TaxTMI 
TaxTMI 
2022 (8) TMI 1481
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....d by Adjudicating Authority (National Company Law Tribunal, New Delhi, Bench -III) in the case of CP (IB) -1600/ND/2018 under Section 7 of the Code, initiating CIRP of the Ambience Pvt. Ltd.-CD. 2. The Adjudicating Authority has admitted the case on the basis of following observations: "6. We have perused the submissions made by the parties. The corporate debtor has raised several objections; however, such objections are untenable on the ground that corporate debtor did not file any objection/appeal against the award passed by the conciliator; hence, it has attained the finality in terms of Section 74 of the Arbitration and Conciliation Act, 1996. Furthermore, there is a payment by the corporate debtor of Rs. 65 crore, so it has dully admitted the financial debt. Apart from it, as per the settlement agreement there is an interest to be paid by the corporate debtor on the amount disbursed by the financial agreement, which also proves that the money is of the nature of financial debt. Moreover, instalments have also been agreed for return of securities by way of shares and debentures, which comes within the ambit of the 'Financial Debt' in following manner:- "5(8....
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....evelopment of the Project, which would be developed by the SPV on the understanding that the Investor and the Promoter/Developer would be entitled to the distributions of revenue/cashflows by the SPV in accordance with clause 1A.4 hereunder and the Developer/Promoter will control, manage, supervise, monitor and provide the necessary expertise and technical support for the construction and development of the Project. (e) The Investor, SPV, Promoter and the Developer propose to jointly enter into this Agreement for the construction and development of the Project by the Developer, and investment into the SPV by the Investor and the Developer/Promoter in the manner stipulated herein. (f) "Additional Investor Contribution" shall mean any amount infused by the Investor in the SPV in excess of the Investor Contribution not exceeding Rs. 65,04,38,570 (Rupees Sixty Five Crores Four Lakh Thirty Eight Thousand Five Hundred Seventy only). (g) "Investor Contribution" shall mean a sum of Rs. 134,95,61,430 (Rupees One Hundred Thirty Four Crores Ninety Five Lakh Sixty One Thousand Four Hundred and Thirty only) invested by the Investor as of Closing Date and/or any furthe....
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....s A. Equity Shares -Developer/Promoter 200 -Investor 9,800 B. Class A Shares (Investor) 10,000 C. Class B Shares (Developer) 10,000 (iii) Promoter and Developer hereby acknowledge that the Investor has agreed to make the investment in the SPV on the understanding that the Parties shall generally adhere to the terms and conditions contained under this Agreement and the Business Plan attached hereto as per Schedule 2, as amended with prior approval of the Board from time to time. Parties agree that any extension of timelines stipulated in the Business Plan and attendant extension in the Project Completion Date by the Board shall not be regarded as a breach on part of the developer of the Promoter or the SPV. (m) Clause 1A.2 Payment by SPV (a) On or before the Closing Date, the SPV shall be obligated to pay a sum of Rs. 54,99,00,000 (Rupees Fifty Four Crores Ninety Nine Lakh Only) to the Developer or its Affiliates for the surrender of all rights with respect to the Project Land in favour of the SPV by the Developer or its Affiliates. ....
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....,00,000/- (Rupees Six Hundred and Seventy One Crores) in the ratio of 49:51 between investor and the Developer/Promoter respectively. The payment of interest by SPV on Investor debentures and Developer debentures shall be considered as payment towards the Investor's share of 49% and developer's share of 51% respectively as per this para a. Beyond Profit Before Tax of Rs. 671,00,00,000/- (Rupees Six Hundred and Seventy One Crores) in the ratio of 20:80 between Investor and the developer/Promoter respectively. The payment of interest by SPV on Investor debentures and developer debentures shall be considered as payment towards the Investor's share of 20% and developer's share of 80% respectively as per this para b. It is clarified that the cashflows would be shared between Investor and the developer/Promoter net of taxes of SPV. It is also clarified that any payment made by the SPV to Promoter/developer/Investor over and above the issue price of the developer Securities or Investor Securities, as the case may be, shall be considered as part of their respective share in the distribution of balance revenues/cash flows as above. 5. It was also stated by the Ld. Sr. C....
