TaxTMI 
TaxTMI 
2022 (9) TMI 440
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....e "Code") filed by Respondent No.1-Deepak Gupta has been admitted. 2. Brief facts of the case necessary for deciding this Appeal are: (i) On 25.01.2013, Respondent No.1 and Respondent No.2 - the Corporate Debtor M/s Elixir Buildcon (P) Ltd. entered into Memorandum of Understanding ("MoU") for the purpose of real estate transaction. As per MoU, Respondent No.1 (Second Party in the MoU), who was in the business of investments in real estate/ bulk bookings of flats, offered to purchase 30,000 Sq. Ft at the agreed rate of Basic Sale Price of Rs.2,800/- Sq. Ft. The Second Party agreed to pay 15% of the Basic Sale Price, that is, Rs.1,26,00,000/- at the time of execution of the of the MoU. The amount of Rs.1,26,00,000/- was paid by the Second Party and the MoU containing several clauses was entered, which we shall notice hereinafter. (ii) One of the clauses in the MoU was that if the First Party failed to launch the Scheme within 180 days from the date of signing of the MoU, First Party shall be liable for default and breach of the MoU. As per Clause 9 of the MoU, it was stipulated that the agreement shall continue for the period of 36 months from date of signing of the MoU or till ....
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....pearing for the Appellant challenging the impugned order submits: (i) All remedies under the MoU available to Respondent are time barred. As per the Second Party (Respondent No.1), the Corporate Debtor was required to launch the scheme within 180 days and since the scheme has not been launched within 180 days, the cause of action arose to Second Party after the expiry of the 180 days. The Application under Section 7 filed after seven years from the occurrence of the breach is clearly barred by time. The period of contract was only for a period of 36 months and all obligations were to be performed by the Corporate Debtor within 36 months and in any event after expiry of 36 months from the date of MoU on which date the cause of action arose to Respondent No.1 to take remedies under Section 7, whereas the Application filed on 06.11.2020 is barred by time. (ii) That the transaction under the MoU dated 25.01.2013 pertains to sale and purchase of real estate by Respondent No.1, who was a speculative investor with motive of profit, hence the transaction is not in the nature of 'financial debt' within the meaning of Section 5(8) of the Code. Respondent No.1 has sued the Corporate Debto....
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.... regarding fees and expenses. It is submitted that she has issued publication in the newspaper and incurred other expenses. 6. We have considered the submission of learned Counsel for the parties and have perused the record. 7. From the submission of learned Counsel for the parties and the pleadings on record, following are the questions, which arises for consideration in this Appeal: (i) Whether the Application filed by Respondent No.1 on 06.11.2020 on the ground that Corporate Debtor has committed breach of terms and conditions of the MoU, hence liable to refund the amount with liquidated damages was filed within the period of limitation as prescribed under Article 137 of the Limitation Act, 1963? (ii) Whether exercising the option to void the MoU dated 25.01.2013 on 07.03.2020 can be said to be in exercise of option by the Second Party as per MoU dated 25.01.2013, in accordance with law? (iii) Whether a transaction entered between the parties under the MoU dated 25.01.2013 is a transaction within the meaning of Section 5(8) of the Code, so as to hold the transaction as a financial transaction? (iv) Whether transaction under MoU pertained to sale and purchase of the rea....
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....y, the First party shall be liable for default and breach of this MoU and as such the provisions of clause 11 of this agreement shall be attracted without any exceptions and reservations. 11. That the parties herein agree that if the assurances or promises or any other relevant information about or in respect of the aforesaid land or the proposes project or flats, given by or on behalf of the First Party to the second party, is found to be false or otherwise wrong or the First Party breaches any of the commitments made under this agreement, the entire transaction, shall be voidable at the option of the second party and if the second party exercises such option, the First party shall refund entire amount paid by the second party till the date of exercise of such option, along with the interest at the rate of 12% per annum, within a period of 15 days from the date of exercise of such option. In addition thereto, the First Party shall also indemnify/ compensate to the second party with an amount equal to interest @ 24% on the amount paid, which shall be considered as a liquidated damage for making false assurances and promises or providing false information or for breach of the term....
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.... 24%, amounting to Rs.9,65,97,937/-. 12. Reply was filed by the Corporate Debtor to Section 7 Application and under the preliminary objection in paragraph-B, a plea that Application is barred by time was specifically taken, which is to the following effect : "B. It is respectfully submitted by the Corporate Debtor that the present application filed by the Financial Creditor, which relates to a Memorandum of Understanding dated 25.01.2013, is time-barred and is liable to be dismissed upfront. The Financial Creditor is basing its claim on a purported non-performance of certain obligations on the part of the Corporate Debtor, which the Corporate Debtor, as alleged by the Financial Creditor, was required to perform within 180 days from the date of the said MOU i.e., 25.01.2013. It has been more than 7 (seven) years since then. All remedies of the Financial Creditor in relation to the said MOU are barred by the Limitation Act, 1963. 13. The reply contained other pleas, including that the transaction is not the a 'financial debt'. It was also pleaded that Corporate Debtor has fulfilled all the obligations under Clause 10 of MOU dated 25.01.2013 and has launched the scheme within 180 ....
