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2021 (10) TMI 644 - AT - Insolvency and BankruptcyCIRP process - security deposit and/or intercorporate deposit - Whether this ‘Security Deposit’ and the interest thereon would fall within the ambit of the definition of ‘Financial Debt’ as defined under Section 5(8)(f) of the Code? - HELD THAT:- For a debt to be termed as ‘Financial Debt’, the basic elements that are to be seen is whether (a) there is disbursal against consideration for time value of money and (b) whether it has a commercial effect of borrowing. The definitions provided in Sections 5(7) and 5(8) show that a ‘Financial Creditor’ refers to a person to whom ‘Financial Debt’ is owed and includes even a person to whom such a debt has been legally assigned or transferred to. A ‘Financial Debt’ is a debt alongwith interest which is disbursed against the consideration for the time value of money and it may include any of the events specified in sub-Clause (a) to (i). The Legislature has included any financial transaction in the definition of ‘Financial Debt’ which are usually for a sum of money received today to be paid over a period of time in instalments, or in a single payment in future. In the instant case, the word ‘Security Deposit’ mentioned in Clause 10 of the MoU has to be given the correct interpretation as specified by the Hon’ble Supreme Court in ‘V.E.A Annamalai Chettiar and Anr.’ [1952 (12) TMI 37 - SUPREME COURT]. The true effect of the transaction ought to be determined from the terms of the Agreement, keeping in view, the facts and circumstances of the case. In the instant case, the ‘Sales Promotion Agreement’ mandated a ‘Security Deposit’ carrying interest at 21% per annum. It is not in dispute that the ‘Corporate Debtor’ did not adhere to the payment of interest and that there was a default. In other words, neither the ‘Debt’ nor the ‘Default’ is disputed. The ‘Corporate Debtor’ had accepted the ‘Security Deposit’ from the Appellant and credited the interest for some time against such amounts for the period 2014-15, and bearing in mind the payment of interest on the amounts borrowed by the ‘Corporate Debtor’ is nothing but a consideration for the time value of money and the interest is being paid to the Appellant for using the money belonging to the Appellant over a period of time and hence we arrive at the conclusion that the status of Appellant is that of a Financial Creditor vis-à-vis the amount of ‘Security Deposit’ as per Section 5(7) read with Section 5(8) of the Code - the said amount of debt herein is to be treated as a ‘Financial Debt’. Appeal allowed - decided in favor of appellant.
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