TaxTMI 
TaxTMI 
2021 (11) TMI 188
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....00,000/- (Rupees twenty-five crore only) and b) Pending Interest Amount of Rs. 4,68,04,589/- (Rupees four crore sixty-eight lakh four thousand five hundred eighty-nine only) 3. The Date of Default as mentioned in the Part IV (2) of Form 1 of the Petition is 07.08.2019. 4. The case of the Financial Creditor is as under: (i) A Memorandum of Understanding ('MOU') [Pg. 32/Petition] was executed between the Petitioner (referred therein as "the Joint Developer"), the Respondent is referred as SDPL and the Respondent and Harmony Developers Private Limited are collectively referred as "the Developers". Under the MOU, it was agreed that the Petitioner was to arrange third party capital required by the Respondent and Harmony to meet certain costs of a redevelopment project. It was agreed between the parties that pending finalisation of definitive documents the Petitioner would advance to the Respondent a sum of Rs. 25 crore as "Refundable Security Deposit" on the terms and conditions set out in the MOU. This is borne out in the Recitals of the MOU and Clauses D, E & F a/w Clause 3 to 5 thereof, which read as under: D. In this regard, the Developers an....
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....ithin a period of 90 (ninety) days from the date hereof. 5. If the Joint Developer arranges the said Loan Amount within the aforesaid period of 60 (sixty) days from the date hereof, then the Joint Developer shall be repaid, by SDPL, the Refundable Security Deposit along with the said Interest, from the said Loan Amount arranged by the Joint Developer." (ii) It was agreed between the parties that in the event, if the Petitioner unable to arrange the loan amount within 60 days, then the Respondent would be liable to refund the sum of Rs. 25 crore together with interest thereon @ 14% p.a. compounded monthly from the date of payment until repayment. A time frame of 90 days from the date of MOU was given to make the payment. (iii) It was further agreed that even though the loan amount was arranged within 60 days, the said sum of Rs. 25 crore together with the said interest was to be repaid by the Respondent, but in this case, the only difference being it would be repaid from the loan amount arranged. (iv) It is irrespective of the loan was arranged or the transaction did not go through, the sum of Rs. 25 crore advanced was to be refunded by the Respon....
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....Affidavit by choosing to not file any rejoinder to the said Affidavit. The Petitioner made mere oral submissions without denying the same on record by filing an affidavit as required under law. The Respondent submits that in light of the same, the facts as set out in the said Affidavit are deemed to be admitted by the Petitioner. On this ground alone, the captioned Petition ought to be dismissed in limine. The Supreme court has in the judgment made in the matter of M. Venkataramana Hebbar (dead) by LR's Vs. M. Rajagopal Hebbar and Others [ (2007) 6 SCC 401] held as follows "Thus, if a plea which was relevant for the purpose of maintaining a suit had not been specifically traversed, the court was entitled to draw an inference that the same had been admitted. A fact admitted in terms of Section 58 of the Evidence Act need not be proved." 2. The Respondent has further submitted stating that these facts were suppressed by the Petitioner: 2.1 The Respondent is undertaking/is in the process of undertaking development of property at Kings Circle, Sion, Mumbai - 400 022 ("the said Property") as per the applicable provisions of law ("the Project"). 2.....
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....pay any additional amounts to the Petitioner, agreed to pay to the Petitioner as a lumpsum compensation and not as interest an amount of Rs. 1,93,97,260/- (Rupees one crore ninety-three lakh ninety-seven thousand two hundred and sixty only) in full and final settlement, once it enters into transaction with any third party, as stated above ("the said Compensation"). It is pertinent to note that the said Compensation is a lumpsum compensation and not the purported interest calculated as per the said MOU as alleged by the Petitioner. 2.9 Pursuant to the aforesaid, the Respondent agreed to hand over two postdated cheques in favour of the Petitioner, drawn on the Union Bank of India, Vile Parle (West), Mumbai- 400049 i.e. cheque no. 495512 dated 31st December 2019 for Rs. 25,00,00,000/- (Rupees twenty-five crore only) towards the repayment of the Security Deposit and cheque no. 495513 dated 30th November 2019 for Rs. 1,74,57,534/- (Rupees one crore seventy-four lakh fifty-seven thousand five hundred and thirty-four only) towards the said Compensation and not as interest ("said cheques") to be retained as security till the Respondent arranges for the funds by undertaking a trans....
