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TaxTMI 
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TaxTMI 
2021 (11) TMI 188
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....nding 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 and the Joint Developer after deliberations and discussions have mutually decid....
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....an 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 Respondent together with interest at the rate stipulated in the MOU. The time period for making repayment was also clearly specified. (v)....
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....uired 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"). 2.2 In or around January 2019, the Petitioner approached the Respondent for joint development of the said Property. The Petitioner informed the Respondent that it has necessary financial resources, technical....
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....l 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 transaction with a third party. 2.10 The cheques were handed over with a clear understanding, that the Petitioner would deposit the said Cheques only after the Corporate Debtor would obtain payment from third party. However, the Petitioner maliciously depos....
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....mped 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 unstamped document the following judgements are relevant- (i) The NCLT, Ahmedabad Bench had in its judgement dated 8th March 2019 ("Essar Judgment") observed as follows: "8. We carefully examined that issue and perused the material available on record including the documents in question, which shows that the applicants' claims have not....
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....t 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 Versus Winsome Yarns Limited [CP (IB) No. 291/CHD/2018] held as follows: ".... the Hon'ble Supreme Court of India while holding that an insufficiently stamped instrument cannot be relied upon for any purpose, however, observed that the concerned court has to follow the procedure provided under the Indian Stamp Act, 1899 for impounding the instrument before permitting a party to enfo....
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....ease 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 and Conciliation Act, 1996. However, on the issue of any other agreement (not being an arbitration agreement), the law is clear, as set out in Garware and Dharmaratnakar, that an unstamped document cannot be 'acted upon'. 3.4 At the time of final hearing of the captioned matter, it was brought to the notice of the learned Counsel of the Respondent the view taken by this Tribunal in the judgement and order passed by this Tr....
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....ble 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 hereinabove. (e) Fifthly, in the Mangalam judgment the Petitioner therein had relied upon several other documents which were executed by the Corporate Debtor therein 'which demonstrated the confirmation of the debt and creation of additional security in favour of the financial creditor'. However, the Petitioner herein has not executed any document (save and except the said MOU, which as aforesaid cannot be relied upon) which demonstrate the purported debt as a financial debt....
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....nce 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 the Tribunal, there is no financial debt owed to the Petitioner by the Respondent and the captioned Petition is not maintainable and ought to be dismissed. In the absence of a debt there can be no default and therefore the captioned Petition ought to be dismissed. 3.7 The Security Deposit and the said Compensation is not a 'Debt' as defined in the said Code 3.7.1 The said Code defines debt as follows: 'debt' means a liability or obligation in respect of a claim which is due from any person and includes a financial ....
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.... 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 (as defined below) the parties have agreed that the Joint Developer shall pay an Amount of Rs. 25,00,00,000/- (Rupees twenty-five crore only) as and by way of a refundable security deposit ("the Refundable Security Deposit") to the Developers in the manner and on the terms and conditions as set out herein" 6. This MOU shall be kept confidential till the execution of definitive documents." It is submitted that the aforesaid terms of the said MOU make it amply clear that the nature of the said MOU was such that a financial debt was never contemplated, and the said Security Deposit was made by the Petitioner for securing its obli....
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....(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 because the said MOU stipulates payment of interest. (viii) In any event by accepting a cheque towards the said Compensation of Rs. 1,93,97,260/- (Rupees one crore ninety-three lakh ninety-seven thousand two hundred and sixty only) as compensation and thereafter acting upon it by depositing it (albeit in malafide manner and contrary to the express understanding between the Petitioner and the Respondent), the Petitioner has acted in contravention of the said MOU and has abandoned the said MOU and therefore cannot be permitted to rely on the said MOU. Without prejudice to the above, having regard to the fact that the Petitioner and the Respondent had cancelled the transaction, the claim of the....
