TaxTMI 
TaxTMI 
2024 (9) TMI 1814
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.... have been filed by Suspended Directors/ Promoters (Shri Sandeep Mittal and Shri Ravi Mittal) of the Corporate Debtor, challenging order dated 13.12.2023 passed by National Company Law Tribunal, New Delhi, Court-III, admitting Section 7 Application filed by M/s ASREC (India) Ltd. Aggrieved by the order admitting Section 7 Application, these Appeal(s) have been filed. 2. Brief facts of the case necessary to be noticed for deciding the Appeal(s) are: (i) Gujarat State Financial Corporation ("GSFC"), Gujarat Industrial Investment Corporation ("GIIC"), Bank of Baroda, and Dena Bank had advanced Term Lan of Rs. 30 lakhs; Rs. 60 lakhs; Rs. 16.50 lakhs; and Rs. 16.50 lakhs respectively to M/s Ganpati Pulp and Paper Ltd. (hereinafter referred to as the "GPPL"), Bavla, District, Ahmedabad. (ii) The GPPL has created charge over the immovable assets in village Rajoda, Bavla, District Ahmedabad, admeasuring about 24 acres, along with all building and structures thereon. On account of default committed by GPPL, GSFC took possession of the assets. GSFC in exercise of powers conferred under Section 29 of the State Financial Corporation Act, 1951 issued a sale notice by public....
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....ation No.11116 of 2008 was filed by GSFC before the Gujarat High Court. During the pendency of the writ petition, one time settlement was entered into between GSFC and SIL. (vi) The Guarantors of GPPL had filed a writ petition claiming ownership over the assets of GPPL being Special Civil Application No.12979 of 2009 in the matter of Lalitaben Govindbhai Patel and Ors. vs. Gujarat State Financial Corporation & Ors. challenging the one time settlement dated 10.06.2009 between GFSC and SIL, which Application came to be dismissed by the Gujarat High Court, against which Letters Patent Appeal (LPA) No.2480 of 2010 was filed by Lalitaben Govindbhai Patel and Ors. vs. Gujarat State Financial Corporation and Ors. Writ Petition filed by Guarantors of GPPL was dismissed on 06.10.2010. The Gujarat High Court also noticed that winding up petition, which was filed by some unsecured creditors of the GPPL in the High Court was pending. The Division Bench of the Gujarat High Court vide its judgment and order dated 26.07.2021 disposed of the LPA as well as Special Civil Application. It is useful to notice paragraph 10.8 and 10.9 of the judgment, which are as follows: "10.8 In the....
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....s and OTS Settlement will not stand in the way of NCLT." (vii) The Gujarat High Court in the litigation, which was filed before it by the Guarantors of GPPL, as well as the GSFC, in which proceedings Bank of Baroda had also come on the record, disposed of all proceedings with direction for transferring of winding up proceedings to NCLT, Ahmedabad. The Division Bench of the Gujarat High Court made it clear that it is not making any pronouncement on the merits of the claims or counter-claims of any of the parties in the matter. It is also relevant to notice that Bank of Baroda vide its Assignment Agreement dated 29.03.2011 has assigned its debt to M/s ASREC (India) Ltd. (viii) On 15.03.2016, an OTS proposal was submitted by the SIL to ASREC (India) Ltd. for a sum of Rs. 5.50 crores, which could not be complied with. The Respondent M/s ASREC (India) Ltd. sent a Notice of default on 01.03.2021 to SIL in regard to outstanding amount payable by the Corporate Debtor. (ix) Claiming an amount of Rs. 92,35,21,674/- calculated as on 30.06.2022, Section 7 Application was filed by the Respondent before the NCLT, New Delhi dated 23.11.2022, in which Application, notice....
