)(d) must satisfy the aforesaid requirements and refers to the judgment of the Hon'ble Supreme Court of India in 'Phoenix ARC Pvt Ltd Vs Ketulbhai Ramubhai Patel' (Civil Appeal No. 5146 of 2019) wherein at paragraph 21, 46-48 it is observed as under: "21. Whether the corporate debtor owed any financial debt to the appellant so as to treat the appellant as financial creditor is the question to be answered. The definition of 'financial debt' as contained in Section 5(8) contains the expressions "means" and "includes". The definition b....
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....ed therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of 'disbursement' against 'the consideration for the time value of money' 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 Subclauses (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 anther 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 correspondent 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 financia....
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....) 2 SCC 256), Ishwar Dutt V Collector (LA) (2005) 7 SCC 190) and State of Maharashtra v Hindustan Construction Co Ltd (2010) 4 SCC 518), held that relief not founded on the pleadings cannot be granted. A decision of a case cannot be based on grounds outside the pleadings of the parties. No evidence is permissible to be taken on record in the absence of the pleadings in that respect. No party can be permitted to travel beyond it pleading and that all necessary and materials facts should be pleaded by the party in support of the case set up by it. It was further held that where the evidence was not in the line of the pleadings, the said evidence cannot be looked into or relied upon. 85.6. The court cannot travel beyond the pleadings as no party can lead the evidence on an issue/point not raised in the pleadings and in case, such evidence has been adduced or a fining of fact has been recorded by the court, it is just to be ignored. Though it may be a different case where in spite of specific pleadings, a particular issue is not framed and the parties having full knowledge of the issue in controversy lead the evidence and the court records a findin....
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....ying out money, commonly from a fund or in settlement of a debt or account payable. 2. The money so paid; an amount of money given for a particular purpose." 71. In the present context, it is clear that the expression "disburse" would refer to the payment of instalments by the allottee to the real estate developer for the particular purpose of funding the real estate project in which the allottee is to be allotted a flat/apartment. The expression " disbursed" refers to money which has been paid against consideration for the "time value of money". In short, the "disbursal" must be money and must be against consideration for the "time value of money", meaning thereby the fact that such money is now no longer with the lender, but is with the borrow, who then utilizes the money. Thus far, it is clear that an allottee "disburses" money in the form of advance payments made towards construction of the real estate project. We were shown the Dictionary of Banking Terms (2nd Edn.) by Thomas P Fitch in which "time value of money" was defined thus: "present value: today's value of a payment or a stream of payment amount due and payable at some spec....
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....t of the reply dated 10.08.2018 to the demand notice dated 27.07.2018 given by the Second Respondent/Financial Creditor. First Respondent's Contentions: 23. The Learned Counsel for the First Respondent submits that the 'Appellant' is well aware about the 'CIRP' process, when it appeared before the 'Adjudicating Authority' with reference to the application filed under Section 19 of the Code, by the 'Insolvency Resolution Professional'. In fact, the 'Insolvency Resolution Professional' had initiated 'CIRP' and made the public announcement on 26.8.2020 and further that the 'Insolvency and Bankruptcy Code of India' was also informed through email on 26.8.2020. 24. The Learned Counsel for the First Respondent brings to the notice of this 'Tribunal' that the 'Insolvency Resolution Professional' received the claims from three 'Financial Creditors' and one 'Operational Creditor', verified and collated the same which runs as follows: Name of the Financial Creditor Amount claimed Amount admitted Karur Vaisya Bank* Rs. 1,70,000 Rs. 1,53,000 Reliance Commercial Finance Limited Rs. 3,20,27,162 Rs. 3,20,27,162 Orix Leasing & Financial Services I ....
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....irst Respondent contends that as the basic review of 'Bank Statements of Corporate Debtor' looked suspicious and no significant sale and purchase related transactions were observed, the 'Resolution Professional' appointed a 'Certified FAFP Professional' to conduct 'Forensic and Fraud Detection Audit (FAFD) on the preferential, undervalued, extortionate credit or fraudulent transactions as per 'Insolvency and Bankruptcy Code', 2016. In fact, the 'Audit' was conducted by Mr.Sunil Kumar Kabra (FAFP No.2910) for the period 1.4.2016 to 24.8.2020 (CIRP date). Also that, 'FAFD Auditor in his 'Report' mentioned that, the 'Suspended Board' had not cooperated with 'FAFD Auditors' and not shared any of the required 'Information and Explanations'. 29. The Learned Counsel for the First Respondent submits that the 'Sales Tax Authorities in their 'Orders/Notices' had mentioned to the effect "the dealer has failed to furnish the books of account despite the issue of notice and failed to utilize multiple opportunities provided by them". As such, the 'Resolution Professional' filed an application under Sections 43,44,45,46, 48,49,66,70(c) and 236 of Insolvency and Bankruptcy....
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....aid stand taken by the Appellant has not been disputed by the Respondent, as he failed to appear. Paragraph 17. Admittedly, no notice was issued under subsection (1) of Section 8 of the 'I&B Code'. In terms with Rule 5, other informations were also not placed before the Adjudicating Authority'. Paragraph 18 . The Respondent having failed to provide all the details as required under form 5 as noticed above, the application under sections 433 and 434 of the Companies Act, 1956 cannot be treated to be an application under Section 9 of the 'I&B Code' in terms of Rule 5 of Transfer Rules, 2016. In such circumstances, in view of proviso to rule 5 of the Transfer Rules, the application under Sections 433 and 434 of the Companies Act, 1956 stands abated." 34. The Learned Counsel for the Second Respondent cites the Judgement of this 'Tribunal' in Comp.App.AT(CH)(Ins)39/17 dated 28.7.2017 between M/s Uttam Galva Steels Ltd. V. M/s DF Deutsche Forfait AG & Anr., wherein at Paragraphs 17, 18,19 and 20 it is observed as under. Paragraph 17 : Under sub-section (1) of Section 8 of the I&B Code, an 'Operational Creditor' on occurrence of a default, is required to delive....
