TaxTMI 
TaxTMI 
2023 (1) TMI 303
X X X X Extracts X X X X
X X X X Extracts X X X X
....ication has come up in this appeal. The background facts have been noted in detail by the Adjudicating Authority and it is useful to notice the relevant facts to the following effect: (i) IL&FS Energy Development Corporation Limited (IEDCL) signed a MoU dated 27.07.2010 with Wind World India Limited (WWIL) for WWIL to set up Wind Energy Projects for a total capacity of 1004 MW for IEDCL in a phased manner. Later 100% subsidiaries of IEDCL were incorporated as SPV (IEDCL SPVs) for the purpose of investing in Wind projects. (ii) Orders were placed by the IEDCL SPV for the supply, erection and commissioning of wind power projects with wind world (India) limited and purchase orders for transfer of development rights were placed on Wind World Wind Resources Development Private Limited (WWRDPL), a 100% subsidiary of WWIL, in a phased manner spanning over five phases between 2010 and 2014. Commercial aspects of the agreement shows the payment by IEDCL SPVs was to be made as per milestones under the purchase orders placed by the IEDCL SPVs on WWIL. (iii) WWIL was entitled to receive full payment from the IEDCL SPVs as and when the project milestones were....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (vii) On 10.01.2018, demand notice was issued to WWFMPPL as well as the Respondent - Vaayu Infrastructure LLP to pay an amount of Rs.26,63,62,453/- as on 21.12.2012 together with further interest in respect of the facilities. (viii) On 29.01.2018, a recall notice was issued to WWFMPPL declaring the amount of Rs.254,72,62,584/- as due and payable. (ix) By letter dated 07.02.2018, guarantee given by the Respondent was also invoked for payment of Rs.254,72,62,584/-. (x) The Appellant after taking the aforesaid steps filed an application under Section 7 against the Respondent - Corporate Guarantor. 2. The Adjudicating Authority issued notice in the Section 7 application to which a detailed reply dated 21.03.2022 was filed by the Corporate Debtor. The Corporate Debtor in its reply pleaded that the applicant is not a financial creditor of the Corporate Debtor. It was pleaded that nine coloured Loan Agreements were executed between IFIN (Assignor of the applicant) on one side and WWIL and its subsidiaries on the other side. The execution of the nine transactions coloured as Loan Agreement were at the request and insistence of IL&FS Group, which were fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rporate guarantor along with another Vishwind Infrastructure LLP as co-guarantor. 16. The amounts assigned by IFIN to the Financial Creditor have been accounted for by Vejas Power Project Limited, as 'capital advance' in the audited balance sheet as filed by the Registrar of Companies for F.Y. 18 &F.Y. 19. This clearly shows that the Vejas Power Project Limited has knowledge that the amount due does not come within the meaning of 'financial debt', therefore, accounted the amount as a 'Capital Advance' and not as a "Financial Loan". It is settled law that under Section 129 of the Companies Act, 2013 financial statements shall give true and fair view of the state of affairs of company and shall comply with the Accounting Standard. Therefore, no contrary stand can be taken by Vejas Power Project Limited; 17. In this case, both sides have clearly functioned as collective through their group companies in order to fulfil the terms of MoU and the transactions as stated by the Petitioner needs to be looked as a part of the transaction under the initial MoU dated 27.07.2010 entered between IL & FS Energy Development Company Limited (IEDCL) and Wind World India Lim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounsel for the Respondent refuting the submissions of the Appellant contended that there was no disbursement of financial debt in the present case. The modus operandi of IL&FS of entering into colourable transaction is a well-known fact. The Appellant is a group company of IL&FS and assignee of the financial wing of IL&FS (IFIN). IL&FS Group Companies being IEDCL and IL&FS SPVS alongwith IFIN worked in a collusive manner to deprive the manufacturer and supplier of the wind turbine generator i.e. WWIL of its project receivables. The present is the case wherein the advance payments/ project related payments were shown as loans and were required to be squared off at the stage of completion of the project milestone by WWIL. The Adjudicating Authority after looking to the contemporaneous documents has correctly came to conclusion that the transactions did not involve any financial debt. The Appellant's