TMI Blog2021 (5) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... , which is not permissible. The Petitioner Aayas cannot be termed as the Operational Creditor, when the main creditor is Elbit India, later joined by Koyenco, in view of the peculiar circumstances narrated above, nor can Respondent MDPL be termed as the Operational debtor by itself, leaving out Minerva which acquires a significant role in development and after 22.07.2010 and for investment in the second stage. Lastly, without taking recourse to the detailed inbuilt dispute resolution mechanism and agitating the above complex matters straightaway before this Tribunal and under the Code, makes the Petition clearly premature. Petition dismissed as being premature and not maintainable. - C. P. (IB) No. 350/BB/2019 - - - Dated:- 27-4-2021 - Rajeswara Rao Vittanala, Member (J) And Ashutosh Chandra, Member (T) For the Appellant : Prashanth V.G., Adv. For the Respondents : Shyam Sundar, Sr. Adv. and Vandana, Adv. ORDER Ashutosh Chandra, Member (T) 1. C.P. (IB) No. 350/BB/2019 is filed by M/s. Aayas Trade Services Private Limited ('the Petitioner/Operational Creditor') U/s. 9 of the IBC, 2016, R/w Rule 6 of I B (AAA) Rules, 2016, by inter-alia seeking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In total the Applicant had placed in the hands of the Respondent MDPL the sum of ₹ 537,82,23,720 as refundable security deposit is required to be used for the services inter alia of aggregation of land parcels. (3) Owing to the defaults/failure committed by the Respondent in the matter of aggregation of land parcels under the existing agreements, the said refundable security deposit became repayable by the Respondent MDPL Applicant. (4) Pursuant to various negotiations which followed, the parties decided that the Respondent MDPL would make payments directly to Elbit India and purchase all its stakes in the Applicant company. Thus, Elbit India would recover some amounts and would get an exit and the Applicant company would thereafter be held by the Respondent MDPL. It was specifically agreed that if there was any default in this regard, Respondent MDPL will have to return a certain amount if not the entire sum, to the Applicant. In this manner the parties decided to deal with the liability of the Respondent under the existing agreements, during the course of which Respondent MDPL would continue to show in its financial statements is entire liabilities under the exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However in good faith Elbit India issued another notice dated 10/07/2019,_ once again calling upon the Respondent MDPL to honour the provisions of separation under SPA 4. On 22/07/2019 the Respondent MDPL issued a response to Elbit India which was without any merit. Pertinently, in the said response, the Respondent MDPL admitted that its total liability was a sum of ₹ 356,63,17,477. (10) It was clear that the Respondent MDPL was unable to clear its liabilities. The Applicant therefore issued a demand notice dated 29/07/2019 under Rule 5 of the Insolvency and Bankruptcy Rules 2016 to the Respondent MDPL/Corporate Debtor. The Respondent MDPL issued a response dated 08/08/2019 denying liability without any proper, justifiable or credible defence or reasoning. (11) Since the separation notice dated 09/05/2019 was issued by Elbit India, the Respondent MDPL instead of either carrying out separation or making payments of the sum owed to the Applicant on the failure to give effect to separation, has paid directly to Elbit India a total sum of ₹ 7 crores on various dates. However, no payment has been made to the Applicant, let alone the sum of ₹ 356,63,17,477 du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that to maintain an Application seeking liquidation proceedings before this Hon'ble Tribunal existence of clear operational debt and an infallible debt liability either admitted or adjudged is essential. In the absence of the same, a claim will not suffice to seek liquidation process. The purpose of law is not to convert this Hon'ble forum into a debt recovery court. The entire gamut of law is to ensure that an incapable corporate entity does not survive or exist as would cascade on the economy of the country at large, besides distressing several interested persons and entities. Therefore the requirement to approach the Tribunal is incapability to pay dues while refusal to pay dues on a legally admissible contest will never be a ground to seek corporate liquidation. (3) There is nothing that fits into any admitted or legally dischargeable liability towards the Applicant by the Respondent MDPL. There is absolutely nothing that falls within the ambit of either operational or any other kind of debt that could be recovered through the Code. It is rather this Respondent MDPL that has rights of recovery against the Applicant and in that pursuit steps have been taken for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent MDPL had a joint development agreement dated 15/03/2007 in respect of the said land of 54 acres 15 guntas with M/s. Walden under which it had 90% share in the development, which the Respondent MDPL assigned to Aayas under the JDA dated 26/03/2008. This concept is also operating and not called of order signed by the parties. The extent of 54 acres is a part of our Varthur Project Lands for which the large contract was entered into between the parties. (7) Subsequently, a Framework Agreement dated 22/07/2010 and a supplementary Framework Agreement of even date was entered into between MDPL, Elbit India, Aayas and Minerva Infra Tech Private Limited (Minerva), a new entity to implement the Varthur project. Minerva came in as the general contractor to develop the project, and it was to do the project in obligation to the SPV. The SPV and general contractor were to develop the project beneficially. Various terms of development were agreed upon and various timelines were fixed. This is supposed to be the actual Development Contract of the Varthur project. Basically this document runs between Aayas SPV and M/s. Minerva. This agreement is not cancelled and continues to govern. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er SPAs produced with the Application and these basically deal with extension of time and other factors mentioned therein. Admittedly, the contract of purchase of securities was acted upon in certain parts in the meanwhile, by which certain amount of securities were transferred from Elbit India/Koyenco to Respondent MDPL, bringing down their authority of being 100% security holders. It is highly pertinent to submit here that initially the deal between Elbit India/Koyenko and Minerva, assisted by Respondent MDPL, was to acquire the entire securities viz equities and debentures, whereas, due to certain circumstances and market conditions the deals were repeatedly subjected to changes and finally under a new pact but not departing in the content from the earlier pact, as evidenced under SPA1, the deal was divided into different transactions for equity and debentures. However, as the changed but continued from the initial deal, pact of Respondent MDPL acquiring CCD is that they would convert into NCD upon acquisition, did not limit the rights of MDPL and/MIPL to their debenture holder rights as NCD holder, but as a matter of understanding it was a stake acquisition in reality. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serts that it was not followed by the seller or the company and no notice as required under this was issued. Additional spending as agreed under this agreement was not followed. Because para 9.2 of this agreement clearly indicates that purchaser's liability to indemnify is to the extent of what would be Ruled by a competent court of law and not a made up claim as would be lodged by a party. A detailed dispute resolution module via negotiations, arbitration is agreed upon under this agreement and enforcement of such award is specifically agreed upon which requires judicial acceptance by a court of law clause 13.1 deals with specific performance of the contract. (14) Section 20 and 21 of the Specific Relief Act deals in detail with situations as could be reckoned from the array of documents. It is entirely a matter of enforceable contracts and none of the contracts are specifically called of rescinded. The Applicant has attempted to misuse the Tribunal by attempting to convert the very jurisdiction of this Tribunal into our specific remedy court. Except Rule 5 notice which is addressed under false presumptions no notice of rescission was ever addressed and large number of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has interest in the company and Elbit India, including Koyenco. Thus the claim is preferred to seek another group entity's closure through liquidation, which cannot be decreed under any circumstances. There's been no notice, no invitation, no board meetings involving the interested parties and no proper corporate procedures as required under law have been followed before institution of the claim. Admittedly, Elbit India and Koyenco do not hold their hundred percent of Applicant today and their interests have been diluted. Such being the case, seeking the closure of the Respondent MDPL is not just strange but the subversion rather. (19) From the content of the Application and its tenor it is graphically clear that the present proceedings initiated fraudulently and maliciously and the same deserve to be dealt in terms of section 65 of the Code. (20) The Applicant has presented a mixture of various matters before this Tribunal and calls itself an operational creditor, while hardly there is anything that places this Respondent MDPL in the bracket of operational debtor. As said above, this Respondent MDPL has opted for proper legal recourse already against the Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractual documents were executed between 02/12/2015 and 19/04/2019. (2) Under the 1st set of transactions the Applicant advanced various amounts to the Respondent MDPL as 'refundable security deposits' which were sourced from its parent company Elbit India. These amounted to ₹ 537,82,23,720, as recorded in clause 4.1 of the Framework agreement dated 22.07.2010. The receipts of such amounts are admitted in all the financial statements of the Respondent MDPL over the years, such as the financial statement of the Respondent MDPL for the FY 21/03/2017, a copy of which has been annexed to next petition. Respondent MDPL was required to use these amounts towards aggregation and development of various land parcels, which it failed to carry out. (3) Since the Respondent MDPL failed to carry out the above obligations, after several negotiations it was finally decided that the Respondent MDPL's group company would acquire all the securities in the Applicant company from the hands of its parent company Elbit India. Thus, Elbit India would receive a portion of its original investments infused into the Applicant company and it would exit. Hence, a Securities Purchase A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MDPL