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TaxTMI 
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2022 (9) TMI 488
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....by the Appellant under Section 61 of the 'Insolvency and Bankruptcy Code 2016' (the Code) against the impugned order dated 02.08.2021 passed by the 'National Company Law Tribunal, Mumbai Bench, Mumbai (the Adjudicating Authority) in I.A No. 2129 of 2020 in C.P. No. 27 of 2019. The Appellant has sought the followings reliefs: To quash and set aside the impugned order passed by the Adjudicating Authority in IA No. 2129 of 2020, in the matter of Budhpur Buildcon Pvt. Ltd. (for short 'BBPL') Vs. Mr. Abhay Narayan Manudhane; To quash and set aside the impugned letter dated 28.09.2020 issued by the Respondent to the Appellant rejecting the Appellant's claim for 'financial debt'; To stay the effect and operation of the impugned order etc. 2. The Adjudicating Authority, while passing the impugned order dated 02.08.2021 has observed the followings: "6. We have heard the parties at length. We have also perused the documents submitted by them. Both the parties in IA 2129/2020 have raised various allegations and counter allegations against each other. The intervenors in IA 2300/2020 have also advanced their arguments. In the light of the rival contenti....
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....e 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 or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; Section 5(7) Financial Creditor: "Financial Creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; Section 3(6) Claim: "claim" means (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; Section 3() creditor: "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder; 7. It is very clear from t....
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....y the verdict of the Hon'ble Supreme Court in State of Bihar v. Bihar Rajya Bhumi Vikas Bank Samiti (2018) 9 SCC 472, para nos. 25, 26 affirmed that a procedural provision shall be directory and not mandatory when no consequence has been provided in the said provision for non-compliance thereof. 10. The respondent proceeded with the verification as per the provisions of the Code. However, the said verification was further delayed by the onset of the COVID-19 pandemic. Therefore, it cannot be said that it was the respondent RP who had caused any delay. It is to further mention that Regulation 13 also empowers the Resolution Professional to decide the amount to be admitted, which implies that the Resolution Professional has the power to 'not admit' any sum under a claim. Therefore, from this it is clear that the Resolution Professional is expected to apply its mind to the facts and nature of the claim filed, and thereafter, reject the same in case the categorization is wrong or incorrect. However, the Applicant's interpretation of Regulation 13 i.e., that the Resolution Professional has to merely collate claims without application of mind and thereafter proceed to admit the ....
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....not to take any action till the disposal of this application. In view of dismissing the above application filed by the applicant M/s Budhpur Buildcon Private Limited, the above oral direction is no longer necessary and accordingly the CoC is at liberty to take a call about the further course of action." 3. The submission made by the Learned Senior Counsel for the Appellant/ Pleadings and Written Submission available on record are stated herein below in a summarized manner: a) It is the case of the Appellant that 'Letters of intents' were issued by the Slum Rehabilitation Authority in favour of the Corporate Debtor (CD) -Housing Development and Infrastructure Limited /Respondent and the Respondent was undertaking the development of various parcels of lands. b) The Ld Sr. Counsel for the Appellant has stated that the CD/Respondent was in need of funds for development of the said project. Accordingly, the Appellant and the CD/Respondent entered into various agreements which is enumerated herein below: Development Agreement dated 24th February, 2007 executed between the CD and Adani Developers Pvt. Ltd (subsequently de-merged into the Appellant) ADPL. ....
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.... against consideration for the "time value of money". In short, the "disbursal" must be money and must be against consideration for the "time value of money", meaning thereby, the fact that such money is now no longer with the lender, but is with the borrower, who then utilises the money."., The judgment of Hon'ble Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors., 2019 SCC OnLine SC 73, inter-alia determined the following characteristics of "financial debt" and "financial creditors", which are present in the instant case: (a) "Financial debt" for the purposes of Section 5(8) of the Code is categorized as one that enables the Corporate Debtor to either set up and/ or operate its business. In the present case, as is clear from the aforesaid facts, the said Consideration payable under the Project Agreements was so structured so as to provide periodical finances to the Corporate Debtor for undertaking the construction and development of the rehabilitation component of the said Project and served to enable the Corporate Debtor to carry on its business. (b) Even at the time of providing such advance payments as aforesaid to the Corporate Debt....