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....nto the Joint Venture Company by way of optionally convertible debentures and unsecured loans without any applicable interest on the advances. The same are reproduced below: Securities of JV Company Vistra ITCL Ambience Equity Shares 9,800 (49%) 10,200 (51%) Class A Shares 100,000 Class B Shares 100,000 Value of Debentures issued by JV Company (in INR) 134,93,63,430 (49%) 140,44,43,570 (51%) Additional Contribution INR 65.05 Crores INR 67.69 Crores Total Investment in JV Company (INR) INR 200 Crores by Vistra ITCL INR 208 Crores by Ambience 11. It was also stated by the Ld. Counsel that once the project progressed requirement of additional funds were expressed by the Joint Venture Company. This shortfall was funded by Respondent No.1 by providing further unsecured loan of over Rs. 323 Crore as further additional contribution. 12. The SHA was amended for the first time on 3 September 2011, wherein it was inter alia agreed between the parties that the Debentures issued by JV Company to Vistra ITCL and Ambience shall not carry any guaranteed coupon payment. It may be noted that the originally ....
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....since the Respondent would ultimately benefit from the profit sharing from ultimate sale of flats, as per Clause 1A.4 of the SHA. p. By letter dated 9th November 2015, Vistra ITCL refused to fund the Project any further. Between November 2015 - March 2016 several letters were exchanged between Vistra ITCL and JV Company, wherein JV Company requested for further funds. However, the same were refused by Vistra ITCL. By letter dated 29.01.2016, Vistra ITCL once again reiterated its position that no additional funding to the JV Company would be possible, and that JV Company must explore additional options to raise funds for completion of the Project. It is important to note that Vistra ITCL admits that the funding was only made into JV Company for the construction and development of the Project by JV Company. q. By a letter dated 31st March 2016, Vistra ITCL sent an Event of Default Notice to Ambience, the Promoter and JV Company raising frivolous disputes alleging breach of milestones of construction as represented in the Business Plan and certain non-compliance of the reporting requirements as stipulated in the SHA. It is crucial to note that even as per Vistra ITCL....
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....on Act, 1996. The joint memo of disputes submitted to the sole conciliator, Mr. Justice K S Gupta (Retd.) by the parties. y. On 7 April 2017, a Settlement Agreement was entered into between Vistra ITCL, the Appellant herein, Ambience and JV Company bringing an end to the SHA. z. By the said agreement the parties recorded that: "M. The claim of the Investor [Vistra ITCL] has been denied and disputed by the Promoter [Appellant herein] and the developer [Ambience]. For the sake of convenience, the issues raised by the Investor against the developer, Promoter and JV Company in its various communications, and more specifically referred in the notice dated May 20, 2016 and letter dated September 2016, sent on behalf of the Investor to the Promoter, developer and JV COMPANY, are collectively referred to as the ("Disputed Items"). N. Since the Developer and Promoter have denied the Disputed Items, the developer, Promoter and the Investor had several meetings to amicably resolve the disputed items in good faith and eventually referred the matter to conciliation; ... P...the Parties have by mutual consent and with the assistance of the Co....
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....18. Proceedings initiated by Vistra ITCL pursuant to the Settlement Agreement gg. Thereafter, due to several difficulties faced in the real estate sector, the price fixed in the Settlement Agreement could not be made for the purchase of the securities by JV Company. On not receiving the subsequent two tranches of payment, Vistra ITCL filed an application under Section 7 of the I&B Code against Ambience. While admittedly there was no debt disbursed to Ambience by Vistra ITCL. Vistra ITCL did not file any Petition against the JV Company. hh. A bare perusal of the Form 1 filed by Vistra ITCL would indicate that the entire case is based on the non-payment of the purchase price as per the schedule of payment set out in the Settlement Agreement. Vistra ITCL makes out no case against Ambience in the underlying transaction in relation to any debt or default emanating from a financial transaction. Vistra ITCL admits that the investments were made only to JV Company but seeks to recover the same from Ambience only by relying on the Settlement Agreement / Consent Award. Relevant extract of the Form -- 1 is below: Part IV PARTICULARS OF FINANCIAL DEBT FOR EACH APPLICANT....
