TMI Blog2017 (8) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowed has been shown as 'commitment charges' under the head “Financial cost”. The financial cost includes “Interest of loans” and other charges. Therefore, the 'commitment charge', which include interest on loan, shown against the head “Financial cost” having accepted by the Corporate Debtor in their annual return, we hold that the appellants have successfully proved that they are 'financial Creditor' within the meaning of Section 5(7) of the I & B Code'. Learned Adjudicating Authority while rightly interpreted the provisions of law to understand the meaning of expression 'financial creditor' at paragraph 12 of the impugned judgment as quoted above, but failed to appreciate the nature of transactions in the present case and wrongly came to a conclusion “that it is a pure and simple agreement of sale and purchase of a piece of property and has not acquired the status of a financial debt as the transaction does not have consideration for the time value of money”. Thus we set aside the impugned judgment passed by the learned Adjudicating Authority and remit the matter to Adjudicating Authority to admit the application preferred by appellants and pass appropriate order, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of execution of the MOU till the time the actual physical possession of the unit is handed over to the buyer/purchaser. In the said projects the appellants also had an option to choose the construction/time linked payment plan as per which they were required to pay a certain percentage of the sale consideration amount at various stages of construction of the project. 4. The Respondent started paying the committed returns to the Appellant(s) as per the MOU, but stopped paying the committed returns to the Appellant(s) from April, 2014, for the unit of the Appellants No. 3 and 4, and from January, 2014, for the units of the remaining Appellants, unilaterally and without assigning any reason. The Appellants contacted the Respondent on various occasions demanding the release/payment for their monthly committed returns but to no avail. 5. Having no other option, the Appellants had jointly filed an Application U/s. 7 of the Insolvency and Bankruptcy Code, 2016, before the Adjudicating Authority on 16.01.2017 which was dismissed vide order dated 23.01.2017, which is why the present Appeal has been filed. 6. It is the case of the Appellants that the concept and plan of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts should be entitled to relief under the I B Code itself. 9. It is the case of the Appellants that they are undoubtedly creditors of the Respondent as defined under the I B Code, to whom an admitted and quantified debt is owed by the Respondent and who have a valid claim against the Respondent as has been defined under the I B Code and therefore, the Adjudicating Authority should have heard and allowed the claim/application of the Appellants holding them to be Financial Creditors as defined under the I B Code. 10. Further case of the Appellants is that as per the latest balance sheet of the respondent, the amount which is to be paid to the Appellants by the Respondent as Committed Returns/Assured Returns is shown as Commitment Charges under the header of Financial Costs . The Respondents has not filed any reply to the said claim of the Appellants despite of being given an opportunity to do so by this Appellate Tribunal. The said balance sheet is at pages 34-63 of the paper book dated 17.04.2017 of the Appellants and the relevant entry is at page 60 of the said paper book. 11. According to Appellants they are the Financial Creditors of the Respondent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editor 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 along with 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 contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection with protection against or benefit from fluctuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution professional, it may, by order, admit such application; or (b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application: Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5). (7) The Adjudicating Authority shall communicate- (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be 16. From a bare perusal of Section 7, it is patent that the insolvency process can be triggered by a 'Financial Creditor' or jointly against the 'Corporate Debtor&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rue that there are complex financial instruments which may not provide a happy situation to decipher the true nature and meaning of a transaction. It is pertinent to point out that the concept 'Financial Debt' as envisaged under Section 5(8) of the IBC is distinctly different than the one prevalent in England as provided in its Insolvency Act, 1986 and the 'Rules' framed thereunder. It appears that in England there is no exclusive element of disbursement of debt laced with the consideration for the time value of money. However, forward sale or purchase agreement as contemplated by Section 5(8)(f) may or may not be regarded as a financial transaction. A forward contract to sell product at the end of a specified period is not a financial contract. It is essentially a contract for sale of specified goods. It is true that some time financial transactions seemingly restructured as sale and repurchase. Any repurchase and reverse repo transaction are sometimes used as devices for raising money. In a transaction of this nature an entity may require liquidity against an asset and the financer in return sell it back by way of a forward contract. The difference between the two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson whom such debt has been legally assigned or transferred to (ii) The debt along with interest, if any, is disbursed against the consideration for time value of money and include any one or more mode of disbursed as mentioned in clauses (a) to (i) of sub-section (8) of Section 5. 19. To determine the question whether appellants came within the meaning of 'Financial Creditor', it is desirable to notice the relevant clause of one of the Memorandum of Understanding dated 12th April 2008 reached between the appellants and the Respondent-Corporate Debtor, relevant portion of which is quoted below:- AND whereas the Developer has represented that it shall complete the construction of the Shopping Mall on or before December 2009, in all respects and shall render the shopping mall ready for occupation possession by the said date unless the construction is stoped or odelayed on account of factors beyond the control of Developer, as stipulated in the later part of this memorandum of Understanding. AND WHEREAS the Investor is interested in booking of Shop No. E-47 measuring 1453.432 sq. ft. For a total consideration amount of ₹ 46,67,402/- (rupees Forty Six ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. The appellants have enclosed the annual return of Respondent-Corporate Debtor dated 31st March 2014. Therein the amount deposited by 'investors' including the appellants as has been shown as committed return while giving the 'financial cost'/at par with interest on loans, as shown below:- 27 FINANCIAL COSTS Interest on Loans 39,83,980.89.00 9,33,359.01.00 Leasing Charges 5,93,29,559.00 1,96,67,593.00 Interest Penalties for non-compliance 55,85,518.00 59,75,659.05 Commitment Charges 15,30,91,296.00 32,32,97,199.00 Processing Fee 7,49,449.00 Bank Charges 7,76,690.19 4,71,313.03 23,35,16,293.00 35,03,45,123.09 22. Form 16- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of disbursement against consideration of time value and money , to come within the definition of Financial Creditor having satisfied that the Corporate Debtor raised the amount through a transaction of sale and purchase of agreement having commercial effect of a borrowing (Section 5(8)(f)). 25. The agreement shows that the respondent agreed to complete the construction of shopping mall on or before December 2009, in all respects, and was required to complete and handover the shop in the shopping mall before the said date. It is not the case of the respondent that the construction was stopped or delayed on account of factors beyond the control of the respondent, as stipulated in the later part of the Memorandum of Understanding. It was agreed upon by the respondent that since the appellants have paid most of the amount the respondent was ready to pay monthly committed returns to the appellants. However, as the appellants were not required the monthly return till December 2008 i.e. for 9 months so the Respondent-Corporate Debtor undertook to make a consolidated payment of ₹ 99,600/- less TDS. For every calendar month the Corporate Debtor was liable to pay committee r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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