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....ffices, as a result he commenced verification of claim from 24.08.2020 and finally rejected the same on 28.09.2020. It is the duty of Resolution Professional to verify the claim from records of the CD and thereafter, the claim is accepted or rejected. c. The Ld Counsel for the Respondent has stated that no part of the claim has actually been disbursed and the claim is solely in the nature of interest/ penal interest for breach of the main contract and the entire claim is merely an accretion of Penal interest as per clause 4 of the Supplemental Agreement 20.03.2012. d. It was amply made clear by the Respondent/RP that parties to a Joint Developmental Agreement cannot be a Financial Creditor. The Ld counsel for the Respondent went on to further elaboration by explaining that the Appellant is not an 'allottee' under the Code. Clause 6 of the Development agreement dated 05.04.2018 explicitly records that the appellant/Developer would alone be considered as Promoter under the Real Estate Regulations and Development Act, 2016 (RERA) for the real estate project so being developed. He further went on to clarifying that there is no commercial effect of borrowing involved i....
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....eline could be achieved, the Corporate Debtor itself went into Insolvency, and hence, the Agreement in question can never be implemented to seek claim based on delay and penalty. The agreement of 2018 as far as Applicant/Intervener remembers, does not contain any clause in relation to consequences that will flow, in case either of the party goes into insolvency nor does it make any provisions in case of default. It has also been pointed by the ld counsel for the Applicant that at no point of time prior to Insolvency of the Corporate Debtor, any legal proceedings were initiated or a dispute claiming interest was brought to the notice of the Corporate Debtor. The alleged claim has submitted by BBPL and is a time barred Operational Debt and needs adjudication by a trial court based on collection of evidences. The Agreement in question is a Development Agreement with reciprocal promises and is in the nature of damage which requires adjudication by a trial court. It has also been submitted that the nature of transactions was contingent upon enumerable factors and the BBPL was never entitled for any payment from the Corporate Debtor except the development rights after the corpor....
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..... No. 29191. The same is taken on record and will be treated as the Amended Memorandum of Appeal 4. Heard Counsel for the parties. Perused Impugned Order. Considering the disputes being raised, issue notice. Counsel for the Resolution Professional dispenses with service of formal notice. 5. Learned Counsel for the Appellant seeks interim reliefs as claimed in I.A. No. 1557/2021. The Learned Counsel submits that the impugned order deserves to be stayed as the Committee of Creditors may proceed to take a decision with regard to liquidation and the Appellant who claims to be Financial Creditor will be deprived of its right to participate in the CIRP. 6. Counsel for the Appellant submits that the Resolution Professional rejected the claim of the Appellant to be a Financial Creditor and the Appellant had filed I.A. No. 2129 of 2020 before the Adjudicating Authority. Reference is made to the impugned order Annexure A-1 (Page 63) of the Amended Memorandum of Appeal, where the Appellant had prayed to quash letter dated 28th September, 2020 of the Resolution Professional. The Corporate Debtor is 'Housing Development and Infrastructure Limited', who had taken up de....
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...., BBPL had filed an application with the Hon'ble National Company Law Tribunal (NCLT) challenging decision of the RP. Mr. Rakesh Wadhawan & Others had also filed Intervention Application in the matter. As informed to the CoC from time to time various hearings took place before Hon'ble NCLT from December 2020 to April 2021 in the matter wherein the Bench orally directed not to consider the agenda item regarding liquidation. Further on 28th April, 2021, the Hon'ble NCLT directed not to consider liquidation till the order on application filed by M/s BBPL and also other applications are decided. Further, at the hearing held on 30th April, 2021, the Hon'ble NCLT had directed all the parties to submit their written submissions within a week's time and the matter was reserved for orders and the order was awaited. Since no order was passed by Hon'ble NCLT subsequent to 30th April, 2021, the RP requested his legal advisors to move Hon'ble NCLT. Accordingly, the advocates or FP, M/s Crawford Bayley & Co., filed a praecipe in Hon'ble NCLT on 20th July, 2021 with a request for necessary clarifications and further orders. The Hon'ble NCLT pronounced order on 2nd August, 2021 dismissing the appl....