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.... Vistra ITCL's claims under the Award. It may be noted that VistraITCL has not objected to the properties provided by the JV Company for the purpose of sale for satisfying the Award. nn. Vistra ITCL's conduct of enforcing the award under the Arbitration Act, clearly shows that it only expects recovery of balance of the award amount payable for purchase of securities (shares and debentures) by the Corporate Debtor and /or its nominees in the agreed manner (which JV Company has now further secured) and is not interested in the financial affairs/debt resolution of Ambience. The insolvency application was clearly thus filed for purposes other than resolution of insolvency and only as an abusive tactic to expedite debt recovery and enforce the award. 19. The Ld. Sr. Counsel submitted that in spite of the fact as stated as above the Adjudicating Authority has admitted the Respondents application under the Code against Corporate Debtor without going into the objections & the issue raised by Corporate Debtor. In view of above facts & circumstances he has sought the relief to set aside the impugned order dated 21.12.2020 passed by Adjudicating Authority etc. 20. The Ld. Sr. C....
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....) on 06.09.2016, Ambience Pvt. Ltd. was liable to pay an amount equivalent to inducted funds together with IRR @ 20% p.a. within 90 days i.e., by 05.12.2016. Therefore, even under the SHA, Ambience Pvt. Ltd. had defaulted, which default warrants triggering of Corporate Insolvency Resolution Process. 3.5. The entire liability on aforesaid default was assumed by the Corporate Debtor jointly and severally with the Appellant and Ambience Project and Infrastructure Limited under the terms of Settlement Agreement. It remains undisputed that the repayment obligation along with interest under Settlement Agreement was also repeatedly defaulted by the Appellant, Ambience Pvt. Ltd. and the SPV on 07.04.2017 due to non-payment of interest, and thereafter on 30.09.2017 and 28.02.2018 by non-payment of principal and interest. 3.6. The Settlement Agreement is only a sequel to the earlier Agreements, and in any case the Settlement Agreement treats the total amount as debt payable with interest, which cannot be denied by the Corporate Debtor in the capacity as a promoter/developer as both of them are jointly and severally liable for amounts due to the financial Creditor having sig....
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.... that clauses (a) to (i) of Section 5 (8) of the Code must all necessarily reflect the fact that a financial debt can only be a debt which is disbursed against the consideration for the time value of money, and which permeates clauses (a) to (i), cannot be accepted as a matter of statutory interpretation, as the expression "and includes" speaks of subject-matters which may not necessarily be reflected in the main part of the definition." 3.8 Supreme Court has clearly laid down that the Section 5 (8) (f) of the Code is a "catch all" provision, which includes wide array of transactions. 3.9 B.V.S. Lakshmi vs. Geometrix Laser Solutions Pvt. Ltd. reported in MANU/NL/0221/2017, the National Company Law Appellate Tribunal (hereinafter " NCLAT") has held that it is not necessary to show disbursal to the corporate debtor. 3.10 Disbursement to CD is not an essential condition to constitute a Financial Debt under Section 5(8) of the Code. This is evident from inclusion of Guarantees etc., (where there is no disbursement to Guarantor) within the ambit of Section 5 (8) (f) of the Code. Furthermore, Disbursement that was made to the subsidiary of the CD under the Subs....
