TMI Blog2022 (7) TMI 1251X X X X Extracts X X X X X X X X Extracts X X X X ..... n writing however, there is no foundation in the Application filed by the Appellant or materials brought by him to indicate that there was even an oral agreement with the Corporate Debtor for sale of the land to the Appellant - The Adjudicating Authority has even observed that there is no proof that this letter dated 14.09.2018 was served on the Corporate Debtor. Time value of money thus means the price received for the length of time for the money for which the money has been disbursed - The law as laid down by the Hon ble Supreme Court in [ 2020 (2) TMI 1259 - SUPREME COURT ] clearly lays down that root requirement is disbursement against the consideration for the time value of money which is an essential condition to be proved to accept debt to be financial debt. Whether the payment of Earnest Money even if it is accepted as disbursement whether disbursement is against the consideration for the time value of money? - HELD THAT:- The disbursement made by the Appellant to the Corporate Debtor was only a payment of Earnest Money which was to be adjusted in sale of the land. The disbursement was not in consideration for the time value of money - Essential condition for accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rieved by the Order, this Appeal has been filed. Company Appeal (AT) Ins. No. 21 of 2022 has been filed against the Order dated 27th May, 2020 passed by the National Company Law Tribunal, Ahmedabad Bench, Ahmedabad (the Adjudicating Authority) allowing the Application filed by the Resolution Professional (RP in short) for approval of the Resolution Plan. By the Order dated 27.05.2020, Resolution Plan was approved. Aggrieved by the Order dated 27.05.2020, this Appeal has been filed by the Appellant. 2. Brief facts of the case and sequence of the events for deciding these Appeals are: i. The Appellant sent a letter dated 14.09.2018 to the Corporate Debtor (M/s. Digjam Limited) setting out his offer to purchase surplus land available at the Mills premises of the Corporate Debtor at Jamnagar (Gujarat). ii. Subsequent to the sending letter dated 14.09.2018, the Appellant made payment of Earnest Money by RTGS/NEFT to the Corporate Debtor between 26.09.2018 to 08.04.2019 of Rs. 7 Crores. iii. In the meantime, an Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as The Code ) was filed by one M/s. Oman Inc. against the Corporate D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t submits that the Adjudicating Authority committed error in passing Order dated 07.02.2020 rejecting the claim of the Appellant as a Financial Creditor. He submitted that Appellant had paid sum of Rs. 7 Crores as earnest money to the Corporate Debtor with regard to which receipt was issued by the Corporate Debtor and payment has not been disputed by the Corporate Debtor. The Resolution Professional has admitted the payment of earnest money by the Appellant to the Corporate Debtor but has wrongly classified the Appellant as other Creditor. Learned Counsel for the Appellant referring to the Annual Reports of the Corporate Debtor for the Financial Year 2018-19 and 2019-20 submits that earnest money has been classified as other Financial Liability hence the Appellant s claim deserved to be admitted as a Financial Debt . Learned Counsel for the Appellant submits that Resolution Professional failed to produce the Annual Reports before the Adjudicating Authority which reports have now been brought on record in this Appeal. 5. In support of Company Appeal (AT) Ins. No. 21 of 2022, Learned Counsel for the Appellant submits that the Resolution Plan has been approved without earmarking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution Plan cannot be faulted. Appellant s I.A. No. 195 of 2021 where he had made a prayer to quash the CIRP was rejected by the Adjudicating Authority against which Company Appeal (AT) Ins. No. 522 of 2021 filed by the Appellant was also dismissed on 29th July, 2021. Appellant cannot be allowed to reagitate the same issue. 8. We have considered the submissions of Learned Counsel for the parties and have perused the record. 9. The first issue to be answered in this Appeal is as to whether the payment of earnest money of Rs. 7 Crores by the Appellant to the Corporate Debtor between the period from 26.09.2018 to 08.04.2019 is a financial debt within the meaning of Section 5(8) of the Code? 10. We need to first notice the nature of transaction, the details of the facts and sequence of the events which can throw light on the nature of transaction, if any, between the Appellant and the Corporate Debtor. The Appellant has claimed the payment of amount to Corporate Debtor as an earnest money for purpose of purchase of surplus land belonging to the mills of the Corporate Debtor. The payment of earnest money began after letter dated 14.09.2018 was sent by the Appellant to the Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the events and materials on record. The Adjudicating Authority returned findings in paragraphs 4 and 9. The Adjudicating Authority considered the claim of the Appellant based on clause (f) of Section 5(8). The Adjudicating Authority has even observed that there is no proof that this letter dated 14.09.2018 was served on the Corporate Debtor. We however proceed to examine the case on the premise that after sending letter dated 14.09.2018, the Appellant made payment of Earnest Money as claimed by him. 12. We now need to notice the statutory provisions of the Code defining Financial Debt . Section 5(8) of the Code is as follows: (8) financial debt means a debt alongwith 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 contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bursed. The Hon ble Supreme Court has occasion to consider sub-section (8) of Section 5 in several cases. A three bench Judgement which has been referred to and relied on time and again is the Judgement of Hon ble Supreme Court in (2019) 8 SCC 416 Pioneer Urban Land and Infrastructure Ltd. Vs. Union of India . The amendment made in the Code by which allottees of Real Estate were being treated Financial Creditor was challenged before the Hon ble Supreme Court by filing a number of writ petitions. In the above context, the Hon ble Supreme Court of India had occasion to consider the concept of financial debt under section 5(8). Paragraph 70 and 71 are as follows: 70. The definition of financial debt in Section 5(8) then goes on to state that a debt must be disbursed against the consideration for time value of money. Disbursement is defined in Black s Law Dictionary (10th ed.) to mean: 1. The act of paying out money, commonly from a fund or in settlement of a debt or account payable. 