became liable to carry out the separation obligations, Elbit India issued a communication dated 09/05/2019 calling upon the Respondent MDPL to carry out the separation actions. Another notice followed on 22/07/2019. In response, the Respondent MDPL sent a registered communication dated 22/07/2019 resisting its obligations to carry out the separation actions. Para 5 of the said letter admitted the fact that the Respondent MDPL had not made payments of the tranches under the securities purchase agreements. The Respondent MDPL did not agree to carry out the separation actions. (7) Since the Respondent MDPL failed to carry out the payment obligations as well as the separation obligations, the Respondent MDPL on 09/06/2019 became immediately liable to repay the sum of ₹ 356,63,17,477 to the Applicant but it failed to make the necessary payments. (8) Under the above circumstances, the Applicant issued a statutory notice dated 29/07/2019, in response to which the Respondent MDPL issued the frivolous response dated 08/08/2019 contending that the non-payment of amounts under the SPAs did not constitute a debt, was frivolous since the debt had all always been admitted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of the Respondent MDPL that the Applicant is the creditor. The Applicant had sourced from Elbit India amounts which it paid to the Respondent MDPL and this did not mean that Elbit India is the creditor. The Respondent MDPL argued that the 1st set of transactions were not extinguished by the parties hence they entered into the 2nd set of transactions. Accordingly it argued that when the default is committed by the Respondent MDPL under the 2nd set of transaction records and remedy should be in terms of and in accordance with the 1st set of transactions. This is unsustainable. The consequences of the default committed by the Respondent MDPL under the 2nd set of transactions are clearly laid down in SPA 4 itself which is a part of the 2nd set of transactions. If the Respondent MDPL defaulted to pay any of the various tranches of amounts, Respondent MDPL became liable to carry out the separation actions. If the Respondent MDPL failed to carry out the separation actions, it became liable to pay ₹ 356,63,17,477. The consequences for the default committed by the Respondent MDPL made the Respondent MDPL ultimately liable to pay ₹ 356,63,17,477. Nowhere in any of the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s aggregation and development of various land parcels, and since the same was not done by the Respondent, the deposit became a debt owed to the Petitioner. The debt is reflected in the financial statements of the Respondent since the very beginning. The stage by stage methodology for return of the same has been mentioned in detail, including the contractual obligations cast upon the Respondent and consequences on failure to abide by the terms of the agreements. The Respondent has drawn attention to various provisions of the Code to state that the debt claimed by the Petitioner does not qualify as operational debt and hence for this and other reasons, as discussed subsequently, the petition is not maintainable. The same are considered along with the replies to the arguments made during the course of these proceedings. (3) Under the Code for any amount to be claimed as due by a person who claims to be an operational creditor should establish that, first, such amount falls within the definition of claim as defined under section 3(6) of IBC; secondly, that such a claim should be capable of being treated as debt as defined under section 3(11) of IBC; and thirdly, the debt sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of non-refund of security deposit/advance per se, especially in relation to a real estate/immovable property transaction, such as land made available for construction/development, is not maintainable as this transaction does not qualify as an operational debt in terms of section 5 (20) of the IBC. In fact it is a reverse situation to what is contemplated in this provision. There is an absence of any element of goods or services being provided by the operational creditor, which is a sine qua non for the provider to be termed as an operational creditor. (6) It is also well settled and held by several benches of this Tribunal that unpaid installment as per the settlement agreement cannot be treated as operational debt as per Section 5 (21) of IBC. The failure or breach of settlement agreement cannot be a ground to trigger CIRP against Corporate Debtor under the provisions of IBC 2016 and remedy may lie elsewhere, not necessarily before the Adjudicating Authority . It is also held in another case by the NCLT Delhi in M/s. Brand Reality Services Ltd. v. M/s. Sir John Bakeries India Pvt. Ltd., that an operational debt under Insolvency and Bankruptcy Code, 2016 does not take accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition by the SPV of all rights, title and interests in V3, V5 and V6 lands, etc. This amounted to the Respondent MDPL virtually leasing out lands to Petitioner Aayas. (9) On 26/03/2008, a joint development agreement was entered into whereby the development of the land was assigned to the Petitioner Aayas along with Respondent MDPL. However, under the Framework Agreement of 22/07/2010 it is seen that the amount of ₹ 537.82 crore was provided by Elbit India, through Aayas, and that Elbit India's investment was on account of the Varthur Lands and termed as Refundable Deposit . Importantly, at