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....nrepaid Loan") by the CD. 4.5. Therefore, the contention that merely because the original default ended in a settlement having the force of a decree does not, and cannot, change the nature of the debt viz., a Financial Debt i.e., a debt pertaining to Unredeemed Debentures and Unrepaid Loan. 4.6. In the present case, the Financial Creditor/Respondent No. 1 is seeking redemption of 9,10,82,032 Debentures amounting to Rs. 186,33,79,755 as on Insolvency Commencement Date, the liability of which continues to be that of the CD even under the Settlement Agreement. 4.7 Similarly, the Respondent No. 1 is seeking repayment of Unrepaid Loan of Rs. 43,90,28,330 amounting to Rs. 89,81,75,506/- as on Insolvency commencement Date, the liability of which continues to be that of the CD even under the Settlement Agreement. V. Petition under section 7 is based on the Outstanding Financial debt namely 1.34 crores of Debentures and Unsecured Loan of Rs. 37,62,81,916 regard to which there has been a default by the Corporate debtor, which liability has been recreated and undertaken in the Settlement Agreement by the Corporate debtor. 5.1 The Subscription Agree....
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....n the SPV together with an IRR of 20% of such Total Investor Contribution. 5.12 Pursuant to aforesaid disputes, on 07 April 2017 the Settlement Agreement was executed amongst FC, CD, SPV and the Promoter. The Settlement Agreement contemplated that the CD and/or the Promoter and /or the SPV would repay a sum of INR 200 Crores as "Amount Due" in following manner a) INR 65 crores on or before 7 April 2017 together with simple interest @6% p.a. with effect from date of payment of such amount by investor till 7 April 2017. In fact, even receipts were issued towards repayment of unsecured loans in the sum of INR 21,13,92,540/- and Debentures comprised in debenture Certificate No. 3, Folio No. I-01, Distinctive No. 011-43854311 in the sum of INR 57,68,37,929/-. Materially, no monies have been received by the FC after filing Application under Section 7 of IBC. b) INR 65 crores on or before 30 September 2017 together with simple interest @ 6% p.a. with effect from date of payment of such amount by investor till 30 September 2017. c) INR 70 crores on or before 30 September 2017 together with simple interest @ 6% p.a. with effect from date of payment of suc....
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...., monthly Fees of Rs.3,50,000/- was proposed for consideration and approval. The above stated fee was discussed in CoC and it was approved with 83.668% assenting vote that the above fees and expenses to be borne and paid by main applicant Vistra ITCL India Limited in accordance with Regulation 33(3) of the CIRP Regulations under the IBC, 2016. However, the resolution for fees and expenses for the subsequent months of CIRP, which was put to vote after taking suggestions from the members of CoC, was not approved as it received 41.170% assenting votes (8 members), 42.498% dissenting votes (1 member) and the creditors holding 16.332% was absent (2 members). 25. We have gone through the submissions made by the Ld. Counsel/Ld. Sr. Counsel of the parties, documents available on record and the related provisions of law and are having following observations: (i) It is not in dispute that there is no Shareholders Agreement rather it has been confirmed by the party & the available record also reveals by Annexure - 3, Annexure-4 & Annexure -5 Pg 107 to 191 of the Appeal Paper Book that there is a Share Subscription cum Shareholder Agreement made on 28.05.2011 involving Respondent n....
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....or to issue of Investor Securities shall be treated as debt granted to the SPV by the Investor or its Affiliates and shall be secured against all assets of the SPV including the Project Land until the time all the Investor Securities have been issued to the Investor. If the Affiliates of the Investor have infused an amount equivalent to Investor Contribution in the SPV on the Closing Date which is treated as debt to the SPV and in future if the Investor infuses Investor Contribution in the SPV, the SPV shall be obligated to fully repay the debt to the Affiliate on the same day on which the Investor invests Investor Contribution in the SPV. If the SPV does not repay the debt to the Affiliate on the same day the Investor invests the Investor Contribution, then the SPV shall be obligated to pay an interest of 20% per annum on such debt amount in addition to the amount of the debt from the date of infusion of the Investor Contribution by the Investor." (iv) It has also not been disputed that the Respondent no.1 is holding 49% of the equity shares of the Joint Venture Company & Corporate Debtor was holding 51% of the Joint Venture Company. The Investment has been made by both t....
