TaxTMI 
TaxTMI 
2021 (9) TMI 362
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....d the following: "7. After restoration of the matter into file, this Tribunal heard the arguments advanced by the learned senior counsel for the Financial Creditor and the learned counsel for the Corporate Debtor. At this point it may be noted that after considering all the contentions raised in the IBA by the Corporate Debtor, this Tribunal admitted the Application and ordered Corporate Insolvency Resolution Process. 8. During arguments the learned counsel for the Corporate Debtor raised the objection which he took while arguing IA/02/KOB/2021 regarding the disqualification of the Directors. Since the issue regarding the disqualification has been settled vide the judgement of the Hon'ble High Court in WPC No. 18641 of 2020 and WMP Nos. 23123, 23125, 23127 and 23129 of 2020 and that the matter was once admitted, considering all contentions raised by the Corporate Debtor, in my opinion this contention has no legs to stand at present. 9. In this case the existence of debt is reasonably evidenced in the consent terms that were also made part of the order of this Tribunal dated 24.09.2020 as well as the averments made by the Corporate Debtor themselves regard....
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....n the parties and therefore, the Respondent is not a 'Financial Creditor' viz-a-viz the 'Appellant'. 6. The Learned Counsel for the Appellant puts forward a submission that in the notice the Respondent/Applicant classifies itself as an 'operational creditor' but in the Application filed under section 7 of the Code, he claims to be a 'Financial Creditor'. 7. The other line of attack of the Appellant is that the Adjudicating Authority' had committed an error in determining the application filed by the Respondent/Applicant/'Financial Debt' as per section 7 of the Code, when there was neither repayment nor time value of money as consideration for the money advanced contemplated in the arrangement between the parties. 8. The Learned Counsel for the Appellant submits that the Adjudicating Authority' in the impugned order had not considered any of the contentions raised in the counter filed, but relied on the order dated 24.09.2020 to arrive at the findings. In fact, the order dated 24.09.2020 ceases to exist and therefore, placing reliance on the same is not correct. 9. The Learned Counsel for the Appellant adverts to the judgment of the Tribunal in Comp App (AT) (Ins) Nos.52....
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....e Court in Anuj Jain, Interim Resolution professional for Jaypee Infratech Ltd. v Axis Bank Ltd. reported in (2020) 8 SCC at page 401 wherein at paragraph 46 it is observed as under: 46. "Applying the aforementioned fundamental principles to the definition occurring in Section 5(8) of the Code, we have not an iota of doubt that for a debt to become 'financial debt' for the purpose of part II of the Code, the basic elements are that, it ought to be a disbursal against the consideration for time value of money. It may include any of the methods for raising money or incurring liability by the modes prescribed in clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in clauses (a) to (h). The requirement of existence of a debt which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in clauses (a) to (i) of Section 5(8), even if it is ....
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....ate of return of 15%' on the transaction, therefore, the time value of money having already shown, we hold that the amount disbursed by 'IL & FS Financial Services Limited'- (financial creditor) and the 'Corporate Debtor' had agreed to reverse the transaction by purchasing the shares within a specified time along with the payment of 15% accrual on 20th August, 2009. We hold that the amount if disbursed by 'IL & FS Financial Services Limited' - (financial creditor) comes within the meaning of 'financial debt' therefore, the 'IL & FS Financial Services Limited'- (financial creditor) has been rightly claimed to be a 'financial creditor' and filed Form-1 under Section 7 of the 'I&B Code'. 17. The Learned Counsel for the 'Appellant' emphatically points out that what is significant for the purpose of Section 5(8) of the Code, is the 'nature of debt' at the time of 'disbursal' and as such, placing reliance by the Respondent, upon the 'subsequent communications' between the parties whereby the 'Appellant' had purportedly agreed to refund the money with interest is a misplaced one. 18. The Learned Counsel for the 'Appellant' contends that the subsequent arrangements between the partie....
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.... in Section 5(8) of the Code, we have not an iota of doubt that for a debt to become financial debt for the purpose of Part II of the Code, the basic elements are that it ought to be a disbursal against the consideration for time value of money. It may include any of the methods for raising money or incurring liability by the modes prescribed in clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in clauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in clauses (a) to (i) of Section 5(8), even if it is not necessarily stated 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 transa....
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....editor, and a decree-holder. Similarly, a debt means a liability or obligation in respect of a claim which is due from any person and this expression has also been given an extended meaning to include a financial debt and an operational debt. 49.1. The use of the expression means and includes in these clauses, on the very same principles of interpretation as indicated above, makes it clear that for a person to become a creditor, there has to be a debt, i.e., a liability or obligation in respect of a claim which may be due from any person. A secured creditor in terms of Section 3(30) means a creditor in whose favour a security interest is created; and security interest, in terms of Section 3(31), means a right, title or interest or claim of property created in favour of or provided for a secured creditor by a transaction which secures payment for the purpose of an obligation and it includes, amongst others, a mortgage. Thus, any mortgage created in favour of a creditor leads to a security interest being created and thereby, the creditor becomes a secured creditor. However, when all the defining clauses are read together and harmoniously, it is clear that the legislature has....