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..... The Agreement dated 27.11.1990 was a Sale Agreement and not a Loan Agreement entered between the Corporate Debtor and the Financial Institutions. There was no disbursement of any amount in favour of the Corporate Debtor by the Financial Institutions and the Financial Institutions were only vendors of the assets, which was agreed to be purchased by the Corporate Debtor for Rs. 3.88 crores. The Corporate Debtor paid down payment of Rs. 50 lakhs and also paid different amounts from time to time, totaling to Rs. 3.05 crores. However, in event there was any default on the part of purchaser, i.e. Corporate Debtor, it was open for Financial Institutions to recover the amount from sale of the assets, on which the Financial Institutions have charge. It is submitted that the Corporate Debtor has settled the dues with GSFC and Dena Bank. The Adjudicating Authority in the impugned order has accepted the submission of the Appellant that Agreement dated 27.11.1990 was a Sale Agreement. However, after recording the said finding, the Adjudicating Authority jumped on the conclusion that there was disbursement by Financial Institutions in favour of the Corporate Debtor, whereas disbursement of Ter....
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....ntial that disbursement of money should take place in favour of the Corporate Debtor. There can be transaction without any disbursement to the Corporate Debtor, which can be accepted as financial debt. It is further submitted that disbursement of the property, which was handed over to the Corporate Debtor, after down payment of Rs. 50 lakhs is clearly a transaction, which is covered by Section 5, sub-section (8) of the IBC. It is submitted that vide Agreement dated 27.11.1990, facility was extended to Corporate Debtor to pay the balance amount in installments with interest, which is clearly in the nature of financial transaction, covered by definition of Section 5, sub-section (8). It is submitted that Corporate Debtor itself subsequently in its letter dated 04.03.2021, which was written to the Managing Director of Respondent No.1 has admitted that sale consideration was converted into loan by the Consortium Members as per the terms and conditions mentioned in the Agreement dated 27.11.1990, by which the GSFC and other Consortium Members, became lenders and SIL became a lonee. It is submitted that Deed of Guarantee was also given by the Corporate Debtor to discharge the sale consid....
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....l to extract letter dated 07.11.1990 sent by GSFC to M/s Rama Finance Company Ltd., which is as follows: "Ref.No. GSFC/Sec.Section/Sale/B-1/Board/1965 Date: 7/11/90 To M/s. Rama Finance Company Ltd. Delhi Cold Storage Building 15, New Subzemandy Azadpur NEW DELHI - 110 033, Dear Sirs, Re : Sale of assets, viz. Land, building, Plant and machinery of M/s. Ganpati Pulp & Paper Mills Ltd., in exercise of powers conferred under section 29 of the SFCs Act, 1951. With reference to the above, we are pleased to inform you that the Board of Directors of the Corporation in its meeting held on 23/10/1990 has considered you offer for purchase of assets viz, land, building, plant, and machinery of M/s. Ganpati Pulp & Paper Mills Ltd., at Vill: Rajorda, Bavla, Dist: Ahmedabad, and decided to accept your offer of Rs. 388.00 lacs (Rs. Three hundred eighty eight lacs) in. exercise of the powers conferred upon the Corporation under Section 29 of the State Financial Corporation's Act-1951, on the following and additional terms and conditions stated in Annexure - '1' enclosed herewith. 1. Payment of 50,00,000/- (inc....
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....e repugnant to the subject or context thereof, includes its successors and assigns) of the One Part AND GUJARAT STATE FINANCIAL CORPORATION, a Corporation established under the State Financial Corporation Act, 1951 (LXIII of 1951) for the State of Gujarat, having its Head Office situated at 'Jaldarshan' Building, Opp. Natraj Cinema, Ashram Road, Ahmedabad 300 009, hereinafter for brevity's sake referred to as "GSFC" (which expression shall, unless it be repugnant to the subject or context thereof, include its successors and assigns), GSFC acting for itself and as agent of GUJARAT INDUSTRIAL INVESTMENT CORPORATION LIMITED (GIIC), BANK OF BARODA (BOB) AND DENA BANK (DNB), of the Other Part. The expression GSFC, GIIC, BOB and DNB shall hereinafter collectively be referred to as "the financial institutions". WHEREAS the Company had charged its immovable properties and hypothecated its movable plant and machinery by way of pari passu charge to secure the financial assistance by way of Term Loans sanctioned by the financial institutions, namely: Rs.30.00 lacs provided by GSFC; Rs. 60.00 lacs provided by GIIC; Rs.16.50 lacs provided....
