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2022 (9) TMI 488 - Insolvency & Bankruptcy
CIRP - Financial Creditors - Financial Debt - Development Agreement with reciprocal promises - existence of debt and dispute or not - time limitation - Accretion of penal interest - HELD THAT:- From the perusal of the 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 payments including the management of project land in consideration, failure of which will result into forfeiture of deposit, penal interest, liquidated damages etc.
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 of interest /time value of money. It means, the transactions require to be purely in borrowing nature. This does not cover the business transaction between the Creditor and Debtor which is applicable in business organization where either sale or purchase involved or construction activities involved or in Real Estate Project, multiple agencies with multiple terms and conditions are involved and each is supposed to gain or lose based on the performance of the business. In order to meet the time schedule whether in purchase or sale or development agreement or in any Real Estate project, there is always a clause for liquidated damages and the same may be either in the percentage form or sometime even other form of penal interest.
Accretion of penal interest emerging from clause 4 of the Agreement dated 20.03.2012 - HELD THAT:- There must be a disbursal of fund by the Creditor to the Debtor purely in the form of release of fund as a “borrowing” and must have a “time value of money”. The method may be different but the nature must be borrowing and in extended terminology even the liability in respect of guarantee is also covered. There must be a “Financial Debt” which is owed by the other side i.e. the Debtor. It should be amply clear that the CD owe the “Financial Debt” to the Creditor. There is a difference between the levy of liquidated damages or penal interest for default and the financial debt per se - interest per se in any business contract cannot be termed to make the “debt” as a “Financial Debt”, if it is in the nature of liquidated damages or in the nature of penal interest, which is a result of compensation for breach of contract which is stipulated for penalty. Hence, while examining the case, whether the Appellant is a Financial Creditor or not, a conclusion is now arrived at, based on above said discussions both on law & on facts and the citations produced by the parties, some of which have been explicitly cited as above reveals that the Appellant is not a “Financial Creditor” and hence, the order of the Adjudicating Authority are upheld.