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....s it is very much clear that the Respondent no.1 has not disbursed any money to the Corporate debtor and hence, on this count the Judgment of Hon'ble Apex Court in 'Anuj Jain vs. Axis bank (2020 8 SCC 401)' is amply clear. (viii) From the above Judgment Para 42.3 states that the enunciation aforementioned illuminates the reasons as to why at all a financial creditor is conferred with a major, rather pivotal, role in the processes contemplated by Part II of the Code. It is the financial creditor who lends finance on a term loan or for working capital that enables the corporate debtor to set up and /or operate its business; and who has specified repayment schedules with default consequences. The most important feature, as this Court has said, is that a financial creditor is, from the very beginning, involved in assessing the viability of the corporate debtor who can, and indeed, engage in restructuring of the loan as well as reorganization of the corporate debtor's business when there is financial stress. Hence, a financial creditor is not only about in terrorem clauses for repayment of dues; it has the unique parental and nursing roles too. In short, the financial creditor ....
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.... be shown that the corporate debtor owes a financial debt to such person. Understood this way, it becomes clear that a third party to whom the corporate debtor does not owe a financial debt cannot become its financial creditor for the purpose of Part II of the Code. (xi) The Arbitral Award/Decree cannot be enforced by invoking Section 7 of the Code. A decree/Award holder is not a Financial Creditor and any obligation arising there under will not amount to a financial debt as held in the following cases: a. In Shubankar Bhowmik v. Union of India W.P. (C) (PIL) No. 4/2022, Division Bench, Hon'ble Tripura High Court has held that Decree Holder, although recognized as Creditor under S. 3(10), are a different class of creditor and cannot be treated as Financial Creditor or an Operational Creditor under I &B Code, 2016 as follows: "[11]... The interest recognized is that in the decree and not in the dispute that leads to the passing of the decree. This is apparent from the fact that decree holders as a class of creditors are kept separate from "financial creditors" and "operational creditors". No divisions or classification is made by the statute within this cl....
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....ard CIRP cannot be invoked .The Code/Adjudicating Authority is not the executing authority for enforcing the Arbitral Award under the provisions of Arbitration & Conciliation Act, 1996. (xiii) It is abundantly clear that the Respondent no.1 investment of debentures & unsecured loans to the Joint Venture Company are evidently not a disbursement made to the Corporate Debtor. This Appellate Tribunal has already prevented in the following Judgments the enforcement of a decree/Arbitral Award using the provisions of IBC. (i) G Eswara Rao v. SASF, Judgment dtd. 7.2.2020 - internal para. 26, pg. 22 (ii) Sushil Ansal v. Ashok Tripathy, Judgment dtd. 14.08.2020- internal para. 23, pg.29 (iii) HDFC Bank v. Bhagwan Das Auto Finance Ltd. Judgment dtd. 9.12.2019. (iv) C. Shivakumar Reddy v. Dena Bank, Judgment dated 18.12.2019 (v) IARCL v. Jayant Vitamins, Judgment dated 17.12.2019. 26. We are making it clear that Investment made in SPV/Joint Venture through Share Subscription & Shareholders Agreement will not come within the purview of Section 7 R/w Section 5(8) of the 'Code'. 27. It is also further stated that to get it covered under ....
