TMI Blog2021 (10) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet for year ended 31.03 .2016 and 30.03.2017 has shown security deposits under the head non-current liabilities whereas in the balance sheet for year ended 31.03.2018, under the head current liabilities. there are two items, one is unsecured borrowing through intercorporate deposit and the other is security deposit. However, from none of the financial statements is it lucidly and unequivocally clear that such security deposit and/or intercorporate deposit includes the amount provided by the Applicant under the appointment letters dated 01.04.2014 and 01 .04.2015. In any case, classification of any sum of money under current or non-current liability is not indicative of its actual use/ purpose. 21. Further after analysing Form 26 AS annexed by the Applicant vide dairy no. 1967/2019, it is noted that the Corporate Debtor had deducted tax under Section 194A and 194H of the Income Tax Act, 1961 for FY 2013-14 and 2014.15 and for FY 2015-16 tax was deducted under Section 194A and 194J. Section 194A deals with interest other than interest on securities. Section 194H deals with income by way of commission or brokerage and Section 194 J deals with fees for professional or technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 24. Scope and canvass of the agreement cannot be left to the imagination. There is no visibility into the nitty-gritty or character of the avowed agreement. The wording is rather flavourless. If the agreement reflected something else initially and then changed hue and colour, there is no explicit indication or documentation in this regard. There has to be legally valid supporting corroboration. Mere assertion about different character of understanding while referring to documents reflecting something else is itself suspicious. It cannot be that a flimsy document is created between parties to suit convenience of interpretation or twist implication altogether. In legal terms a person cannot approbate and reprobate at the same time. 25. Merely intercorporate deposit does not make it a financial debt, amidst the background and facts stated by the Applicant. Just because the interest component may have resulted in a larger income for the Applicant, or the Corporate Debtor may have acknowledged interest payable does not make it a core financial deal. 26. In view of the foregoing discussion, it can be concluded that the RP has rightly considered the claim of the Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt and as a token of your acceptance of above terms and conditions. Please sign duplicate copy of this letter and return the same to us for our records. (Emphasis Supplied) Subsequently on 01.04.2015 another Agreement was executed, with similar terms and conditions except for one modification in Clause 10 with respect to Security Deposit which is detailed as hereunder:- You have to deposit minimum security of ₹ 53,15,000/- with the Company which will carry interest at 21% per annum. We will provide you interest of ₹ 23,85,850/- at 21% per annum . An amount of ₹ 61,00,850/- (₹ 53,15,000/- + ₹ 7,85,850/-) was provided by the Appellant in the year 2014 and the remaining deposit amount of ₹ 25,00,000/- was adjusted from the funds provided by the Appellant vide letter date 09.01.2014. While so, the Corporate Debtor unilaterally adjusted the said amount from the security balance lying in the interest fund account to the Security Deposit/Loan Account during the Financial Year 2015-16 as recorded in its ledgers. On the due date i.e. on 31.03.2016, the Corporate Debtor admitted the interest liability of ₹ 18,06,000/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e without any deduction or forfeiture. It was not a fixed sum. The Corporate Debtor has established a practice of securing Financial Debt in the garb of Security Deposits under various Agreements, for attaining financial assistance from private entities instead of getting the same from Banks and Financial Institutions. Learned Counsel also raised the question as to whether Adjudicating Authority can categorise the debt and drew our attention to the I.A. preferred by the Appellant on 02.05.2019, which he submitted was pending for more than a year. 4. Submissions of the Learned Counsel appearing for the Respondent/Resolution Professional of the Corporate Debtor : Learned Counsel for the Respondent/Resolution Professional for the Corporate Debtor submitted that one of the Financial Creditors i.e. New View Consultants Pvt. Ltd. had earlier challenged the decision of the RP to include one Mahalakshmi Traders as a Financial Creditor by way of an Application before the Adjudicating Authority being I.A. No. 02/JPR/2018. Vide Order dated 28.09.2018, the Adjudicating Authority had dismissed the Application filed by New View Consultants Pvt. Ltd. and by Kunal Bottle Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the approval of the Applicant s Resolution Plan has been stayed and the entire plant and machinery is deteriorating and may become obsolete if not attended to immediately; that beer is a seasonal product and the Applicant has missed two seasons because of an inordinate delay in approval of the Resolution Plan. Assessment: 6. On an Appeal preferred by the Resolution Applicant, the Hon ble Supreme Court in Civil Appeal No. 4756 of 2021, vide Order dated 13.08.2021 has dismissed the Appeal with a direction to this Tribunal to decide the matter on 28.09.2021. The matter was heard at length on 28.09.2021 and Orders were reserved. The Written Submissions were filed on 05.10.2021. 