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....cable stamp duty at least on the amount of Rs. 25,00,00,000/- (Rupees twenty-five crore only) claimed to be given by the Petitioner under the said MOU. 3.2 Since the said MOU is unstamped, this Tribunal cannot consider, 'act upon', 'authenticate' or give effect to such an unstamped document as evidence of any transactions alleged by the Petitioner. In this regard, Section 34 and Article 5(h)(A)(iv) of the Maharashtra Stamp Act, 1958 is as follows: Section 34: "No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer unless such instrument is duly stamped or if the instrument is written on sheet of paper with impressed stamp such stamp paper is purchased in the name of one of the parties to the instrument." Article 5"... (h) ... (a) If relating to: (iv) creation of any obligation, right or interest and having monetary value, but not covered under any other article- 3.3 On the aspect of a claim made basis an ....
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....requisite stamp duty as per the Indian Stamp Act despite repeated reminders having been sent by the resolution professional. The application filed by the Appellants before the NCLT came to be dismissed by an order dated 14.02.2019 on the ground of non-prosecution. The subsequent restoration application filed by the appellants then came to be rejected by the NCLT through judgment dated 08.03.2019 on two grounds: one, that the applications could not be entertained at such a belated stage; and two, that notwithstanding the aforementioned reason, the claim had no merit in view of the failure to produce duly stamped agreements. The impugned NCLAT judgment, at paragraphs 93 and 94, upheld the finding of the NCLT and the resolution professional. In view of these concurrent findings, the claim of the Appellants therefore requires no interference. Further, the submission of the Appellants that they have now paid the requisite stamp duty, after the impugned NCLAT judgment, would not assist the case of the Appellants at this belated stage. These appeals are therefore dismissed." (iii) Further, the NCLT, Chandigarh Bench has in the matter of Edelweiss Asset Reconstruction Company Vers....
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....ed in evidence. It is needless to state, that the provisions that fell for consideration before this Court are analogous with the provisions of Sections 33 and 34 of the Karnataka Stamp Act, 1957. In this view of the matter, we are of the considered view, that in view of the law laid down in SMS Tea Estates (P) Ltd. [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777], that the lease deed containing the arbitration clause which is required to be duly stamped, was not sufficiently stamped and though the Registrar (Judicial) had directed Respondents 1 and 2 to pay deficit stamp duty and penalty of Rs. 1,01,56,388 (Rupees one crore one lakh fifty-six thousand three hundred and eighty-eight only), the respondents failed to do so, the High Court has erred in relying on the said lease dated 12-3-1997." It is pertinent to note that in NN Global Mercantile Private Limited vs. Indo Unique Flame Limited and Others (Civil Appeal Nos. 3802-3803 of 2020) ("NN Global") the Supreme Court has merely referred the question of severability of an arbitration agreement from an unstamped document in a proceeding under Section 11 of the Arbitration ....
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....est. However, in the captioned matter the liability to (a) presently repay the Security Deposit and (b) pay interest at all, has not been admitted to by the Respondent and are in fact denied. (d) Fourthly, the Corporate Debtor therein had admitted that the amounts were due and payable to the Petitioner. However, the Respondent submits that the said Security Deposit is not presently due and payable and would, as agreed between the Petitioner and the Respondent, become payable only on the Respondent entering into a transaction with a third party and therefore the Respondent herein has not admitted that any amounts are due and payable to the Petitioner. Further, the Respondent herein has submitted that the no date was consciously entered into by the parties in the said MOU and this was because the Petitioner wanted more time and did not want to trigger clause 4 of the said MOU. Thereafter in October 2019 the Petitioner approached the Respondent with its inability to arrange funds, pursuant to discussions and negotiations it was agreed that the transaction between the parties was cancelled and the Parties agreed to repayment of the said amounts as set out in paragraph 4.7 here....