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....f 270 days would expire on 30th September, 2021. Counsel for the Resolution Professional, however, submits that the 90 days period expired much earlier and he has to take instructions as according to him by 30th September, 2021, 330 days would expire. 11. We have perused the impugned order and the findings recorded at Para 6 to 16. The Adjudicating Authority extensively heard and has in details dealt with the matter. In Para 7 and 8 of the impugned order the Adjudicating Authority observed as under: "7. It is very clear from the above definition that a mere right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; and a right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured is enough to qualify as an Operational Debt. However, a mere right to recovery or entitlement does not qualify as a Financial Debt unless the debt falls within any one of the categories mentioned under the definition 'Financ....
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....2129/2020 is hereby dismissed." 14. In para 16 the observations are: "16. The CIRP of the Corporate Debtor is at an advanced stage. when the present application was filed by the applicant. There were prospective Resolution Applicants willing to submit their Resolution Plans. Since the outcome of the present application has direct bearing on the Prospective Resolution Applications, this Bench orally directed the CoC not to take any action till the disposal of this application. In view of dismissing the above application filed by the applicant M/s Budhpur Buildcon Private Limited, the above oral direction is no longer necessary and accordingly the CoC is at liberty to take a call about the further course of action." 15. Considering the averments being made and the findings recorded by the Adjudicating Authority read with part of Appeal reproduced above, prima facie it appears that there is an issue to be dealt with and decided in this Appeal. The observations of the Adjudicating Authority also cannot be out right ignored. Whether or not the Appellant could be treated as the Financial Creditor looking to the Agreements which are more of Development Agreement....
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....ssed as we do not find that any prima facie case is made out which will justify further holding up of the progress of CIRP. I.A. No. 1157 of 2020 is rejected. 20. Respondent to file reply within two weeks. Rejoinder, if any, may be filed within one week thereafter. Parties to file brief Written Submissions, not more than three pages, and copies of the judgments on which they want to refer or rely on, within three weeks. List the Appeal 'For Admission (After Notice)' Hearing on 25th October, 2021." d. What is being observed that the issue left open is only one i.e. whether or not Applicant could be treated as the 'Financial Creditor' looking to the Agreements which are more of Development Agreements. Accordingly, would require consideration? We have gone through the Supplemental Agreement dated 20.03.2012 (appearing at page no. 51 of the Appeal paper book) executed by and between the CD/ Respondent and Adani Developer Pvt. Ltd (ADPL). (i) From the perusal of the above agreement, it is very much clear that these are all business agreements where each party has a role and there is a mechanism to release payment at various stages and the recoupment of such pa....
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....nder a real estate project shall be deemed to be an amount 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" (iv) It is not in dispute that this is an inclusive definition of "financial debt" but certain conditions must be complied with to be a financial debt i.e the CD must have borrowed the money from the Creditor against the payment ....
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.... [Central Government] or of any 36 [State Government], gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein. Explanation.- A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested. Illustrations..." The above already implies that this section provides for damages where the contract fixes the amount to be paid in case of its breach or provides for a penalty. f. Hence, by any stretch of imagination, the Code, nowhere in Section 5(8) of the Code provides for such eventuality to be considered as 'Financial Debt'. Hence, in terms of the provisions of the Code, we are not in a position to sustain the claim of the Appellant to consider its case as a Financial Debt. g. Now let us examine the case with reference to cited judgment by the parties: 1) Both the parties have cited - Pioneer Urban Land and Infrastructure Pvt. Ltd & Anr. Vs. Union of India & Ors. (2019) 8 SCC 416, para 68, 69, 70, 74 ....
