TaxTMI 
TaxTMI 
2022 (8) TMI 1481
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....pany 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) "Financial Debt" means a debt along with interest, if ....
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....e 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 further amount to be invested (excluding Additional Investor Contribution) as of any other date into the SPV towards subscription of....
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....reby 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. (n) Clause 1A.3 Capital Structure The capital structure of the SPV pursuant to the issuance of Investor Debentures and Developer Debent....
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....ly 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. Counsel for the Appellant that the Respondent No. 1 is a trustee of (India REIT fund Scheme-IV) which is registered as a venture capital fund for making investments in securities of venture capital undertakings engaged in real estate property management, infrastructure and allied sectors in India. 6. It was also stated by the Ld. ....
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....f 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 the Debentures issued by JV Company was to carry a coupon rate of 15% per annum. After the amendment, even the debentures issued by JV Company did not provide for any consideration for time value of the debentures. 13. The Amended Agreement are reproduced below for ease of convenience. 14. Thereafter Second Amendment to the Shareholder Agreement was made on 07.02.2012 and the sa....
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....used 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, the event of default only pertained to milestone events and purported non-compliance of reporting requirement. There was no allegation or claim of any outstanding payment or return of investment by Ambience under the SHA. r. From the event of default notice, it is clear that the only grievance of Vistra ITCL under the SHA was with regard to non-completion of the Project within the agreed milestone and re....
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....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 Conciliator, arrived at a settlement in relation to the disputes that arose between them." aa. Vistra ITCL and Ambience consequently agreed to treat the Settlement Agreement as an Arbitral Award on consent terms which was specifically to be enforced under the provisions of the Arbitration and Conciliation Act, 1996. The Parties were aware of the existence of the I&B Code and had expressly intended the Award to be enforced only under the Arbitration and Conciliation Act, 1996. bb. U....
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.... 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 1. TOTAL AMOUNT OF DEBT GRANTED "As on 31.10.2018 Rs. 234,69,62791/- are in default. As per Settlement Agreement dated 07.04.2017 the total liability of the Corporate Debtor is of Rs. 200,00,00,000/- (Rupees Two Hundred Crore Only) DATE OF DISBURSEMENT The date of disbursement of the aforesaid amount were as follows: a. The amount of Rs. 35,95,61,430/- was disbursed to Ambience Projects and Infrastructure Pvt. Ltd. on 30.05.2011. The applicant was entitled to recover Rs. 35,95,61,430/- from the Corporate Debtor along with interest...." i....
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....lication 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. Counsel for Respondent No.1/Vistra ITCL India Ltd.as stated as follows: (i) It is financial Creditor to the Corporate Debtor viz., Ambience Pvt. Ltd. for the following reasons 3.1. The Debt owed to Vistra ITCL (India) Limited (hereinafter 'FC') is a Financial Debt in as much as :- (a) The debt is in respect of Optionally Convertible Debentures (OCD) of Rs. 10 each held by the Financial Creditor (after the redemption of 4,38,54,311 OCD; this unpaid total OCDs being 13, 49,36,343 valued at a Rs. 134,93,63,430/-. (b) The debt is also in respect of Unsecured Loan Rs. 37,62,81,916 extended by the....
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....llant, 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 signed the agreements jointly. 3.7. Since no disbursement was made directly to the CD, the Debt would not constitute a financial debt is per-se misconceived and contrary to law. It is submitted that the Financial Debt as defined Section 5 (8) of the Code is a "means and includes" as has been reiterated by the Hon'ble Supreme Court in "Pioneer Urban Land and Infrastructure Ltd. v Union of India (2019) 8 SCC 416 82. This statement of the law, as can be seen from the quotation hereinabove, is without citation of any authority. In fact, in Jagir Singh v. State of Bihar [Jagir Singh v. State of Bihar, (1976) 2 SCC 942: 1976 SCC (Tax) 204], SCC paras 11 and 19 to ....
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..../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 Subscription Agreement was made on the strength of the Representations, Warranties and Obligations undertaken by the CD, including the obligation of repayment of the debt and redemption of Debentures. IV. Relationship between CD and FC is that of joint venture partners under the Subscription Agreement, and therefore, the amounts due would this does not amount to a Financial Debt is also untenable and misconceived. 4.1 Initiation of CIRP Process under Section 7 of the Code is filed arises out of a Financial Instrument in the nature of the Debentures, as also the Outstanding Unsecured Loan. 4.2 The obligation to make redemption repayment of such Debentures and Unsecured Loan was squarely....