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.... authority. In this regard, the finding of the Supreme Court in Dharmaratnakar that the court cannot act upon an unstamped document continues to hold the filed. (h) Lastly, the provisions of Section 34 of the Maharashtra Stamp Act, 1958 are mandatory provisions and therefore the said MOU, being an unstamped document, cannot be acted upon. 3.5 It is submitted that the aspect and parameters of adjudication for initiation of CIRP and the verification of claims by a Resolution Professional are similar. Therefore, once it is decided (by the Hon'ble Supreme Court in the Essar SC Judgment) that a party cannot make a claim in CIRP based on an unstamped document, it has to be necessarily held that CIRP cannot be initiated based on an unstamped document such as the said MOU. 3.6 It is submitted that, as aforesaid, the said MOU ought to be disregarded and cannot be accepted as evidence of any transactions alleged by the Petitioner. It is submitted that the existence of a Financial Debt is a sine qua non to the maintainability of a Petition under Section 7 of the said Code. Therefore, in view of the aforesaid, as the said MOU cannot be looked into/acted upon by t....
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....ecurity Deposit cannot be construed as a financial debt by any stretch of imagination and does not fall within any of the contours of the provisions of Section 5(8) of the said Code. (iii) Merely because the said MOU stipulates interest on the said Security Deposit the same would not ipso facto categorise the said Security Deposit as a Financial Debt when the said Security Deposit cannot by itself be categorised as a 'Financial Debt'. Further, it is trite law that the actual principal amount has to be a financial debt within the contours set out in the said Code, which the said Security Deposit is not. (iv) The aforesaid is clearly borne out from the terms of the said MOU, the relevant clauses whereof are as follows: "E. The Joint Developer has agreed that the Joint developer shall cause to arrange third party capital ("Third Party Capital") to discharge the existing liabilities of the Developer to an extent of Rs. 609,76,82,720/- (Rupees six hundred nine crore seventy-six lakh eighty-two thousand seven hundred and twenty only) and further amounts as required to meet the Project Cost F. Pending the finalization of the Definitive Documents....
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....time value of money and includes money borrowed against the payment of interest, as per Section 5(8) (a) of the IBC. The definition of 'financial debt' in Section 5(8) includes the components of subclauses (a) to (i) of the said Section. 22. The NCLT and NCLAT have overlooked the words "if any" which could not have been intended to be otiose. 'Financial debt' means outstanding principal due in respect of a loan and would also include interest thereon, if any interest were payable thereon. If there is no interest payable on the loan, only the outstanding principal would qualify as a financial debt. Both NCLAT and NCLT have failed to notice clause(f) of Section 5 (8), in terms whereof 'financial debt' includes any amount raised under any other transaction, having the commercial effect of borrowing." (vii) From the aforesaid case laws, it is evidently clear that mere obligation to pay interest would not lead to the amount being classified as a 'Financial Debt' and therefore, the said Security Deposit, which as aforesaid lacks the essential ingredient of being treated as a financial debt, cannot be classified as a financial debt merely ....
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....is Bank Limited and Others [Civil Appeal No. 8512-8517 of 2019] held as follows: "41.1.6 Read as a whole and with reference to its context, it is but clear that in Pioneer Urban this Court has not enunciated that the scope of the expression 'financial debt' be read as if to encompass any debt of whatsoever nature." iv. As apparent from a bare perusal of the said MOU, the said Security Deposit has been defined as a 'Refundable Security Deposit' and was deposited by the Petitioner with the Respondent to secure its obligations under the said MOU. The said Security Deposit was not made by the Petitioner having profit as its main aim and therefore the transaction does not and cannot have 'commercial effect of borrowing' as required under the said Code. Further, the said Security Deposit has been deposited by the Petitioner with the Respondent and would therefore not constitute borrowing. 3.8.3 Claim to interest, if any, stands waived/abandoned i. It is submitted that as per the purported interest working annexed by the Petitioner (Exhibit F to the captioned Petition), an amount of Rs. 2,04,34,093/- (Rupees two crore four lakh t....