Balance Sheet having shown the amount as capital advance, it is not open to the Appellant to contend that the real nature of the transaction is loan amount. The Adjudicating Authority in detail examined all submissions of the Appellant and has come to the correct conclusion that there is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant Project, on a pro rata basis, and in case of the last Phase of the relevant Project after adjusting there from any adjustment required towards the Delay LD. 5% The payment shall be made within 15 days of the submission of copy of invoices in triplicate to the Owner along with the necessary documentary evidences by the Contractor. Further the Owner shall also deduct the taxes at source as per the applicable law before making any payment to the Contractor. Further, the Parties agree that for any delay in payment after 30 days from the submission of coy of invoices in triplicate to the Owner, the Owner shall pay the interest @ 1.5% per month on the amount due from the date on which the amount became due till the date of actual payment." 9. From the materials brought on the record it is clear that there was difficulty in the IL&FS SPVS for making advance payment. An email was sent on behalf of the WWIL for delay in payments for completed Phase-II of project was causing stress on WWIL. The facilitative transactions towards advance payment was entered by IL&FS entities with the WWIL and subsidiaries of WWIL since IL&FS SPVS were not able to raise funds from its lenders....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts have relied on Note 41 of FY 2016-17 and Note 40 and 41 of FY 2017-18, which is to the following effect: "Note No 41 in FY 2016-17 is reproduced herein below:- Textual information (41) Description of other non-current assets, others Capital advances Note: The Board of directors of the Company in the meeting held on 18 July, 2017 have approved procurement / acquisition of 56 MW of Wind Power assets, being the underlying security, against the settlement of the said advance. Accordingly, the said advance have been classified as Capital advance and presented as "Non-Current Assets". Note No 40 and 41 in FY 2017-18 is reproduced herein below:- Textual information (40) Description of other non-current assets, others Capital advances Note: The Board of directors of the Company in the meeting held on 18 July, 2017 have approved procurement / acquisition of 56 MW of Wind Power assets, being the underlying security, against the settlement of the said advance. Accordingly, the said advance have been classified as Capital advance and presented as "Non-Current Assets" Textual information (41) Description of othe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....MWEPL paid IFIH Rs. 110 Crores to reduce WWIL exposure to IFIN. This is showing as an on account advance in the books of the SPV. 2. IFIN gave a fresh loan to WWIL sub of Rs. 110 Crores. 3. WWIL sub parked this Rs. 110 Crores with MWEPL. settlement of this transaction - for simplicity sake explaining what will happen. 1. WWIL will produce supplies worth Rs. 110 Crores. 2. MWEPL will reduce the advance by Rs. 110 Crores and will credit CHIP by the 110 Crores. 3. Against these supply invoices of Rs. 110 Crores, Wind SPVs will draw down money from the FII Bank and pay IFIN Rs. 110 Crores to be adjusted against the liability of the security deposit. 4. The security deposit will go to 0. 5. At the end of the transaction, IFIN will be paid off. Rs. 100 Cr Transaction: 1. WWIL will deliver an additional Rs. 100 Crores of supplies (in addition to the Rs. 110 Crores specified above) to Wind SPVs. 2. Wind SPVs will pay IFIN Rs. 100 Crores in liue of WWIL to settle this outstanding liability. 3. IFIN outstanding will go to 0. Warm Regards, Akshay Sharma" 14. The above email ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise." 16. The proposition laid down in the above case is to be followed by all concerned. In the above case the Hon'ble Supreme Court was explaining the scope and ambit of Section 7 and laid down that when the Corporate Debtor commits default of a financial debt, the Adjudicating Authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. In the present case, the very nature of the transaction as financial debt has been challenged. When the Corporate Debtor has challenged the very nature of the financial debt, the Adjudicating Authority was required to look into the nature of transactions to decide as to whether the transactions falls within the meaning of Section 5 Sub-section (8) of the I&B Code. 17. Learned counsel for the Appellant has also pla....