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....; 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 thirty-four thousand and ninety-three only) would have purportedly accrued as interest up to 30th November 2019. However, the said Compensation viz., an amount of Rs. 1,93,97,260/- (Rupees one crore ninety-three lakh ninety-seven thousand two hundred and sixty only) duly accepted by the Petitioner is an amount much less than the purported interest of Rs. 2,04,34,093/- (Rupees two crore four lakh thirty-four thousand and ninety-three only). It is submitted that the Respondent is not disputing the quantum of interest but is denying its liability to pay any interest. ii. It is submitted that the acceptance and subsequent deposit (albeit malafide and contrary to the express understanding between the Petitioner and Respondent) of the said Cheques by the Petitioner clearly ....
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....eans 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. 'Financial Debt' would have to be construed to include interest free loans advanced to finance the business operations of a corporate body." 3.9.4 In any event, aspect of payment of interest was never acted upon. This is primarily because one of the cheques given as security was for an amount of Rs. 1,93,97,260/- (Rupees one crore ninety-three lakh ninety-seven thousand two hundred and sixty only) (including Tax Deducted at Source) which is not the amount in terms of the calculation as provided under the said MOU i.e. 14% interest per annum compounded annually from 9th May, 2019 to 30th November which would amount to Rs. 2,04,34,093/- (Rupees two crore four lakh thirty four thousand and ninety three only) (as set out at Exhibit 'F' of the said Petition). It is for this reason clear and apparent that the cheque issued by th....
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....n 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 documents or the failure of the transaction. The sum of Rs. 25 crore was 'refundable', along with interest thereon. It made no difference whether the larger transaction went through or failed, because in either of the circumstances the sum of Rs. 25 crore advanced by the Petitioner to the Respondent was to be repaid by the Respondent with interest thereon. 2. In paragraph 5(g) of the Affidavit in Reply [Pg. 3/Affidavit in Reply], the Respondent has expressly accepted and admitted that the Respondent was liable to refund the said amount to the Petitioner. It is, however contended that there was some alleged agreement by which the Respondent was to refund the said amount only after it entered into a transaction with a third party. However, the admitted position is that the debt owing to the Petitioner by the Respondent is due and payable. 3. The Respondent furnished cheques towards repayment to the Petiti....
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....n 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 Section 5 of the IBC are apparently illustrative and not exhaustive. Legislature has the power to define a word in a statute. Such definition may either be restrictive or be extensive. Where the word is defined to include something, the definition is prima facie extensive." C. Event of default: 7. In this case, the default first occurred upon the failure of the Respondent to refund the sum of Rs. 25 crore within 90 days of its payment i.e. by August 7, 2019. Thereafter the default occurred on the dishonour of the cheques on January 4, 2020, when the cheques were returned for the reason of "Funds Insufficient". It is clear that the failure of the Respondent to pay the Petitioner the sum of Rs. 25 crore together with interest thereon is a default of the terms of the MOU. 8. The Hon'ble Supreme Court in Innovative Industries Limited v. ICICI Bank & Anr. [ (2018) 1 SCC 407] (paragraphs 28 and 30) has made it clear that in the case of a Corporate Debtor who commits a d....
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....nt 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 of the sum of Rs. 25 crore and obviously the time for repayment was co-terminus with the time for the transaction to fructify i.e. 60 days. (ii) The clear and obvious intendment of the parties was that the said sum of Rs. 25 crore would be repaid by the Respondent after a period of 60 days from its payment, within which period the definitive documents was to be executed or the transaction would be terminated. Thereafter, on the expiry of 60/90 days from the payment, whether or not the transaction had culminated in the execution of definitive documents, the said sum was to be refunded together with interest thereon as per the timelines and on the terms and conditions as set out in Clauses 4 and 5 of the MOU. (iii) Even assuming arguendo that the date of May 9, 2019 ought not to be taken as the starting point, (which is not accepted as correct by the Petitioner), as per the Respondent's own case in paragraph 5(g) of the Affidavit in Reply, the transaction between the parties had been mutually terminated by October 2019. Assuming fo....