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....t of Gujarat the assets of the Company were offered for sale by issuing public advertisements from time to time. Last advertisement for sale of the assets of the Company was released on 22nd August, 1990 and the same was published, amongst other newspapers, in the Hindustan Times, New Delhi, dated August 27, 1990. AND WHEREAS in response to the said advertisement the purchaser made offer for purchase of the assets of the Company as "as it where is basis" for Rs. 2,12,12,121/- which has been subsequently raised to Rs. 3,88,00,000/- (Rupees three hundred eighty eight lacs only). With the approval of GIIC, BOB and DBN, the offer of the purchaser has been accepted by GSFC as per the resolution of the Board of Directors of GSFC passed in their meeting held on October 23, 1990, subject to the terms and conditions set out in the letter No. Sec. Section/Sale/B-1/Board/1965 dated November 7, 1990 which is the basis of this agreement and in case of any doubt or dispute regarding the same the decision of GSFC shall always be final and binding to the purchaser." 10. After noticing the aforesaid, the Agreement enumerates the terms and conditions. It is useful to notice Condition Nos....
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....ult or delay in payment as aforesaid, the purchaser shall pay penal interest at the rate of 6% per annum over and above the aforesaid interest at the rate of 15% per annum for the amount in default and for the period in default. 5. After payment of Rs. 50.00 lacs as stated above, the purchaser shall furnish solvent security to the satisfaction of and in favour of GSFC, GIIC, BOB and DNB in any of the following manner: (i) a bank guarantee from a nationalized bank. (ii) a corporate guarantee of the Company (the purchaser) and the personal guarantee of its Directors. 5.1 The amount of bank guarantee, Corporate guarantee and / or personal guarantee shall be for the balance amount due and payable by the purchaser inclusive of interest, cost and other expenses mentioned in this agreement. 6. On payment of Rs. 50.00 lacs and on furnishing guarantee in favour of the financial institutions as mentioned above for securing the balance purchase prices, the GSFC shall handover possession of the assets of the Company to the purchaser on behalf of the financial institutions referred to above. 7. In case of the purchase furnishing corporate gu....
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....on 29(4) of the State Financial Corporations Act, 1951. In the same way the amount forfeited in terms of clause 9 above shall also be distributed amongst the financial institutions on pro-rata basis." 11. The question as noticed above, which need to be answered, is the nature of transaction, which culminated into Agreement dated 27.11.1990. Whether the Agreement dated 27.11.1990 is an Agreement for sale of the assets, belonging to GPPL on which Financial Institutions have pari pasu charge, which were taken possession by GSFC, in the year 1986 or the transaction can be treated to be a loan transaction extended by Financial Institutions in favour of the Corporate Debtor, as contended by learned Counsel for the Respondent? The 'financial debt' as defined in Section 5, sub-section (8) of the IBC, provides as follows: "5(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 dematerialised equivalent; (c) any amount raised purs....
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....has been paid against the consideration for the "time value of money". In paragraphs 70 and 71 of the judgment, the Hon'ble Supreme Court laid down following: "70. The definition of "financial debt" in Section 5(8) then goes on to state that a "debt" must be "disbursed" against the consideration for time value of money. "Disbursement" is defined in Black's Law Dictionary (10th Edn.) to mean: "1. The act of paying out money, commonly from a fund or in settlement of a debt or account payable. 2. The money so paid; an amount of money given for a particular purpose." 71. In the present context, it is clear that the expression "disburse" would refer to the payment of instalments by the allottee to the real estate developer for the particular purpose of funding the real estate project in which the allottee is to be allotted a flat/apartment. The expression "disbursed" refers to money which has been paid 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....