7. The question which arises in this Appeal is 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. 8. At this juncture, it is pertinent to reproduce the relevant Sections of the Code namely Section 3(10), Section 5(8), Section 5(20) and Section 5(21) as hereunder:- 3. Definitions.-In this Code, unless the context otherwise requires,- (10) c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and includes any person to whom such debt has been legally assigned or transferred; (21) operational debt means a claim in respect of the provision of goods or services including employment or a debt in respect of the 1[payment] of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority; (Emphasis Supplied) 9. For the sake of brevity, the terms of Agreement dated 01.04.2014 and 01.04.2015 detailed in the aforenoted para 3 are not being repeated. 10. By the Agreement executed between the parties, the Appellant herein was appointed as a sales promoter for promotion of beer at Ranchi. Clause 10 stipulates that the Appellants should deposit a minimum security of ₹ 53,15,000/- with the Corporate Debtor which will carry interest at 21% per annum. It is significantly mentioned that the Corporate Debtor would provide interest of ₹ 7,85,850/- at 21% per annum. This is the conditional Clause meaning thereby that only in the event of the Appellant making such a deposit, he would be appointed as a sales promoter. Thereafter on 01.04.2015 another Agreement was executed with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Supreme Court in Ram Janki Devi and Ors. Vs. Juggilal Kamlapat , AIR 1971 SC 2551 in para 12 has observed as follows:- 12. The case of a deposit is something more than a mere loan of money. It will depend on the facts of each case whether the transaction is clothed with the character of a deposit of money. The surrounding circumstances, the relationship and character of the transaction and the manner in which parties treated the transaction will throw light on the true form of the transactions. 16. The Hon ble Supreme Court in V.E.A Annamalai Chettiar and Anr. Vs. S.V.V.S. Veerappa Chettiar Ors. , AIR 1956 SC 12 has observed that the answer to the question whether it was a loan or deposit would not depend merely on the terms of the document but has to be judged from the intention of the parties and the circumstances of the case. That is manifestly the correct approach . 17. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the debt in the attendant case is a Financial Debt . The Hon ble Supreme Court in paras 20 to 23 has observed as follows:- 20. A corporate debtor means a corporate person who owes a debt to any person, as per the definition of this expression in Section 3(8) of the IBC. Section 3(11) defines debt to mean a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. The word claim has been defined in Section 3(6) to mean inter alia a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured. Default is defined in section 3(12) to mean non-payment of a debt when the whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the Corporate Debtor, as the case may be. Under Section 5(7) of the IBC financial creditor means any person to whom a financial debt is owed and includes a person to whom such debt has legally been assigned. 21. The definition of financial debt in Section 5(8) of the IBC has been quoted above. Section 5(8) defines financial de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it on accrual basis. 22. 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- -vis the amount of Security Deposit as per Section 5(7) read with Section 5(8) of the Code. We are of the considered view that the ratio of the Judgement of the Hon ble Supreme Court in M/s. Orator Marketing Pvt. Ltd. (Supra) is squarely applicable to the facts of this case and we hold that the debt in question is a Financial Debt . 23. Now we address ourselves to the fact that the Resolution Plan has already been accepted by the CoC and is pending before the NCLT for approval. The material on record shows that the Appellant herein had filed an Interim Application on 02.05.2019, challenging the rejection, but while t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
