TaxTMI 
TaxTMI 
2021 (5) TMI 649
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...., are as follows: (1) M/s. Aayas Trade Services Pvt. Ltd. ('the Petitioner/Operational Creditor') is a company incorporated under the provisions of the Companies Act, 1956 vide CIN: U52339KA2006PTC051761. Its registered office is situated at New No. 45(Old No. 76), 2nd Floor, 2nd Main Road, 41st Cross, Jayanagar, 8th Block, Bangalore - 560070. (2) M/s. Mantri Developers Pvt. Ltd. ('the Respondent MDPL/Corporate Debtor') is a company incorporated under the provisions of Companies Act, 1956 on 06.12.1990 vide CIN: U72102KA1990PTC027924. The Authorised Capital of the Company is Rs. 110,00,00,000/- and the Paid-Up Capital is Rs. 46,19,33,190/-. Its registered office is situated at #41, Vittal Mallya Road, Bangalore 560102. 3. As per the Company Petition, the Applicant Aayas Trade Services Private Limited (Aayas/Operational Creditor) has contended as under: (1) That it is an Operational Creditor of the Respondent M's Mantri Developers Private Limited (Respondent MDPL) under the provisions of the Insolvency and Bankruptcy Code, 2016. Aayas (Petitioner) is a subsidiary of Elbit India Plaza India Real Estate Holdings Ltd., ("Elbit India"). ....
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....urchase Agreement dated 16/06/2017 (SPA 5) which was amended by Amendment Agreements dated 27/03/2018 (SPA 6) and 19/04/2019 (SPA 7). (6) Under the said agreements, referred to as SPAs, it was agreed that (i) the Respondent MDPL would pay to Elbit India under SPA 7 a sum of Rs. 50 crore in 8 tranches. Series A of compulsorily convertible debentures of the Applicant would be transferred to the Respondent MDPL against such payments, and (ii) MIPL would pay to Elbit India under SPA 4 a total sum of Rs. 226,63,17,477 after the closing of the aforesaid transaction under SPA 7. All the series B compulsorily convertible debentures of the Applicant and also all the equity shares of the Applicant would be transferred to MIPL upon such payments being made; (iii) if there was any default by the Respondent MDPL in making payments under SPA 7, the said SPA 7 would get terminated in terms of clause 7.1 of SPA 7 and the consequences would follow under the terms of SPA 4; (iv) upon the aforesaid taking place, Respondent MDPL would carry out a set of actions and listed under clause 3.9 of SPA 4, referred to as "separation" therein; and (v) if the Respondent MDPL did not give effect to sepa....
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....Rs. 2,50,00,000 were all returned by the bank with the remarks "funds insufficient". (12) Since it is clear that the Respondent MDPL/Corporate debtor has become financially insolvent and unable to honour its repayment commitments or even carry on its regular day-to-day business operations efficiently the present Application is being filed before this Hon'ble Tribunal. Along with the petition the Applicant has filed a list of all the important dates and events when the various agreements were signed, amendments were made, the payments are due to be made, the cheques were issued and returned by the bank, issue of notice to the Respondent MDPL, the failure of the Respondent MDPL to carry out the separation, the notices issued by the Applicant to the Respondent MDPL, the response received from the Respondent MDPL and the date on which the Applicant issued a demand notice to the Respondent MDPL and the date of the reply received there to etc. (13) As per the Application filed in Form 5, the details of the Applicant, Aayas Trade Services Private Limited, details of the Respondent MDPL, particulars of operational debt of maintainability cum preliminary statement of o....
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....urpose of achieving specific objects. The entity is nevertheless an independent corporate entity. The Application before this Tribunal starts with the Amended Framework Agreement dated 13/03/2008 which is a contract between M/s. Elbit India Plaza India Real Estate Holdings Ltd., a Cyprus company, (Elbit India), M/s. Mantri Developers Private Limited (the Respondent MDPL), and M/s. Aayas Trade Services Private Limited (Aayas). Elbit India and Aayas approached this Respondent MDPL for the purpose of developing their business. After much deliberations, the conceived project was Varthur Project for developing a whole township with villas, bungalows, commercial space, offices, hospitals, schools etc. was conceived. At the time when the initial agreements were signed, it is well within the knowledge of the Applicant and its allied companies that the entire extent of lands were not with this Respondent MDPL and only expanse of land viz. 54.3 acres of converted land and 25.6 acres of non-converted agricultural land was in the ownership of this Respondent MDPL and rest was to be aggregated by way of purchase or joint development plan from the original owners/landlord agriculturalists. ....