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....c. While deciding the issue of whether a debt is a financial debt or an operational debt arising out of a transaction covered by an agreement or arrangement in writing, it is necessary to ascertain what is the real nature of the transaction reflected in the writing; and d. Where one party owes a debt to another and when the creditor is claiming under a written agreement/arrangement providing for rendering 'service', the debt is an operational debt only if the claim subject matter of the debt has some connection or co- relation with the 'service' subject matter of the transaction." 14. The Hon'ble Supreme Court in the above case has clearly laid down that for deciding as to whether the debt is a 'financial debt' the real nature of the transaction reflected in the writing has to be dealt with. It needs no emphasis that real nature of transaction need to be found out by the Court, when the issue is raised before the Court that transaction is not a 'financial debt'. 15. Before we proceed further, it is relevant to notice the pleadings in Section 7 Application filed by the Financial Creditor and the reply, which was filed by the Corporate Debtor. In Part-IV, Respondent No....
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..... Deed of Guarantee dated 12.12.1990 executed by Corporate debtor 3. Registered Agreement Assignment dated 29.03.2011 4. Proposal Letter 15.03.2016 issued by Corporate Debtor 5. OTS Sanction letter dated 23.03.2016 issued by Applicant Copies of Security documents set out above are enclosed herewith and marked as ANNXURE VIII [Colly]" 17. The Financial Creditor has referred to the letter dated 07.11.1990, which was addressed to Rama Finance Corporation as noted above, which according to Respondent No.1 is a document shown as a finance document. Deed of Guarantee dated 12.12.1990 has also been referred to. Reply was filed by the Corporate Debtor to Section 9 Application, where the Corporate Debtor denied the claim of the Applicant that there was any loan transaction between the parties. In paragraph 8 of the reply, relevant clauses of Agreement dated 27.11.1990 was extracted. After extracting the relevant clauses in paragraph 9, 10, and 11, following was stated: "9. A bare perusal of the above said clauses as well as agreement as a whole would clearly demonstrate that the above said agreement dated 27.11.1990 was an agreement to sale and not a loan agreement. ....
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....t of its claim of transaction being a 'financial debt'. The letter dated 07.11.1990 has already been extracted above. The subject of the letter itself provides "Sale of assets, viz. Land, building, Plant and machinery of M/s. Ganpati Pulp & Paper Mills Ltd., in exercise of powers conferred under section 29 of the SFCs Act, 1951". The letter clearly mentions that "....your offer for purchase of assets viz, land, building, plant and machinery of M/s. Ganpati Pulp & Paper Mills Ltd., at Vill: Rajoda, Bavla, Dist: Ahmedabad, and decided to accept your offer of Rs. 388.00 lacs". Thus, the offer of M/s Rama Finance Company Limited (now Shree Industries Ltd.) was for purchase of the assets, which offer was accepted by GSFC and by the letter it communicated its acceptance of sale of assets of offer at Rs. 388.00 lacs. The letter dated 07.11.1990 in no manner can be read as any loan transaction of any 'financial debt', which is owed by Corporate Debtor to the Financial Creditor. The Agreement dated 27.11.1990, which is an Agreement containing all terms and conditions of sale of the assets, which was issued after approval of the Bank of Baroda, Dena Bank and GIIC has been referred to and rel....
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....8,00,000/- (Rupees three hundred thirty eight lacs) shall be paid by the purchaser to the Corporation within a period of five years in 20 (twenty) equal quarterly installments commencing from 1-5-1991." 21. Thus, what was payable by the Corporate Debtor was payment of balance purchase price. The letter dated 07.11.1990 and Agreement dated 27.11990, do not indicate that transaction was any kind of loan transaction. The Agreement clearly indicates that loan was taken by GPPL, who having committed default, assets were taken possession of by GSFC and was auctioned and sold to recover its dues. 22. The Financial Creditor in his Section 7 Application has relied on the Deed of Guarantee dated 12.12.1990 to support its claim of transaction being a financial transaction. The copy of Deed of Guarantee dated 12.12.1990 has been brought on record by Respondent No.1 along with its reply. The Deed of Guarantee in paragraphs 1, 2 and 3, give the details of loan advanced by the GSFC and other Financial Institutions to GPPL and the charge of the Financial Creditor on the assets, which properties were offered for sale by public advertisement. Paragraphs 1 and 2 of the Deed of Guarantee are as ....