this point Minerva Infra-Tech Pvt. Ltd., a General Contractor, was admitted as a New Entity to undertake the development of the Varthur Project for the Petitioner SPV, Aayas, Hence, the payment sought from the Respondent is with respect to the Refundable Security Deposit given by Elbit India, through the Petitioner Aayas, for the Varthur Project, which involved making available land by the Respondent and development on the same to be done by Petitioner, initially, and subsequently by the Petitioner jointly for mutual benefit, with Minerva. Thus, now any operational relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case is that the Respondent is also doing development work, but did not do the same, then the matter can only be settled in a civil court under the Specific Performance Act. Such disputes cannot be brought before this Tribunal under the Code. And the dispute in the first stage would be between the key players, Elbit India and Aayas on one side as the sums were invested by Elbit India through Aayas, and Respondent MDPL and Minerva on the other side as these two were involved in making available land and do the development respectively. (12) In the so called second stage of transactions from 2015 to 2019, various agreements were entered into, the Share Purchase Agreements (SPAs), copies of which have been annexed. During this phase while Minerva was to take over the entire equity of Elbit India and Koyenco in Aayas, apart from other securities, the Respondent MDPL was to take over securities like CCDs, to be later converted to non-convertible debentures. As per the quantum as well as nature of purchases to be made by Respondent MDPL and Minerva respectively, it is clear that Minerva was assigned to bear a much bigger burden i.e. of ₹ 226.63 crore for purchasing Elbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, if we see the consequences, if separation did not work out, we are led into SPA 4, where according to clause 5.7 after the amendment, it was provided that both Aayas and Elbit India shall have the option to either claim ₹ 356,63,17,477 or the land etc. Thus this SPA clearly holds mainly Elbit India, or both Elbit India and Aayas as the main creditors entitled to the amounts payable, not only Aayas, whereas the Petition is filed only by Aayas. (15) That Elbit India is the main creditor and should have singly or jointly with Aayas filed the Petition is more or less established by one peculiar fact. Once Elbit India has decided to sell its shares and securities in Aayas directly to Minerva/MDPL (receiving payments directly in its designated account), it would mean that Minerva would replace Elbit India as the holding company of Aayas, and Respondent MDPL would be a significant stakeholder. Substantial amounts have already been paid by MDPL under the SPA. Effectively, the Respondent MDPL would become the owner of Aayas since Minerva is a wholly owned subsidiary of Respondent MDPL. Thus the petitioner would become a part of the Corporate Debtor MDPL. It is therefore not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lbit India shares and securities in Aayas, and both Elbit India and Aayas have been provided the option to receive the amounts and share of land if separation clauses are not acted upon, it becomes clear that both the correct Petitioner and the correct Respondent are not correctly identified in filing the petition. (18) We again emphasise that a claim based on non-payment of installments on the basis of a settlement agreement cannot make the recipient an operational creditor nor the respondent an operational debtor under the Code, even though the amounts may be due to it, and can be contested in some other forum. In this second stage especially we find that the debt has been created by various agreements and arrangements, and the demand has been made on the non-fulfillment of the same. Such admitted contractual obligations and non-adherence to the same can lead to consequences, but cannot create an operational debt under the Code. In any case, in these proceedings we are not settling any dispute. At each stage, right till SPA 7 we find clauses inserted to settle disputes through the Specific Relief Act and through Arbitration, such as Clause 12.3 in SPA 7. Hence, the Petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the insolvency of the Corporate Debtor. However it also sounded a note of caution that NCLT should ensure that it does not usurp the legitimate jurisdiction of other Courts, Tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor. The nexus with the insolvency of the Debtor must exist. In the instant case the dispute is not about the insolvency of the Respondent MDPL but rather non-payment of amounts owed and handing over of lands, because the Corporate Debtor disputes the operational debt, abrupt closure of the negotiations, the terms contained in the Share Purchase Agreements and the methodology followed for recovery of amounts and share of land (which it can still do), apart from other issues raised in this Petition in this regard and discussed above. These need to be adjudicated at other forums which have rightful jurisdiction and which are referred to in the various agreements and mutually agreed upon. (21) Before concluding, we may clearly state that in deciding this matter, we are not dealing with the issue as to whether the amounts have not been received by the Corporate Debtor or are not owed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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