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....r charges such as utilities and immunities charges, distribution of net proceeds etc are also blank and incomplete. This indicates that given the size and magnitude of the project, various terms and matters are always on the formation stage and largely inconclusive. There is also a detailed dispute resolution mechanism agreed to. Reference of dispute is to be made to Mr. Zisser and Mr. Sushil Mantri. Thereafter, a conditional recourse to arbitration would follow. (9) As the Varthur project development stood thus, Elbit India and M/s. Koyenko Ltd., who claim to hold 100% of shares and securities of Aayas offered to sell to Minerva entire shares and securities in Aayas. After large and discrete deliberations Minerva agreed to purchase the shares and securities from Elbit India and Koyenco under various distinct terms and conditions as detailed under the SPA with specific terms. The role assigned to this Respondent MDPL under the said agreement, produced as SPA1 to the Application, is quite limited. The main parties to the agreement are invariably Elbit India and Koyenco being the owners and sellers of securities and Minerva being the purchaser. Other parties are convenient f....
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....ence is a deemed stakeholder is not alone a serious breach of trust on the part of the Applicant would also amount to a case of serious fraud. (11) Very importantly, default remedy terms were agreed upon under SPA 1 as seen from para 5 thereof, mainly termed as "Separation", and consequences thereof that eventually underwent amendments in due course alongside the novation of contract as occurred from time to time. A glance at SPA 4 which is supposed to be the latest amendment of SPA 1 followed by SPA 2 and SPA 3, would indicate that basic structure of contract itself was not attempted to be changed or modified though the rights vis-à-vis liabilities of the parties thereunder underwent a substantial change by fastening inter se obligations giving rise to different legal remedies inter alia against each other. Several convenient amendments that were subjected to the contract were rather legally unsustainable and the competent of corporate duress is clearly visible. (12) Admittedly the flotation of terms of contract further continued by SPA 5 and its amended versions SPA 6 and 7 by which a new contract altogether was tried to be achieved by replacing the stake....
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....rein, after due notice to the promoters and directors of Elbit India and Aayas, and the same would be placed before this trouble in due course. (15) It is submitted that while the Applicant says that the dues are owed to its parent company and the refundable security deposit became payable, the Application is filed for a different due altogether. Elbit India or Koyenko are not even the parties to the Application. Similarly Minerva being the main purchaser and is the defaulter according to the Applicant, is not even a party to the Application. The extension of petition is seriously hit by non-joinder and thus it is a case of serious misuse of this Forum. (16) While in one stretch the Applicant says it is a corporate liability arising out of contracts as agreed upon, discounting all that it would say, on the other hand the liability is actually the return of funds directly to Elbit India, while Elbit India is not even the Applicant. Very strangely the Applicant would say that the entire exercise of so many SPA's and Allied contracts was to recover the money is to the tune of Rs. 537 and odd crore, but the same is not what is seen from the content of it and nor i....
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.... by taking evidence of the parties to Rule out the matters in a given case stands on the pedestal of a Plenary court. A party approaching a complete court has a duty to satisfy the complete requirements of a proper legal institution of claim. The present Application being apparently faulty in terms of several factors deserves to be dismissed. (23) Applicant has rather committed an abuse of virtuous forum. The intention of IBC is to undo a corporate entity, which has actually and evidently become incapable of maintaining a lawful and beneficial existence. The Respondent MDPL is a solvent company engaged in huge business commanding great goodwill. Whereas, the Applicant is attempting to utilise the forum as a recovery court for his business and frenzied claims, which in fact is not its claim but admittedly a claim of non-party, that is Elbit India. Under Rule 6 of the IB Application to the Adjudicating Authority Rules 2016, an operational creditor will not be able to maintain any Application seeking liquidation proceedings unless the Application is presented along with all the legally admissible documents as contemplated under BBI regulations 2016. Hence the very Application....
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....e aforesaid SPA had to be modified from time to time thereby extending the timelines, the last agreement being executed on 19/04/2019, a copy of which is annexed. (4) Between the 1st and the 4th SPA, the only amounts paid by the Respondent MDPL was a sum of Rs. 80 crore against which non-convertible unsecured debentures had already been issued by the Applicant to the Respondent MDPL before SPA 4 was executed. Under SPA 4, it was agreed to as follows: Situation 1: The Respondent MDPL would pay a sum of Rs. 50 crore and Minerva would pay a sum of Rs. 226,63,17,477. For the payments made by the Respondent MDPL, it would receive Series A CCDs in the Applicant which would be immediately reclassified as non-convertible debentures. For the payments made by Minerva, it would receive series B CCDs, and the entire share capital of the Petitioner. Situation 2: If there was any default in making the tranches of payments mentioned above, the Respondent MDPL became contractually liable to carry out a certain set of actions defined in the contract as "Separation" obligations. Situation 3: If the aforesaid "Separation" obligations were not given effect to within....