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....rporate Debtor." 15. After having noted the submission of learned Counsel for the parties and terms and conditions of the MoU, we now proceed to consider the questions as noted above. Question Nos.(i) and (ii) 16. The first question to be considered is as to whether the Application under Section 7 filed by Respondent No.1 is barred by time. The MoU is dated 25.01.2013 and Clause-10, breach of which is being alleged by Respondent No.1 contemplated that if the First Party fails to launch the scheme within 180 days from the date of signing of this agreement, the First Party shall be liable for default and breach of this MoU as per provisions of Clause 11. Clause 9 as extracted above, stipulated period of agreement as 36 months from the date of signing of MoU, or till possession of all the flats/ units as provided in Schedule "B" to the Second Party as the case may be, or till transfer/ assignment of the entire super built up area/ flats in favour of the nominees of the Second Party, whichever is earlier. Thus, the maximum period for which the agreement was to continue was 36 months. In event there is breach of Clause 10, that is, 180 days, if the First Party has not launched the sc....
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....or failed to launch the scheme within 180 days and further failed to give possession of flats/ units within 36 months, the contract, i.e. MoU 25.01.2013 became voidable at the option of Second Party, that is, Respondent No.1. In the facts of the present case, as per the case of Respondent No.1, the Corporate Debtor failed to lunch the scheme within 180 days and further failed to give possession of flats and units within a period of 36 months, the contract became voidable and option to void the contract was exercised by Respondent No.1 on 07.03.2020. 20. Now we look into the Article 137 of the Limitation Act, which provides for limitation for filing of any application. It is well settled that Article 137 of the Limitation Act will be applicable with regard to Application under Section 7 of the Code. Article 137 is as follows: Description of application Period of limitation When the right to apply accrues. 137. Any other application for which no period of limitation is provided elsewhere in this division Three years When the right to apply accrues. 21. As per the terms and conditions of the contract, the right to sue on the basis of MoU dated 25.01.2013 arose to the Second Pa....
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....ise of option by Respondent No.1 ought to have been immediately after expiry of 36 months when the terms and conditions of contract was not fulfilled within 36 months as contemplated in Clause-9 of the MoU. The cause of action arose to Respondent No.1 to sue for the breach of contract on 25.07.2013 after expiry of 180 days and further immediately after expiry of 36 months, that is on 25.01.2016. After the enforcement of the Code, the cases for which limitation has long expired cannot be revived for the purposes of an Application under Section 7 as has been laid by the Hon'ble Supreme Court in B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633. The exercise of option by Respondent No.1 on 07.03.2020, after the expiry of more than six years, when the cause of action arose under Clause-10, and after expiry of more than 3 years when cause of action arose to the Corporate Debtor to sue for breach of terms and conditions as contemplated under Clause-9 read with Clause-11, the Application was clearly barred by time on 06.11.2020, when the same was filed. 25. We may also notice the judgments of the Hon'ble Supreme Court relied by learned Counsel for Respon....
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....08] , Webb v. Hughes [(1870) LR 10 Eq 281] and Charles Rickards Ltd. v. Oppenheim [(1950) 1 KB 616 : (1950) 1 All ER 420 (CA)] ." 26. Another judgment relied by learned Senior Counsel for the Respondent is Govind Prasad Chaturvedi v. Hari Dutt Shastri, (1977) 2 SCC 539. In the above case, the Hon'ble Supreme Court had occasion to consider provisions of the Specific Relief Act, 1963 in reference to contract for sale of immovable property. In paragraph 5 and 6 following has been laid down: "5. ....It is settled law that the fixation of the period within which the contract has to be performed does not make the stipulation as to time the essence of the contract. When a contract relates to sale of immovable property it will normally be presumed that the time is not the essence of the contract. (Vide Gomathinavagam Pillai v. Pallaniswami Nadar [AIR 1967 SC 868 : (1967) 1 SCR 227, 233] ). It may also be mentioned that the language used in the agreement is not such as to indicate in unmistakable terms that the time is of the essence of the contract. The intention to treat time as the essence of the contract may be evidenced by circumstances which are sufficiently strong to displace the ....
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....ondence between the parties in due course but at this stage it is sufficient to state that neither the terms of the agreement nor the correspondence would indicate that the parties treated time as of essence of the contract. In fact, according to the agreement the sale deed ought to have been executed by May 24, but it is the admitted case that both the parties consented to have the document registered on May 25. On the question whether the time is of the essence of the contract or not we are satisfied that the High Court was in error in allowing the respondents to raise this question in the absence of specific pleadings or issues raised before the trial court and when the case of time being the essence of the contract was not put forward by the respondents in the trial court. Apart from the absence of pleadings we do not find any basis for the plea of the respondents that the time was of the essence of the contract." 27. To the same effect is another judgment of the Hon'ble Supreme Court reported in (2006) 11 SCC 181 - McDermontt International Inc. v. Barun Standard Co. Ltd. The learned Senior Counsel for the Respondent has also relied on the judgment of the Hon'ble Supreme Court....
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....eady held that when right to sue accrues for the breach of the contract, limitation under Section 137 of the Limitation Act begun to run and it cannot remain under suspension merely because Respondent did not exercise its option to void the contract. As noticed above, on breach of promise by a party, right to void the contract accrues to the promise statutorily. Further, the fact that Clause-11 confers right to Respondent No.1 to void the contract is in accordance with the right as statutorily recognized in Section 55 of the Contact Act first part. When Clause-11 synchronize with right given under section 55 of the Contract Act, first part, the time is treated to be essence of such contract because of which the right to exercise the option for voiding the contract has been contemplated. In event the submission of Respondent No.1 is accepted that right to exercise option is on free will, he can exercise the same after decades irrespective of date when right to sue occurred, the law of limitation shall be of no meaning and right to sue will then depend on free will of a litigant, which cannot be the legislative intent. In the event beginning of limitation is to be computed from the d....