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.... mortgaged to GSFC, GIIC Dena Bank and Bank of Baroda for the lumpsum of Rs. 388.00 Lakhs to be paid as under: a) Out of purchase price payment of Rs. 50.00 Lakhs (inclusive of the earnest money deposit of Rs. 10.00 Lakhs to be made as downs payment within 30 days from the date of acceptance of the offer the corporation of the terms and conditions thereof by the Purchaser; b) Balances 338.00 Lakhs to be paid by the Purchaser to corporation within a period of five years in 20 (Twenty) equal quarterly installment. Commencing from 1.5.91 together with interest 0.15% per annum (Gross) with half yearly rest." 24. The Corporate Debtor has given irrevocable and unconditional guarantees that the purchaser shall make due payment of the balances including interest. Paragraphs 1 and 2 as incorporated in the Deed of Guarantee in the heading 'Now this Deed witnessth as under' are as follows: "NOW THIS DEED WITNESSTH AS UNDER:- 1. The guarantor hereby irrevocable and s unconditionally guarantees that the purchaser shall make due payment of the balance purchase price of Rs. 338.00 Lakhs together with interest thereon at the aforesaid rate and all other charges as ....
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....llowed, it was open for the Financial Creditor to revoke the Agreement and recover the assets from the Corporate Debtor and realise its all dues. The GSFC has written a letter dated 17.10.2020 to all other Financial Institutions, including Bank of Baroda on the subject "Maintaining of account of M/s Shree Industries Limited - The purchaser of M/s. Ganpati Pulp & Paper Mills - A/c No.C/G/316/97. The said letter give the details of the net sale price and bifurcation of sale price on the sharing ratio between all Financial Institutions including Bank of Baroda. The letter further noticed that total payment received after the down payment comes to Rs. 3,05,72,307. It is useful to extract letter dated 17.10.2000 written by GSFC, which has been brought on record by Respondent No.1 as Annexure R-1/7, which letter is as follows: "Ref. No.GSFC:ACCTS: DATE: 17/10/2000 M/s G.I.I.C Ltd.; Jdhyo* Bhavan, GANDHINAGAR M/s. Bank of Baroda Opp: Natraj Cinema Ashram Road Branch AHMEDABAD M/s Dena Bank 188 A, Ashram road, Der*laxmi Building P.B. No.4089, Na**angpura AHMEDABAD D....
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.... from 23/10/1990 i.e. Date of possession of 21% from 02/02/1996 i.e. After the last repayment date. • Penalty is charged @ 6% from 01/02/1991, 4% from 01/01/1992 and 2% from 01/04/1996. • Upto 01/02/1991, the system of charging the interest was half yearly and from 01/02/1991, it has been changed to quarterly system. Hence, the interest is calculated and provided from 23/10/1990 to 31/01/1991 and debited on 01/02/1991; the next interest is calculated from 01/02/1991 to 31/05/1991 and debited on 01/08/1991; next interest from 01/06/1991 to 31/08/1991 and debited on 01/11/1991; interest calculated from 01/09/1991 to 31/12/1991 and debited on 01/02/1991. Thereafter, the interest is calculated for the quarters from Ist January to 21st March, which is debited on 1st May; from 1st April to 30th June, which is debited on 1st August, from 1st July to 30th September, which is debited on 1st November and from 1st October to 31st December, the interest debited on 1st February and this system continued thereafter. • The interest and penalty calculated upto 31/12/2000, (the statement is enclosed herewith). • The payments received after down pa....