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....l requirements of the Corporate Debtor, which did not carry interest. Having regard to the Aims, Objects and Scheme of the IBC, there is no discernible reason, why a term loan to meet the financial requirements of a Corporate Debtor for its operation, which obviously has the commercial effect of borrowing, should be excluded from the purview of a financial debt. 30. In Prabhudas Damodar Kotecha Vs. Manhabala Jeram Damodar, this Court interpreting Section 41(1) of the Presidency Small Cause Courts Act, 1882, as amended by the Maharashtra Act XIX of 1976, observed that the golden rule is that the words of a statute must prima facie be given their ordinary meaning when the language or phraseology employed by the legislature is precise and plain'. Since Section 41(1) does not specifically exclude a gratuitous licensee or make a distinction between a licensee with material consideration or 9 (2013) 15 SCC 358 without material consideration, the expression licensee in Section 41(1) was held to also include a gratuitous licensee. 31. At the cost of repetition, it is reiterated that the trigger for initiation of the Corporate Insolvency Resolution Process by a Financi....
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....spondent' proceeds to point out that the 'Respondent' had issued Form-3 dated 14.01.2019 and that the 'Appellant' had replied to the said notice as per Notice dated 31.01.2019. As a matter of fact, the 'Appellant' in the notice dated 31.01.2019 had replied that the amount is 'due' and not denied its liability, but stated that it is not an 'operational debt'. Indeed, the Respondent issued a notice dated 20.02.2019 for proceeding as a 'Financial Creditor'. 27. It is projected on the side of the 'Respondent' that the 'Respondent'/'Financial Creditor' filed an application IBA/13/KOB/2020 before the 'Adjudicating Authority'(National Company Law Tribunal, Kochi Bench) and the said application was admitted on 25.08.2020 and in fact, the 'Adjudicating Authority' had observed the following: i. "That the application filed under 7(4) of the IBC Code on 20.01.2020 is not barred by Limitation. ii. That the validity of share purchase agreement due to non-registration is not under Hon'ble Tribunal's jurisdiction. iii. That the scope of IBC is limited to see whether there is debt due to non-payment and if any default has occurred, hence the application is filed by Res....
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....he 'Appellant' had not questioned the order dated 25.08.2020 passed by the 'Adjudicating Authority' and in fact, the 'Appellant' has suppressed the fact that the 'debt' acknowledged by the 'Corporate Debtor' from time to time and promised to pay with interest as per letter dated 05.09.2014, 17.03.2015, email dated 28.11.2018 and reply notice dated 31.01.2019 wherein the liability was not denied. 33. The Learned Counsel for the 'Respondent' puts forward a submission that the 'Appellant' has accepted the Respondent as 'Financial Creditor' and approached for a settlement and after arriving at the settlement made a part payment, to an extent of Rs. 11,00,000/- and the order dated 25.08.2020 of the 'Adjudicating Authority' is not challenged by the 'Appellant'. Moreover, the present 'debt' arises out of the Share Purchase agreement dated 24.11.2012, the said amount is a 'debt' disbursed against the consideration for advance payment as per the Agreement and that the 'Appellant' promised to refund along with interest. Therefore, it is the fervent plea of the Respondent that the 'debt in question' is covered under the definition of 'Financial Debt' and that the Respondent is treated as '....
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....s at the origin of conduct productive of change of activation like that of the rule of constructive res judicata as per Explanation-4 to Section 11 of Civil Procedure Code. Estoppel by Election 39. The principle of 'estoppel election' is undoubtedly a rule of 'Equity' and in fact, a person is prevented by way of his conduct or action or silence when it is his prime duty to avail the opportunity of claiming or asserting his right which he would otherwise had. Discussions: 40. At the outset this 'Tribunal' points out that the Respondent/Applicant had entered into a 'Share Purchase Agreement' with the 'Corporate Debtor' on 21.11.2012 to purchase 100% shares of the 'Corporate Debtor' for a consideration of Rs. 33,08,00,000/-. It is not in dispute that the Respondent/Applicant had paid an advance of Rs. 1,00,00,000/- to the 'Corporate Debtor', which was duly acknowledged by the 'Corporate Debtor' as per various letters dated 05.09.2014, 17.03.2015, 28.11.2018. 41. It is represented on behalf of the Respondent/Applicant that the liability of the 'Corporate Debtor' was not denied in the Reply Notice dated 31.01.2018 and that an amount of Rs. 4,25,32,016,405 along with inter....
