TaxTMI 
TaxTMI 
2021 (10) TMI 644
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....an) in I.A. No. 135/JPR/2019 in C.P. No. (IB)- 86/ND/2018 preferred by the Appellant herein against the decision of the Resolution Professional (RP) of Mount Shivalik Industires Ltd. (hereinafter referred to as the 'Corporate Debtor'). 2. By the Impugned Order, the Learned Adjudicating Authority while dismissing I.A. No. 135/JPR/2019 has observed as follows:- "19. For availing a loan / financial assistance the parties must enter into a financial contract setting out the terms of the financial debt, including the tenure of the debt, interest payable and date of repayment as defined under clause (d) of sub rule (1) of Rule 3 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. 20. Undoubtedly such security deposit is returnable and represents a future obligation. The treatment of said security deposit in the financial statement of the Corporate Debtor for period 01.07 .2014 to 30.06.2015 annexed by the Applicant in rejoinder is not evidently obvious so as to straight-away validate Applicant's contention of deducing by implication. The Corporate Debtor in its balance sheet for year ended 31.03 .2016 and 30.03.2017 has shown security deposits u....
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....that there was financial debt. TDS can be deducted for various reasons. 7. As regard relying on Section l0 of the Contract Act, 1872, in our view IBC is a complete code in itself Section 238 of IBC has overriding effect on provisions inconsistent with IBC. The 'Financial contract' is defined in "Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016" Rule 3(1)(d) requires setting out the terms of the financial debt including tenure etc. We find that Appellant has failed to show any record showing financial debt to be there. As such, we are unable to find any fault in the impugned order while rejecting Section 7 application." 23. In the instant Application no detailed initial agreement is available. Also, there is no addendum or fresh documentation explaining changing nature of agreement/ engagement, from depot management to sales promotion. Within the facts narrated by the Applicant, it is difficult to ascertain the extent and type of services. These could be vastly different from what is stated in the letters of engagement or even as claimed by the Applicant. 24. Scope and canvass of the agreement cannot be left to the imagination. There is no ....
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....rms hereof may be terminated by us during the term of appointment aforesaid by giving to you thirty days notice in writing in this behalf from the date of dispatch of notice. 7. You shall not be entitled upon the termination of this agreement or appointment within the terms hereof to claim any damages or compensation from the company for such termination or consequent thereupon or otherwise relative thereto against the other. 8. Forthwith upon determination of this agreement/appointment you shall cease all dealings on behalf of the company and shall deliver custody of all premises, stock, cash, negotiable instruments, papers and documents and other items and things of the company coming into the custody of these presents. 9. The company reserve the right to appoint any other party as Sales Promoter for areas mentioned above. 10. You have to deposit minimum security of Rs. 53,15,000/- with the Company which will carry interest @ 21% p.a. We will provide you interest on Rs. 7,85,850/- @ 21% per annum. Please acknowledge receipt and as a token of your acceptance of above terms and conditions. Please sign duplicate copy of this letter and return the same to us for our records....
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....Learned Counsel strenuously contended that even as per the Insolvency Law Committee Report dated March 2018 any transaction structure as a tool or means for raising finance would be included as 'Financial Debt' under Section 5(8)(f) of the Code. The Resolution Professional has no adjudicatory power and the Adjudicating Authority did not take this aspect into consideration. Learned Counsel placed reliance on the Judgement of this Tribunal in 'Rishabh Jain' Vs. 'S.S. Enterprises & Anr.' Company Appeal (AT) (Insolvency) No. 1383 of 2019 in which this Tribunal has observed that one has to go into the intent of the parties while interpreting an MoU, which clearly gives rise to the surmise that the same was given by way of financial assistance attracting interest payable thereon. Learned Counsel contended that the amount deposited could not be a mere 'Security Deposit' as there were no other transactions between the parties and the money was mandatorily returnable after a fixed tenure without any deduction or forfeiture. It was not a fixed sum. The 'Corporate Debtor' has established a practice of securing 'Financial Debt' in the garb of 'Security Deposits' under various Agreements, for ....