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....om the date hereof'. The aspect of repayment would only arise within 30 days of the Petitioner failing to arrange the said Loan Amount (as defined in the said MOU) and it is because of this reason that the parties consciously did not insert a date in the said MOU. 3.9.3 As such, since there is presently no debt due, there has been no default. Further, the Supreme Court has in the matter of Orator Marketing Private Limited Versus Samtex Desinz Private Limited held as follows: "31. At the cost of repetition, it is reiterated that the trigger for initiation of the Corporate Insolvency Resolution Process by a Financial Creditor under Section 7 of the IBC is the occurrence of a default by the Corporate Debtor. 'Default' means non-payment of debt in whole or part when the debt has become due and payable and debt means a liability or obligation in respect of a claim which is due from any person and includes financial debt and operational debt. The definition of 'debt' is also expansive and the same includes inter alia financial debt. The definition of 'Financial Debt' in Section 5(8) of IBC does not expressly exclude an interest free loan. ....
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....tribunal that has adjudicated upon the non-payment of a debt, where the period of appeal against such order has expired." 3.10.2 It is submitted that the bank statements annexed by the Petitioner at Exhibit 'I' and Exhibit 'J' to the said Petition are not 'certified copies' as required under the Bankers Book Evidence Act, 1891. It is submitted that mere entries in banks books of accounts or mere copies thereof are not sufficient to charge anyone with liability thereof. It is therefore specifically provided in Section 4 of the Bankers Book Evidence Act, 1891 that only a 'certified copy' of any entry in a banker's book shall be received as evidence of existence of such an entry. 3.10.3 In view of the aforesaid, the purported bank statements annexed by the Petitioner cannot be received as evidence of existence of such an entry. 6. Further Submission by the Financial Creditor is as under: A. There is a debt due and payable to the Petitioner by the Respondent: 1. As per clauses 4 and 5 of the MOU the sum of Rs. 25 crore was advanced to the Respondent for a limited duration and pending the execution of definitive ....
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....templation of Section 5(8)(f) of the IBC. 6. As held by the Hon'ble Supreme Court in Orator Marketing Private Limited v. Samtex Desinz Private Limited (paragraphs 22 and 23), sub clauses (a) to (i) of section 5 (8) of the IBC are illustrative and not exhaustive. Any amount advanced and which is to be repaid, with or without interest, constitutes a financial debt. The present case squarely falls within the definition of a financial debt. The relevant portions of the aforesaid judgment are reproduced hereinbelow: "22. The NCLT and NCLAT have overlooked the words "if any" which could not have been intended to be otiose. 'Financial debt' means outstanding principal due in respect of a loan and would also include interest thereon, if any interest were payable thereon. If there is no interest payable on the loan, only the outstanding principal would qualify as a financial debt. Both NCLAT and NCLT have failed to notice clause (f) of Section 5 (8), in terms whereof 'financial debt' includes any amount raised under any other transaction, having the commercial effect of borrowing. 23. Furthermore, sub-clauses (a) to (i) of Sub-section 8 of Sect....
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....proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise." 9. In the present case, apart from the evidence by way of the MOU itself and the cheque payments made and dishonoured, the Petitioner has placed on record [Pgs. 25 to 31/Petition], the Report of the information utility NeSL clearly affirming and confirming the authenticity of the existence of the default on the part of the Respondent. AS TO THE PURPORTED DEFENCES OF THE RESPONDENT: A. The MOU is undated and therefore there is no liability to pay: 10. It is contended on behalf of the Respondent that the MOU does not bear a date of execution and therefore there is no starting point for making payment and the terminology used in the MOU of payment being required to make within 60 days 'hereof' could not be given effect to because there was no date of execution. This contention is untenable for the following reason: (i) Admittedly [Pg. 43/Petition] the payment of Rs. 25 crore was made and disbursed on May 9, 2019. As per the terms of clause 4 of the MOU, the interest commenced from the date of payment....