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....that the 'Appellant'/'Corporate Debtor is desirous of selling 100% of his shares and the 'Respondent'/'Applicant' was desirous of buying the same. Also, the Agreement Clause 3 'Terms of Payment' (d) mentions that the 'seller has some personal borrowings of Rs. 1,00,00,000/-, the buyer agrees to buy the same. 47. Clause (e) of the 'Share Purchase Agreement' dated 21.11.2012 enjoins that 'the seller has to pay a sum of Rs. 1,50,00,000/- to the 'contractor' which the 'buyer' agrees to pay on behalf of the 'seller', etc. Clause (g) of the 'Share Purchase Agreement' envisages 'the Buyer agrees to pay the balance of consideration after settling the above items for the Share Capital Advance, within 90 days from the date of this Agreement directly to the shareholders. 48. Clause 3.2 of the 'Share Purchase Agreement' proceeds to the effect that 'if the Residential customers (in clause b) demand for interest, then the Buyer agrees to pay such interest, but only up to a maximum of Rs. 2,40,00,000/- (Rupees Two Crores and Forty Lakhs only). The Buyer shall pay the interest only if the residential customers so demands. The Buyer shall not pay the interest exceeding the above said sum. Thi....
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....ng a venture or through financial institutions or by sale of assets of the company, etc. and ultimately had requested to hold the cheque and not to present the same for clearance, etc. 53. It transpires that the 'Appellant' filed an application under Rule 11 of the NCLT Rules, 2016 to recall the order of the 'Adjudicating Authority' dated 25.08.2020 and permit them to settle the matter. The 'Appellant' along with the 'Application' Form-FA for withdrawal of 'CIRP' had duly filed the same in IBA/13/KOB/2020 stating that a settlement was arrived at for a sum of Rs. 2,25,00,000/- as 'Full and Final Settlement' of the entire claim between the parties subject to the following terms: '(b) Cheque dated 10.9.2020 bearing No.214323 for Rs. 10,00,000/- was given. However, returning the said cheque M/s Sree Bhadra Parks and Resorts Limited has made an electronic transfer through RTGS of Rs. 10,00,000/- to the account of M/s Sri Ramani Resorts and Hotels Pvt. Limited on 10.09.2020. (c) A cheque dated 30.11.2020 bearing No.214322 for Rs. 2,14,00,000/- drawn on South Indian Bank Limited, Kaniyakumari Main Branch is yet to be encashed and can be done only on 30.11.2020." 54....
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....tion 5(8) of the I & B Code defines 'financial debt' meaning 'any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to'. 63. The essence of any 'debt' to be described as 'financial debt' is the 'time value of money' as 'Borrowing' is a name for 'money transaction'. The word 'debt' is applicable to a sum of money which has been promised at a future day as against a sum nor due and payable. In fact, a sum of money which is certainly and in all events payable is a 'debt', in regard to the fact whether it is payable now or at a future date. 64. Under the I&B Code, 2016 the shift is from 'inability to pay' to an 'existence of default'. No doubt, the 'Adjudicating Authority' is not required to decide the amount of 'default'. Even if a 'debt' is disputed, if the same is more than Rs. 1,00,000/- then the application filed under Section 7 of the Code is maintainable in Law. 65. It is to be pointed out that the plea of disqualification of 'Directors' of the Respondent/Applicant was quashed by the Hon'ble High Court in W.P. No.18641 of 2020 as per order dated 27.01.2020. 66. As far as the present case is concer....
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....duty bound by the Corporate Debtor to make good the payments proposed in that settlement. They cannot go back making various allegations including maintainability of the IBA after making default in the payment agreed to between the parties. The contention regarding the application is not maintainable as the order stipulates for filing a fresh application cannot be accepted because merely on technicalities the Corporate Debtor cannot wash away their hands from complying with the conditions stipulated in the final order passed by this 'Tribunal. Hence, the application IA/02/KOB/2021 is to be allowed." 69. In the instant case, it is quite clear that the order dated 25.08.2020 in IBA/13/KOB/2020 admitting the application under Section 7 of the Code, filed by the 'Respondent'/'Applicant' has not been assailed by the 'Appellant'. In fact, in the 'Impugned Order' dated 30.03.2021 passed by the 'Adjudicating Authority' in IBA/13/KOB/2020 whereby and whereunder the application filed by the 'Respondent'/'Applicant' was admitted, the said 'Adjudicating Authority' came to the conclusion that the 'Respondent'/'Applicant' had proved the existence of a 'debt' as well as existence of 'default' ....