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....as well as the representation given by one of the consortium members (GSFC) before the Board of Industrial Financial Reconstruction (BIFR) as well as the statement made by the GSFC and Applicant before the Hon'ble Gujarat High Court stating that the agreement dated 27.11.1990 is a sale agreement, makes it very clear that the Applicant has changed its stand in the present case and claiming itself to be a Financial Creditor based on the said agreement which in our considered opinion is a sale agreement and not a loan agreement." 28. The Adjudicating Authority after returning the said finding, proceeded to examine the question as to whether any money has flown into the account of the Corporate Debtor by virtue of the said agreement. In paragraph 31, the Adjudicating Authority noticed as above: "31. Having given a finding that the document in question is a sale agreement and not a loan agreement, we have to now examine as to whether any money has flown into the account of the Corporate Debtor by virtue of the said document/agreement and that the said money qualifies the test of being a "Financial Debt" under the definition of Section 5(8) of the IBC, 2016 and whether the Ap....
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....s financial debt. It is submitted that in the present case, the property has been disbursed to the Corporate Debtor by the Financial Creditor. Learned Counsel for Respondent No.1 has referred to Section 5, sub-section (8), sub-clause (f) and submits that sub-clause (f) is residuary clause, which encompasses all other transactions, which are not covered by clauses (a) to (e). The submission of the learned Counsel for Respondent No.1 is that disbursement of money is not essential condition and disbursement of property, which had taken place in the present case is also covered by financial debt. 32. The Hon'ble Supreme Court in Pioneer Urban and Infrastructure Ltd. (supra) has categorically held that the disbursement as contemplated in Section 5, sub-section (8) is disbursement of money, which has been paid against the consideration for time value and money. In paragraphs 70 and 71 of the judgment, the Hon'ble Supreme Court has categorically held that the "expression 'disbursed' refers to money which has been paid against consideration for the 'time value of money' ". The above pronouncement of the Hon'ble Supreme Court is clear and disbursal of property as suggested by learned Cou....
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....ale transaction and sharing ratio of different Financial Institutions provided towards net sale price. We have already noted above the judgment of Hon'ble Supreme Court in Global Credit Capital Limited (supra), where the Hon'ble Supreme Court has categorically held that the true nature of the transaction has to be found out to determine as to whether the transaction is a financial debt. While determining the true nature of transaction, the transaction and action of the parties at the relevant time, throw light on the true nature of the transaction. We have already discussed all contemporaneous materials, which clearly indicate that transaction in question was wholly sale and purchase and was not a financial debt. 35. The learned Counsel for the Respondent has put much emphasis on the letter written by Corporate Debtor to Respondent No.1 dated 04.03.2021, where the SIL has admitted the conversion of sale consideration to loan consideration. The true nature of transaction is to be determined from the documents reflecting transaction, which in the present case are letter dated 07.11.1990, Agreement dated 27.11.1990 and Deed of Guarantee dated 12.12.1990. Any pleading of the parties....
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....t of the judgment of the High Court as well as the order passed by AIFR has been referred to. It is useful to extract paragraph (H) of the reply of Respondent No.1, which is as follows: "H. At this juncture it is necessary to reproduce certain excerpts from the Ld. BIFR, Ld. AIFR, and orders passed in SCA No. 11116/2008 and LPA No. 2480/2009 by Hon'ble High Court, whereunder the status of the Assignor Bank has already been established as Financial Creditor/ Secured Creditor: • Order dated 26.07.2021 passed by the Hon'ble Gujarat High Court in LPA No. 2480/2009 "The respondent no. 1 GSFC accepted the offer of respondent no.5 SIL for transfer of the said mortgaged properties of GPPL, under Section 29 of the SC Act for an amount of Rs. 3.88 Crores. Out of the said amount Rs. SO lacs were to be paid immediately at the time of taking possession of the properties and the balance amount of Rs. 338 lakhs in the nature of loan to be paid in six years by way of half yearly equal installments carrying interest at the rate of 14% per annum. For the said purpose charge was created on the said properties transferred to SIL. The SIL paid a total sum....