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.... no money has been advanced as a 'Financial Debt' by the Appellant herein; that the letters dated 01.04.2014, 01.04.2015 and 09.01.2014 specify that the 'Corporate Debtor' had appointed the Appellant to provide certain services as sale promotion and the amount to be deposited as 'security' by the Appellant arises out of the said transaction; that the basic ingredient for a debt to be a 'Financial Debt' within the meaning of Section 5(8) of the Code is that the disbursal of debt should be with consideration for a time value of money which is not present in the said case; that for availing a loan/financial assistance, the parties must enter into a financial contract setting out the terms of 'Financial Debt' including a tenure of debt, interest payable and the debt of repayment as defined under Clause (d) of sub-Rule (1) of Rule 3 of the Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules, 2016; by virtue of Order dated 09.03.2020, the approval of the Applicant's Resolution Plan has been stayed and the entire plant and machinery is deteriorating and may become obsolete if not attended to immediately; that beer is a seasonal product and the Applicant has missed ....
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....unt having the commercial effect of a borrowing; and (ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; .............................................................................. (20) "operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred; (21) "operational debt" means a claim in respect of the provision of good....
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.... Rs. 7,85,850/- was also to be provided by the Appellant and interest of 21% per annum would be paid for the said amount. It is significant to mention here that this amount was not even termed as 'security' in the Agreement dated 01.04.2014. 14. Additionally, Annexure A-8 letter dated 26.10.2017 further establishes that the 'Corporate Debtor' had provided interest for the year 2016-17 amounting to Rs. 18,06,000/- in their books of account credited to the account of the Appellant herein on the date of payment of TDS. The said letter is reproduced as hereunder:- 15. The Hon'ble Supreme Court in 'Ram Janki Devi and Ors.' Vs. 'Juggilal Kamlapat', AIR 1971 SC 2551 in para 12 has observed as follows:- "12. The case of a deposit is something more than a mere loan of money. It will depend on the facts of each case whether the transaction is clothed with the character of a deposit of money. The surrounding circumstances, the relationship and character of the transaction and the manner in which parties treated the transaction will throw light on the true form of the transactions." 16. The Hon'ble Supreme Court in 'V.E.A Annamalai Chettiar and Anr.' Vs. 'S.V.V.S. Veerappa Chettiar & Ors.....
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.... not in dispute that the 'Corporate Debtor' did not adhere to the payment of interest and that there was a default. In other words, neither the 'Debt' nor the 'Default' is disputed. The only question which arises here is whether it is an 'Operational Debt' or a 'Financial Debt'. 20. Learned Counsel for the Appellant in his Written Submissions dated 05.10.2021 has placed reliance on the recent Judgement of the Hon'ble Supreme Court in 'M/s. Orator Marketing Pvt. Ltd.' Vs. 'M/s. Samtex Desinz Pvt. Ltd.' Civil Appeal No. 2231 of 2021 in support of his contention that the debt in the attendant case is a 'Financial Debt'. The Hon'ble Supreme Court in paras 20 to 23 has observed as follows:- "20. A 'corporate debtor' means a corporate person who owes a debt to any person, as per the definition of this expression in Section 3(8) of the IBC. Section 3(11) defines 'debt' to mean "a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt." The word 'claim' has been defined in Section 3(6) to mean inter alia "a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitab....
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....Corporate Debtor' for the Financial Year 2015-16 and under 'other long term liabilities' for the Financial Year 2016-17. To reiterate, the 'Security Deposit' amount had admittedly an element of interest payable at 21% per annum and hence can be construed as having commercial effect of borrowing. The fact that amounts were paid with a specific term and tenure is evident from the term loan dated 01.04.2014, 01.04.2015 which specifies the time periods. It is significant to note that the Appellant paid tax on the net interest income earned by it on accrual basis. 22. The 'Corporate Debtor' had accepted the 'Security Deposit' from the Appellant and credited the interest for some time against such amounts for the period 2014-15, and bearing in mind the payment of interest on the amounts borrowed by the 'Corporate Debtor' is nothing but a consideration for the time value of money and the interest is being paid to the Appellant for using the money belonging to the Appellant over a period of time and hence we arrive at the conclusion that the status of Appellant is that of a Financial Creditor vis-à-vis the amount of 'Security Deposit' as per Section 5(7) read with Section 5(8) of t....