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.... (as trustee to INDIAREIT Fund Scheme - IV) (The "Investor") AND MR. RAJ SINGH GEHLOT (The "Promoter") And AMBIENCE PRIVATE LIMITED (The "Developer") And AMBIENCE PROJECTS AND INFRASTRUCTURE PVT. LTD. (The "SPV") Executed on May 28, 2011 P 200827 107 52000000 000000000000005 ã² TRUE COPY For Ambience Projects and Infrastruct Document 2 LIMITED LIMITED ED 1 L&FS ारतीय à¤à¤• सौ रà¥à¤ªà¤¯à¥‡. रà¥.100 ANNEXURE-4 178 नायिक Rs. 100 ONE HUNDRED RUPEES सतà¥à¤¯à¤®à¥‡à¤µ जयते 00100 à¤à¤¾à¤°à¤¤ INDIA 00100100100" 00100100100 100100 100100100100 0100100100 010010010010010000160100100100- INDIA NON JUDICIAL facefi DELHI R 028223 AMENDMENT AGREEMENT TO SHARE SUBSCRIPTION CUM SHAREHOLDERS AGREEMENT BY AND BETWEEN IL&FS TRUST COMPANY LIMITED (as trustee to INDIAREIT Fund Scheme - IV) (The "Investor") AND MR. RAJ SINGH GEHLOT (The "Promoter") And AMBIENCE PRIVATE LIMITED (Th....
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....reholders Agreement on May 28, 2011 ("Agreement") to record the terms and conditions applicable to the future relationships between the shareholders of the Company inter se and between the Company and its shareholders, and matters ancillary thereto. B. As per the Agreement, the Parties had agreed that all sums of money paid by the Investor or its Affiliates to SPV on the Closing Date and prior to issue of Investor Securities shall be treated as debt granted to the SPV by the Investor or its Affiliates and shall be secured against all assets of the SPV including the Project For Ambience-Projects and Infrastructure Pvt. For AMBIENCE PVT. LTD. TRUE COPY R Managing Director Direct MITED * · 180 Land until the time all the Investor Securities corresponding to Investor Contribution have been issued to the Investor. Pursuant to the above understanding, the Investor and its Affiliates have already invested a sum of INR 134,95,61,430 (Rupees One Hundred and Thirty Four Crore Ninety Five Lakhs Sixty One Thousand and Four Hundred Thirty Only). C. As per the Agreement, the Investor had agreed to subscribe to, and the Company ....
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....vestor Contribution is infused in the SPV by the Investor and its Affiliates on the Closing Date." For Ambience Projects and Infrastructure Pvt. Ltd For AMBIENCE PVT. LTD. TRUE COPY R Managing Director Director IL&FS 3. 4. 5. 6. 181 Clause (b) of Schedule 4 of the Agreement shall stand replaced with the following. clause: "(b) The Investor Debentures shall not have any guaranteed coupon payment. The coupon on Investor Debentures shall neither be accrued nor be paid unless the accrual/payment of the same is expressly approved by the Board unanimously. It is further clarified that the rate of coupon payment shall also be decided by the Board unanimously at the time when it is decided to accrue/pay the same." Clause (b) of Schedule 4A of the Agreement shall stand replaced with the following clause: "(b) The Developer Debentures shall not have any guaranteed coupon payment. The coupon on Developer Debentures shall neither be accrued nor be paid unless the accrual/payment of the same is expressly approved by the Board unanimously. It is further clarified that the rate of coupon payment shall also be deci....
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....erewith, and such documents, when executed, will constitute valid and binding obligations and be enforceable against each of them in accordance with their respective terms. (ii) The execution, delivery and the performance by the Parties hereto of this Amendment Agreement and any other documents in connection therewith (to which it is or will be a party) and its obligations in relation to the transaction contemplated thereunder, do not and will not: (!!!) 1. breach or constitute a default under its charter/constituent 2. 3. documents; result in a breach of, or constitute a default under, any agreement to which any of the Parties is a party or by which they are bound or give any third party a right to terminate or modify, or result in the creation of any lien under, any agreement, license or other instrument; or result in a violation or breach of or default under any applicable law or of any order, judgment or decree of any court, governmental authority, regulatory body to which any of the Parties are a party or by which any of their assets are bound. The Parties have obtained all necessary consents, approvals, orders ....