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...., it had not obtained any loan from the Second Respondent. 36. The Learned Counsel for the Second Respondent proceeds to point out that the 'Corporate debtor' had confirmed that the Second Respondent is a 'Financial Creditor' but had stated before the 'Adjudicating Authority' that it had no jurisdiction because of the fact that Second Respondent's head office is at Mumbai and that the transaction took place at Mumbai and then contradicted and denied that it is indebted for a total sum of Rs. 1.16 Crores to the Second Respondent. Further, the 'Corporate Debtor' took a stand that it signed blank forms and documents and hence signatures could be there, but those documents were not executed by the 'Corporate Debtor' etc. and it assailed the correctness and genuineness of the account. 37. The Learned counsel for the Second Respondent comes out with a plea that the Second Respondent had invested a sum of Rs. 1,07,76,815.36 under 'Financial Lease Contract' with a repayment schedule as 'Lease Rentals' in 36 months and at the end of the 'Lease Contract', the 'Asset' will be purchased by the 'Corporate Debtor' at a residual value of Rs. 21,65,190/- that was already received as ....
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....s not a 'Financial Lease'. DISCUSSIONS & FINDINGS: 43. In the Application filed by the Second Respondent/Financial Creditor (under Form-1) to initiate 'CIRP' (under Section 7 of the Code r/w Rule 4 of the Insolvency & Bankruptcy Application to Adjudicating Authority) Rules, 2016 in Part-IV -Particulars of Financial Debt' in Serial No.1, it was mentioned that the total amount of debt granted was Rs. 1,07,76,815/- and it was mentioned as (i) Rs. 64,95,569/- on 5th April 2017, (ii) Rs. 42,81,245/- on 28th November 2017. Apart from this, the Second Respondent/Financial Creditor had mentioned that the First Respondent/Corporate Debtor entered into a 'Lease Agreement' with the Applicant Company to avail financial assistance of Rs. 1,07,76,815/- (Rupees One Crore Seven Lakh Seventy Six Thousand Eight Hundred and Fifteen only) to carry out interior work on 3rd April 2017. 44. The Second Respondent /Financial Creditor had claimed a default sum of Rs. 1,16,98,242.60/-(Rupees One Crore Sixteen Lakhs Ninety Eight Thousand Two Hundred and Forty Two and Paise Sixty only) and that the said amount was not....
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....other proceeds to mention that the post dated cheques against the lease rentals (PDC's) and Security Cheque issued by them to the Second Respondent towards discharging of their liability to repay the lease amount/total acquisition cost taken from the Second Respondent (as contained in the said agreement) was also dishonoured for want of insufficient funds in their Bank Account and as such miserably failed to honour the commitment under the said agreements. Moreover, inspite of the Second Respondent's repeated requests and 'Demand Notice' dated 26.6.2018, the promises made through their emails addressed to the Second Respondent/Financial Creditor, for clearing the dues they had failed to discharge their liabilities under the said agreement and had violated the terms of the agreement. 49. In short, in the Demand Notice dated 27.7.2018 issued by the Second Respondent addressed to the First Respondent/Corporate Debtor and Another, it was mentioned that the default was committed by the First Respondent/Corporate Debtor repeatedly and as per terms of the agreement, a sum of Rs. 9,481,209/- being the total due was legally due and payable by it to the Second Respondent as on d....
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.... the primary ingredients of Section 5(8) of the Code are not satisfied, this 'Tribunal' bearing in mind the meaning of 'Time Value' that it is 'the price associated with length of time that an investor must wait until investment matures or related income is earned' (vide Black's Law Dictionary) and also considered the fact that the Second Respondent/Financial Creditor had invested a sum of Rs. 1,07,76,815.35 paise under the 'Lease Agreement' dated 3.4.2017, in and by which a repayment schedule was mentioned as lease rental for a period of 36 months and at the end of the lease, the 'Asset' will be purchased by the First Respondent/Corporate Debtor at a value of Rs. 21,65,190/- which was received by the Second Respondent/Financial Creditor as Security Deposit comes to an inevitable and inescapable conclusion that the disbursal of amounts to the manufacturer 'Interio Architecture' comes within the requirement of 'time value for money' and the contra plea projected on the side of the 'Appellant' is not acceded to, by this Tribunal. 53. In so far as the contention of the 'Appellant' that the Second Respondent/Financial Creditor had not pleaded in the Section 7 of the Applic....
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....e defines "Financial Institution'.(including a financial institution as defined in section 45 -I of the Reserve Bank of India Act, 1934 (2 of 1934). Section 50 of the I & B Code, 2016 provides a carve out to a 'Financial Service Provider' for its credit facility to be regarded as 'extortionate'. Likewise, section 167 of the I & B Code, 2016 provides that any debt extended by a person regulated for the provision of 'Financial Services' shall not be considered as an 'extortionate credit transaction'. 56. As matter of fact, the definition of Corporate Person in section 2(7) of the I & B Code, 2016 excludes any 'Financial Service Provider'. 57. It is not out of place for this Tribunal to make a relevant mention that the procedure envisaged under section 8 of the Code, 2016 differs from the procedure applicable to the "Financial Creditors' as 'Operational Debts' like the trade debts, salary or wage claims etc tend to be small amounts as compared to 'Financial Debts'. 58. Be that as it may, in the light of the detailed qualitative and quantitative discussions mentioned supra, and keeping in mind the contentions advanced on either s....