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....ns: (i) There is no such stipulation or clause whatsoever in the MOU and a party cannot be permitted to raise a contention, which is ex facie in the teeth of the agreed written document executed between the parties; (ii) There is not a single contemporaneous correspondence, document, material or communication whatsoever which remotely indicates any such alleged oral agreement. Indeed, it would be entirely untenable to even imagine that notwithstanding the clearly defined timelines in the MOU, the Petitioner would agree to some indefinite, uncertain and future date for repayment as and when the Respondent manages to get funding, which may or may not ever occur. (iii) This stand has never been agitated or even remotely referred to until filing of the Reply on August 3, 2021 almost two years after the date of the default. (iv) This contention is also contrary to the conduct of the Respondent in issuing the cheques towards repayment of the dues. If no payment was due, there would have been no occasion to issue the cheques which as aforesaid were dated therefore valid only 3 months from the date of the cheques and would have had to be deposited. D. Interest was not payable as ....
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....the minimum threshold limit prescribed under law..." E. The MOU is unstamped and cannot be acted upon: 17. The Respondent has contended that the MOU being unstamped cannot be acted upon for any purpose and has placed reliance on Section 34 of the Maharashtra Stamp Act, 1958. The Respondent has also placed reliance on the judgment of the Ahmedabad Bench of NCLT in Resolution Professional for Essar Steel India Ltd. In the matter of: Standard Chartered Bank and Anr. v. Essar Steel India Limited and the judgment of the Hon'ble Supreme Court in Dharmaratnakar Rai Bahadur Arcot Narainswamy Mudaliar Chattram v. Bhaskar Raju & Bros., [ (2020) 4 SCC 612]. The contentions raised by the Petitioner are unsustainable for the following reasons: (i) Even if a document is unstamped that will not prevent a Court from acting on the basis of the document for the purpose of admitting a Petition under Section 7 of the IBC, even assuming that the document ought to be impounded. (ii) Reliance has been placed by the Petitioner on the Hon'ble Bombay High Court decision in Morpheus Media Ventures Private Limited v. Anthony Maharaj [ (2017) 2 Bom CR 459] (paragraphs 24 and 27), Rupinder Singh....
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....r) on other side can be relied upon by the Tribunal? ii) Whether the Payment of Refundable Security Deposit made by the third party i.e. Sunteck Realty Ltd., a Company with distinct Corporate Entity and a Partner in Petitioner Firm Magnate Industries LLP, a Limited Liability Partnership a different entity, entitles the Petitioner to file a Petition as Financial Creditor? iii) Does the Refundable Security Deposit given by a Joint Developer constitute a Financial Debt? iv) As to when the default has occurred? v) Can the dishonour of cheques issued by the Respondent in favour of the Petitioner constitute the existence of Financial Debt and Default due from Respondent to Petitioner? 8. Accordingly, the following is hereby ordered:- a) From the findings, on the basis of facts of the case and position of Law, it is constituted beyond doubt that the Petitioner entered as Joint Developer into an undated, unstamped and unregistered MoU with the Respondent, inter alia having a provision of payment of Rs. 25,00,00,000/- (Rupees twenty-five crore only) as refundable security deposit to be paid by the Petitioner to the Respondent. The Petitioner was to arrange third party capital of ....
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....upees, of a sum equal to ten times such duty or portion; (b) where any person from whom a stamped receipt could have been demanded, has given an unstamped receipt and such receipt, if stamped, would be admissible in evidence against him, then such receipt shall be admitted in evidence against him, then such receipt shall be admitted in evidence against him on payment of a penalty of one rupee by the person tendering it; (c) where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of the letters bears the proper stamp, the contract or agreement shall be deemed to be duly stamped; (d) nothing herein contained shall prevent the admission of any instrument in evidence in any proceeding in a Criminal Court, other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898); (e) nothing herein contained shall prevent the admission of any instrument in any Court when such instrument has been executed by or on behalf of the Government or where it bears the certificate of the Collector as provided by section 32 or any other provision of this Act. In the present case, the MOU is....
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....he Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on nonrecourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; (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; d) As there is no financial debt owed by the respondent to the petitioner being a Joint Developer, the Joint Developer becomes a Joint Venture Partner in the project, the question of default does not arise. The date of default as mentioned in the Part-IV of the Form 1 o....