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....ments. (9) After the execution of SPA 4, none of the obligations were fulfilled by the Respondent MDPL, even the 1st tranche of Rs. 10 crores was not paid, which made it liable to carry out the separation actions which are also not fulfilled, and hence it became liable to pay Rs. 356,63,17,477 which was also not paid. All that it paid after SPA 4 and before the response dated 08/08/2019, was Rs. 5 crore. It was therefore frivolous for the Respondent MDPL to contend that it had paid Rs. 85 crore. (10) It is clear that the Respondent MDPL has become commercially insolvent which is evident from the dishonour of cheques to the tune of Rs. 2.5 crore, 3 cheque return memos dated 30/04/2019, 06/07/2019 and 26/07/2019 for a total sum of Rs. 15 crore are annexed. Thus, Respondent MDPL is unable to repay its obligations, the debt is admitted, the Petitioner is an operational creditor since the amounts have been advanced towards the proposed services of aggregation and development of land. (11) In response to the oral submissions made during the course of these proceedings by the Respondent MDPL, it has been submitted that it has been wrongly argued that it holds ce....
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.... to pay Rs. 356,63,17,477, the Applicant had the option to assert the rights over land parcels. Relying upon letters dated 09/05/2019 and 10/07/2019 issued by Elbit India, the Respondent MDPL falsely contended that the Petitioner had indeed opted to assert rights over land parcels and therefore the Petitioner could not have claimed the above amount. This is also patently false since the aforesaid letters dated 09/05/2019 and 10/07/2090 are not in relation to asserting rights over the land parcels under clause 3.11 of SPA 4 but were communications issued at the previous stage that is calling upon the Respondent MDPL to carry out the separation actions. Despite this the Respondent MDPL did not carry out the separation obligations and instead issued a communication dated 22/07/2019 refusing to carry out the same. It was under such circumstances that clause 3.11 of SPA 4 was triggered. (14) At that stage the Applicant did not take to assert rights over the land parcels. Instead the Applicant made the demand for the payment of Rs. 356,63,17,77. Therefore reference to the letters dated 09.05.2019 and 10.07.2019 was frivolous. 6. Heard Shri Prashanth V.G., Ld. Senior Advocate ....
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....creditor as - "any person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred." To be covered under the Code as an Operational Creditor the operational debt should emanate from provision of goods or services or out of employment or dues payable to Central Government, any State Government or any local authority. Thus as per the Code, every debt is not operational debt and hence every creditor cannot be an operational creditor, even though there may be an obligation or a liability due from the other person, the debtor. Another important aspect of an operational debt is that it has to be in the course of operations, that is there has to be an operational relationship of a seller-buyer or service provider - service recipient between the operational creditor-operational debtor. If there are no goods supplied or services rendered by the operational creditor or in fact service is given by the corporate debtor to the operational creditor (in which case the corporate debtor will assume the role of an operational creditor) there can be no operational debt. While all kinds of amounts owed may be a debt under any other law, und....
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....plication made for recovery of dues owing to breach of the Settlement Agreement could also not be considered as liable to be covered under the Code. (7) Before examining the facts of the case it may be stated that the two sides have referred to the long series of events in a different manner, so as to suit their arguments. The Petitioner states that all the agreements are in a continuum and only represent different stages. The Respondent states that the initial set of events when the refundable security was given and the subsequent events of sale of shares are independent and there is a disconnect between the two demands, and hence the petition is not maintainable, being filed for a different debt and to different persons. However, since the purpose in this proceeding is not to solve the disputes arisen between the parties, we shall confine ourselves to examining these events only to see if there is an operational debt, whether the Petitioner alone can be termed as an operational creditor, and whether the petition is maintainable. (8) It is seen from the Amended and Reinstated Share Subscription and Framework Agreement of 13/03/2008 signed between Respondent MDPL,....