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....ore together with interest thereon. This is clearly unsustainable. (vi) Even otherwise, and without prejudice, by issuing the above cheques, the Respondent has itself accepted that the liability to pay has arisen and cannot now dispute the same. B. Reasons given for absence of a date on the Agreement: 11. Some reasons were given stating that a date was not put so as to avoid triggering event of the Petitioner from being precluded from a part of the subject project. This contention is contrary to the MOU. It is irrelevant as it is admitted by the Respondent that the transaction was mutually terminated by the parties and further if the date was kept blank for the Petitioner's benefit it cannot be used to the Petitioner's detriment by postponing repayment indefinitely. C. There was an oral agreement that the sum of Rs. 25 crore plus interest would be refunded once the Respondent entered into a transaction with a third party for funding. 12. This contention raised in paragraph 5(g) of the Affidavit in Reply is entirely untenable for the following reasons: (i) There is no such stipulation or clause whatsoever in the MOU and a....
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....due, there is no infirmity whatsoever with admitting the Petition notwithstanding any purported dispute on quantum. 16. Reliance on the following judgments: (i) Gouri Prasad Goenka, Ex-Chairman of NRC Limited v. Punjab National Bank and Anr. : "11. ...In so far as joining of issue by the Corporate Debtor qua the quantum of payable debt is concerned, same does not fall for consideration of the Adjudicating Authority at the stage of admission of the application under Section 7 of the I&B Code. The only requirement is that the minimum outstanding debt should be to the tune of Rupees One Lakh. The actual amount of claim is to be ascertained by the Resolution Professional after collating the claims and their verification which comes at a later stage. The contention raised on this score also fails." (ii) Apya Capital Services Private Limited v. Guardian Homes Private Limited. "8. ...Once the liability in respect of Rs. 75 lakh was admitted and the same was not discharged by the Corporate Debtor, dispute in regard to quantum of debt would be immaterial at the stage of admission of application under Section 7 unless the debt due and payable fall....
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....Hon'ble Supreme Court of an unstamped document at the stage of admission of a petition under Section 7. The present issue is no longer res integra; it is well settled that even if a document is unstamped, there is no bar against the petition being admitted by the Adjudicating Authority and the Respondent would do well not to attempt to confuse the powers of the Adjudicating Authority to admit a Petition under Section 7 with the power of the Resolution Professional to entertain the claim on the basis of an unstamped document. Even otherwise the Hon'ble Supreme Court in the above matter has expressed no view on the aspect of stamping and merely chosen not to interfere with concurrent orders of the courts below. It is well settled that a judgement must be read in the context of its facts and what it actually decides. Findings: 7. We have heard the arguments of the Learned Counsel for both the parties and perused the records. The following questions of law and facts are to be decided in this case: i) Whether an undated, unstamped and unregistered Memorandum of Understanding (MoU) signed by the Respondent along with Harmony Developers Private Limited (the Develope....
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....ause would have no existence in law, unless the applicable stamp duty (and penalty, if any) is paid on the Work Order. Reliance was placed on paragraph 22 of the judgment in Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited, 15 wherein it has been held : ".. that an arbitration clause in an agreement would not exist when it is not enforceable by law"." Section 35 of the Indian Stamp Act, 1899 also talks about the non-admissibility of the documents which are not duly stamped. Section 35 of the Indian Stamp Act, 1899 is as follows: 35. Instruments not duly stamped inadmissible in evidence, etc.-No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped: Provided that- (a) any such instrument 65 [shall], be admitted in evidence on payment of the duty with which the same is chargeable, or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, togeth....
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....d or transferred to'. Admittedly, the petitioner has filed Axis Bank Statement of Sunteck Realty Ltd. as Exhibit-I of the petition, showing a payment of Rs. 25 crore to the Respondent. If at all, somebody can file Insolvency petition against the Respondent under section 7 or under section 9 of IBC-2016, it is Sunteck Realty Limited, of course subject to satisfying the criteria of being a financial or an operational creditor, as the case may be. c) The refundable security deposit of Rs. 25 crore arranged by 'the Joint Developer' petitioner through a third entity cannot constitute a financial debt as per section 5(8) of the Code owed by 'the Developer' respondent to the petitioner. Section 5(8) of the Code defines the 'Financial Debt' as follows: (8) "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes- (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase fa....