2. The money so paid; an amount of money given for a particular purpose. 71. In the present context, it is clear that the expression disburse would refer to the payment of insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it ought to be a disbursal against the consideration for time value of money. It may include any of the methods for raising money or incurring liability by the modes prescribed in sub-clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per sub-clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in sub-clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of disbursement against the consideration for the time value of money could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said sub- clauses (a) to (i) of Section 5( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial 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. 18. The expression time value has been defined in Black s Law Dictionary as the price associated with the length of time that an investor must wait until an investment matures or the related income is earned . To reiterate, any of the transactions specified in Clauses (a) to (i) of Section 5(8) would fall within the ambit of the definition of Financial Debt only in the event if they include the essential elements stated in the principal clause that is element of disbursal, against the consideration for time value of money and has the commercial effect of borrowing. For a person to be defined as a Financial Creditor of the Corporate Debtor , it has to be shown that the Corporate Debtor owes such a Financial Debt to such a person. 19. Essential condition for accepting a debt to be financial debt being absent, we are of the view that Adjudicating Authority has not committed any error in rejecting the claim of the Appellant as Financial Creditor. The claim of the Appellant of Earnest Money of Rs. 7 Crores has been admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The resolution plan envisages NIL payment to these other creditors . In this category no payment is envisaged towards the related parties claim admitted by RP neither to any other parties including against Claim of Rs. 16.95 Crores filed by M/s DLF Limited, which is disputed by the corporate debtor and pending before the court of law and admitted subject to finality 22. The Resolution Plan envisages Nil payment to other Creditors. Now we come to the law laid down by the Hon ble Supreme Court in Essar Steel (supra) in paragraph 72 and 73 of the Judgement following has been laid down down: 72. This is the reason why Regulation 38(1A) speaks of a resolution plan including a statement as to how it has dealt with the interests of all stakeholders, including operational creditors of the corporate debtor. Regulation 38(1) also states that the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors. If nothing is to be paid to operational creditors, the minimum, being liquidation value - which in most cases 7420 would amount to nil after secured creditors have been paid - would certainly not balance the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn that judicial review by the Adjudicating Authority as well as Appellate Tribunal has to confine as to whether the requirement referred to in Section 30(2) has been met. It was clearly held that the Adjudicating Authority may not interfere with the merits of the commercial decision of the CoC. The limited judicial review available is to see that CoC has taken into account the fact that Corporate Debtor needs to be kept as a going concern, it needs to maximise the value, and interest of all the stakeholders including Operational Creditor have been taken care of. Section 30(2) provides as follows: 30(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan- . (b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Authority to send back plan to CoC. This Tribunal relies on the Judgement of the Hon ble Supreme Court in the matter of Essar Steel (supra). Following was reasons given in paragraph 15-16: 15. If the above minutes are perused, it can be hardly said that there are any reasons given by the Committee to demonstrate that it has taken care of interest of all stakeholders. Para - 46 of the Judgement in the matter of Essar Steel requires to see the reasons given by the Committee of Creditors while approving a resolution plan from point of view stated in the paragraph. The reasons for giving NIL to Operational Creditors is not reflected from record. We have already reproduced portion from Part B - Financial Proposal with regard to what the approved Resolution Plan states regarding dues to the Operational Creditors. The proposal is based on the assessment that there is no liquidation value due to Operational Creditors. Although it is not stated but there is reason to doubt that the Resolution Applicants were aware of the liquidation value. There is no dispute that so many of the Operational Creditors have been left high and dry giving them nil amount which Hon'ble Supreme C ..... 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