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....reements, the so called first stage, we find that the refundable security deposit could not be held to be an operational debt as there existed no operational creditor - operational debtor relationship between Elbit India and Petitioner Aayas on one side, and MDPL on the other with regard to the refundable security deposit. Thus, it only follows that any default in not repaying the installments or tranches of such refundable security deposit would also not fall within the ambit of the Code, and a petition filed for non-payment of the same has to be considered as non-maintainable. In fact here the services, as per the petitioner were to be rendered by Minerva, after the agreement of 22.07.2010. It is not a case where services were rendered by the Petitioner, bills raised and amounts were due from the Respondent. It is the other way round. Even though a debt may be there that is refund of amounts received by the Respondent MDPL as refundable security, under the Code the same cannot be termed as an operational debt, as the same is not backed up any supply of goods or services. Further, after the agreement with Minerva for doing the development, the relationship between the Respondent a....
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....uffers from non-joinder. (13) The Petitioner submits that by borrowing funds from Elbit India for advancing to MDPL, Elbit India does not become an Operational Creditor. We find that in the most important agreement, the Framework Agreement of 22.07.2010, Article IV on Financing and Administration starts with Elbit India Investment. The receipt of the amounts is recorded as "Elbit India Immediate Funding Amount from Elbit". The Petitioner Aayas is a mere conduit for making investment in Respondent MDPL for acquiring development rights in respect of Varthur lands. Article VI of the Framework Agreement in which Minerva, the wholly owned subsidiary of Respondent MDPL was added for doing development work, mentions that any proceeds obtained from the project by Respondent MDPL shall be used towards the payment of Elbit India Investment. All earlier or subsequent agreements also hold Elbit India as the central and the main creditor. The second stage is also entirely designed to directly pay back the debt of Elbit India by Respondent MDPL and Minerva. In fact as per clause 7.4 Elbit India could even sell its SPV, Aayas for recovery of its investment, as was agreed to subsequently,....
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....seeking liquidation of the respondent company which is already substantially its own stakeholder/investor. Hence, for recovery of its debt, the petition should have been filed by Elbit India, the parent Company. This also establishes that no debt is otherwise owed to Aayas, except the amounts claimed and sought to be recovered by Elbit India. Aayas therefore has no locus at all to file this petition as through this petition it seeks to recover the debt of another group entity, Elbit India. Similarly, in respect of the Koyenco shares agreed to be sold to Minerva/MDPL, it is strange that Koyenco is not enjoined along with Elbit India or Aayas as the creditor and petitioner. Thus, any action under the Code could have been initiated with Elbit India and Koyenco on one side and Minerva and Respondent MDPL on the other side, and not only by Petitioner Aayas, singly by itself. (16) It further follows that in allowing Minerva to buy shares to the extent of Rs. 226.63 crore and allowing Respondent MDPL to buy only CCDs worth Rs. 50 crore, (part of which has been acquired by direct payment to Elbit India), Elbit India also does not consider Respondent MDPL as the main debtor, but jo....
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.... settlement of disputes. In the Framework Agreement of 22.10.2010 there is a specific provision for dispute resolution, even identifying the persons to whom reference will be made. There is also a conditional recourse to arbitration. In SPA 1 also at para 5 default remedy terms have been spelt out. As we see, the disputes raised are such as would be covered by the Specific Relief Act as in most cases the issue is of the respondent being non-compliant to various clauses of the agreements. In SPA5 also at para 9.2 there is mention that the liability of the purchaser would be defined by a competent court of law and not as lodged by a party. There are clauses indicating resolving disputes related to specific performance of the contract. In any case, disputes arising in JDAs are not matters that can come before this Tribunal. Similarly when agreements give rise to some demand and debt, and the clauses of which come into dispute, the same will not fall within the jurisdiction of this Tribunal or the Code. Some disputes are already agitated before different courts. The respondent also states that it has filed counter claims before seeking criminal prosecution. We are therefore of the cons....
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.... in the present form, and that the parties and the quantum have not been correctly identified. (22) We also find that the Respondent has stated that the various agreements are still not concluded or rescinded and are in the process of being implemented as the very nature of the projects is a long one. The Development contracts and other ancillary contracts of acquisition, assignment etc. are still not called of and while they continue to bind all the parties, to seek initiation of CIRP through this petition, would not be beneficial to any party. It also appears to us that when Minerva and Respondent MDPL have already made substantial investments as also returned substantial sums to Elbit India directly, an abrupt end to the process is not helpful in huge projects of this magnitude. This would mean that if the disputes are resolved and the parties mutually sort out their disagreements mutually, through mediation or through some other forum, a solution can be found. (23) In conclusion, on a careful consideration of the legal and factual position, we are of the considered view that the debt claimed by the Petitioner, as arising from the refundable security deposit do....