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....t Shri Venugopal has read to us is that a wide range of transactions are subsumed by paragraph (f) and that the precise scope of paragraph (f) is uncertain. Equally, paragraph (f) seems to be a "catch all" provision which is really residuary in nature, and which would subsume within it transactions which do not, in fact, fall under any of the other sub-clauses of Section 5(8). 75. And now to the precise language of Section 5(8)(f). First and foremost, the sub-clause does appear to be a residuary provision which is "catch all" in nature. This is clear from the words "any amount" and "any other transaction" which means that amounts that are "raised" under "transactions" not covered by any of the other clauses, would amount to a financial debt if they had the commercial effect of a borrowing. The expression "transaction" is defined by Section 3(33) of the Code as follows: (33) "transaction" includes an agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor; As correctly argued by the learned Additional Solicitor General, the expression "any other transaction" would include an arrangement i....
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....eement between developer and home buyer would have the "commercial effect" of a borrowing, in that, money is paid in advance for temporary use so that a flat/apartment is given back to the lender. Both parties have "commercial" interests in the same - the real estate developer seeking to make a profit on the sale of the apartment, and the flat/apartment purchaser profiting by the sale of the apartment. Thus construed, there can be no difficulty in stating that the amounts raised from allottees under real estate projects would, in fact, be subsumed within Section 5(8)(f) even without adverting to the explanation introduced by the Amendment Act. 78. However, Dr. Singhvi strongly relied upon the report of the Bankruptcy Law Reforms Committee of November, 2015 and in particular paragraph 3 of 'Box 5.2 - Trigger for IRP' which states that financial creditors are persons where the liability to the debtor arises from a "solely" financial transaction. This Committee report, which led to the enactment of the Code, is an important guide in understanding the provisions of the Code. However, where the provisions of the Code, as construed in the light of the objects of the Code, are cl....
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....oney" was defined thus: "present value: today's value of a payment or a stream of payment amount due and payable at some specified future date, discounted by a compound interest rate of DISCOUNT RATE. Also called the time value of money. Today's value of a stream of cash flows is worth less than the sum of the cash flows to be received or saved over time. Present value accounting is widely used in DISCOUNTED CASH FLOW analysis." That this is against consideration for the time value of money is also clear as the money that is "disbursed" is no longer with the allottee, but, as has just been stated, is with the real estate developer who is legally obliged to give money's equivalent back to the allottee, having used it in the construction of the project, and being at a discounted value so far as the allottee is concerned (in the sense of the allottee having to pay less by way of instalments than he would if he were to pay for the ultimate price of the flat/apartment)." What it is abundantly clear that the claim is an accretion of penal interest emerging from clause 4 of the Agreement dated 20.03.2012. i. The Appellant also cited the Judgment in Mahammad R....
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....ach is stated in a decision of this Court in the case of Mackintosh v. Crow I.L.R. 9 Cal. 689. Mr. Justice WILSON in delivering the judgment of the Court, after examining the various cases bearing upon this point and explaining the nature of the provisions of Section 2 of Act XXVIII of 1855, and Section 74 of the Contract Act, says: "In all such cases this element is present, that by the terms of the contract a sum is made payable by reason of the breach, capable of calculation at the time of the breach, and payable in all events, though in the second class of cases the payment is spread over a term. But where the contract is merely that if the money is not paid at the due date, it shall thenceforth carry interest at an enhanced rate, I do not see how it can be said that there is any sum named as to be paid in case of breach. No one can say at the time of the breach what the sum will be. It depends entirely on the time for which the borrower finds it convenient to retain the use of the money. It is a fresh sum becoming due month by month, i.e., as the case may be, for a new consideration. And in my opinion the case falls under the first rule of law abovementioned, not under the sec....
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....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 sub-clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per sub-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 sub-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 sub-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 transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said sub- clauses (a) to (i) of Section 5(8) would ....