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.....e. the Assignor of the Financial Creditor were not settled viz the Corporate Debtor and hence the present application was filed against the default committed. The debt of sum of Rs. 92,35,21,674.03/- remained unpaid to Answering Respondent by Corporate Debtor as on 30.06.2022 and therefore, the Section 7 Petition filed by the Answering Respondent against Corporate debtor has been rightly admitted against the Corporate Debtor. 38. Coming to the final judgment of the Gujarat High Court, which was delivered by the Division Bench vide order dated 26.07.2021. The Gujarat High Court in paragraph 10.9 of the judgment has held: "10.9 Since we are not seized of the Winding-up of proceedings in the present Letters Patent Appeal, we make our aforesaid proposed order absolute now and dispose of this Letters Patent Appeal No.2480 of 2010 as well as Special Civil Application No.11116 of 2008 by requesting the learned Company Judge, who is seized of the winding-up proceedings of Company Petition No.139 of 1985 to consider all the aforesaid relevant aspects of the matter and the matter and then take appropriate decision in the matter to transfer the winding-up proceedings to NCLT, Ahm....
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.... The expression "transaction" is defined by Section 3(33) of the Code as follows: "3. (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 in writing for the transfer of funds to the corporate debtor and would thus clearly include the kind of financing arrangement by allottees to real estate developers when they pay instalments at various stages of construction, so that they themselves then fund the project either partially or completely. 76. Sub-clause (f) Section 5(8) thus read would subsume within it amounts raised under transactions which are not necessarily loan transactions, so long as they have the commercial effect of a borrowing. We were referred to Collins English Dictionary & Thesaurus (2nd Edn., 2000) for the meaning of the expression "borrow" and the meaning of the expression "commercial". They are set out hereinbelow: "borrow.-vb 1. to obtain or receive (something, such as money) on loan for tempora....
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....pression "borrow" is wide enough to include an advance given by homebuyers to a real estate developer for "temporary use", i.e. for use of the construction project so long as it is intended by the agreement to give "something equivalent" to money back to the homebuyers. The above pronouncement of the Hon'ble Supreme Court in no manner helps the Respondent. 43. The learned Counsel for the Respondent has also relied on judgment of this Tribunal in Kolla Koteswara Rao vs. Dr. S.K. Srihari Raju and Anr. - (2021) SCC OnLine NCLAT 110. In the above case the Corporate Debtor had availed a financial loan from SBI to the extent of Rs. 21.50 crores for the purpose of setting up a unit for manufacturing bulk drugs, formulation etc. Corporate Debtor defaulted. Thereafter, the Corporate Debtor entered into one time settlement with the Bank for Rs. 11.70 crores. In compliance with the terms of the OTS, the first Respondent in agreement with the Corporate Debtor and on behalf of the Corporate Debtor, deposited amount towards the OTS in the Bank. The Corporate Debtor and the first Respondent entered into an Agreement to Sale where the Corporate Debtor had agreed to sell the land allotted by Tel....
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....y' c) 'commercial effect of borrowing' 23. In the aforenoted case, 'Anuj Jain, IRP for Jaypee Infratech Ltd.' (Supra) the 'Corporate Debtor' Jai Prakash Infrastructure Ltd. (JIL) mortgaged some of its assets in favor of the Lender Banks/Financial Institutions for loans advanced to the Parent Company Jai Prakash Associates Infrastructure Ltd. (JAL) thereby constituting third party security. The borrower and the security provider bore a parent and Subsidiary relationship. In this third party security, the Creditor has not disbursed any funds to the person creating the security, but instead has disbursed the funds to the Parent entity of the 'Corporate Debtor'. One of the issues in that case was whether the Respondents (Lenders of 'JAL') could be recognized as 'Financial Creditors' of the 'Corporate Debtor JIL' on the strength of the mortgage created by the 'Corporate Debtor', as collateral security of the 'debt' of its holding Company 'JAL'. The Hon'ble Supreme Court held that such Lenders of 'JAL', on the strength of the mortgages in question, may fall in the category of the Secured Creditors, but such mortgages being neither towards any facilities or advance t....