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....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 Agreement defies FC as "Investor", the Appellant as "Promoter", the CD as "Developer" and Ambience Projects and Infrastructure Private Limited as "SPV" 5.2 CD and Appellant have represented to the Investor that the Promoter either directly or through Affiliates have won the bid to acquire the Project Land. Promoter and the developer have jointly agreed and undertaken to convey the Project Land in favour of the SPV. 5.3 CD and Promoter have agreed to convey the Project Land at Agreed Price being a sum of 275,42,07,000. Clause 5.3 of the Subscription agreement recorded that the proceeds would be used to acquire Project Land. Clause 1A.2 further recorded that a sum of INR 54,99,00,000 was to be transferred by SPV to CD, i.e., the developer and its aff....
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....n 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 such amount by investor till 28 February 2018. 5.13 In case of default, the rate of interest chargeable from date of default would be 14% p.a. till actual date of payment. 5.14 The Settlement Agreement was executed in conciliation proceedings under Part III of the arbitration and Conciliation Act, 1996. 5.16 In present case, (i) the underlying transaction is a financial debt (ii) and the application is based out of a Settlement Agreement. 6.3 The Settlement Agreement is still an Agreement/Contract demonstrating commercial effect of borrowing, whereunder the amounts raised by the SPV have been treated as a debt repayable by the Corporate Debtor. 6.4 The factum of filing of execution proceedings is irrelevant for present proceedings under section 7 of the IBC, the Law permits a Decree Holder to initiate ....
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.... (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 no.1/Corporate debtor, Appellant and the SPV. The SPV for the construction & development of the Project and accordingly the Investment will be made into the SPV by the Investor/Respondent No.1, Developer, Corporate Debtor into the SPV/Joint Venture Company. (ii) All the Investments have been made in the SPV/Joint Venture Company. The Shareholder Pattern of the SPV has stated above and appearing at Pg- 117 is as under: Clause 1A.1 Capitalization and funding of the SPV (a) As of Effective Date, the shareholding pattern of the SPV is as follows: Shareholder Number of Shares Developer 5,000 Promoter 5,000 Investor NIL (b) On the Closing Date, SPV shall further issue the following securities to the Investor in the following proportion: Instrument Number of Securities A. Equity Shares -Developer/Promoter 200 -Investor 9,800 B. Class ....
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.... (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 the parties into the Joint Venture Company. (v) In order to prove that Respondent No.1 is a financial Creditor of Corporate debtor it has to meet the following conditions of the Code. Accordingly , we are reproducing Section 5 (7) & Section 5 (8) as given below: (7) "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; (8) "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes- (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contrac....
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....ly about in terrorem clauses for repayment of dues; it has the unique parental and nursing roles too. In short, the financial creditor is the one whose stakes are intrinsically interwoven with the well-being of the corporate debtor. (ix) Para- 46 of the judgement states that applying the aforementioned fundamental principles to the definition occurring in Section 5 (8) of the Code, we have not an iota of doubt that for a debt to become "financial debt" for the purpose of Part II of the Code, the basic elements are that it ought 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 clauses (a) to (f) of Section 5 (8); it may also include any derivative transaction or counter-indemnity obligation as per 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 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 th....
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....s" and "operational creditors". No divisions or classification is made by the statute within this class of decree holders. The inescapable conclusion from the aforesaid discussion is, that the IBC treats decree holders as a separate class, recognized by virtue of the decree held. The IBC does not provide for any malleability or overlap of classes of creditors to enable decree holders to be classified as financial or operational creditors..." This view was affirmed by the Hon'ble Supreme Court of India in SLP (C) 6104/2022 wherein the SLP to challenge the above Order was rejected. b. In Sushil Ansal v. Ashok Tripathy CA (AT) Ins. No. 452 of 2020 this Hon'ble Appellate Tribunal has held that an award/decree holder cannot be a Financial Creditor, as there is no disbursement and return under a decree. A decree is merely a settled/adjudicated amount culminating from the resolution of a dispute. This Tribunal held as follows: "The answer to the question whether a decreeholder would fall within the definition of Financial Creditor has to be an emphatic No as the amount claimed under the decree is an adjudicated amount and not a debt disbursed against the consideration for the time va....