TMI Blog2022 (9) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... f terms and conditions of the MoU, hence liable to refund the amount with liquidated damages was filed within the period of limitation as prescribed under Article 137 of the Limitation Act, 1963? - Whether exercising the option to void the MoU dated 25.01.2013 on 07.03.2020 can be said to be in exercise of option by the Second Party as per MoU dated 25.01.2013, in accordance with law? - HELD THAT:- The maximum period for which the agreement was to continue was 36 months. In event there is breach of Clause 10, that is, 180 days, if the First Party has not launched the scheme, the cause of action become available to the Second Party. Further, the entire period of agreement being 36 months at maximum, when a breach is committed by Corporate Debtor of compliance of terms and conditions of the MoU, that is, handing over possession of flats/ units or transfer / assignment of the entire super built up area/ flats within 36 months, the cause arose to Second Party, that is, Respondent to sue for its breach. Right to exercise of option arose to the Second Party after 180 days and also after 36 months when period of contract came to an end. By not exercising the option when right to exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred by the IRP, Respondent No.1 (who filed Section 7 Application) shall make the payment of expenses within a period of two weeks. The order dated 04.05.2022 passed by the Adjudicating Authority is set-aside - Appeal allowed. - Company Appeal ( AT ) ( Insolvency ) No. 541 of 2022 - - - Dated:- 9-9-2022 - [ Justice Ashok Bhushan ] Chairperson And [ Barun Mitra ] Member ( Technical ) For the Appellant : Mr. Arun Kathpalia , Sr. Advocate with Mr. Abhijeet Sinha , Mr. Rishi Aggarwal , Ms. Shruti Arora , Mr. Shivam Shukla and Ms. Mansi Taneja , Advocates For the Respondent : Mr. Ramji Srinivasan , Sr. Advocate with Mr. Sumesh Dhawan , Ms. Vatsala Kak and Mr. Shaurya Shyam , Advocates Mr. Aditya Trehan Advocate with Ms. Reshma Mitta , CA for R - 2 JUDGMENT ASHOK BHUSHAN , J. This Appeal by the Suspended Director of the Corporate Debtor has been filed challenging the order dated 04.05.2022 passed by the National Company Law Tribunal, New Delhi Bench-IV by which Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code ) filed by Respondent No.1-Deepak Gupta has been admitted. 2. Brief facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Application, on which a reply was filed by the Corporate Debtor, objecting the Application on the ground that: (a) Debt is time barred; (b) There being no financial debt within the meaning of Section 5(8), the application is liable to be struck down ; (c) Purported claim arises not out of agreement, but on alleged breach and the NCLT does not have jurisdiction to determine the factum of breach and it can only be decided by the competent authority ( Arbitral Tribunal ) . (vi) The Adjudicating Authority vide impugned order dated 04.05.2022 relying on Clauses 9, 10 and 11 of the MoU held that breach of terms of MoU is evident as till date no allotment letter or transfer letter has been issued to the Second Party by the Corporate Debtor. Adjudicating Authority further held that the limitation shall apply within a period of three years from the date of exercise of option by Second Party, that is, starting from expiry of 15 days from 07.03.2020. Aggrieved by the said order, this Appeal has been filed by the Suspended Director of the Corporate Debtor. 3. Shri Arun Kathpalia, learned Counsel appearing for the Appellant challenging the impugned order submits: (i) All r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exercise option to void the transaction, which was actually done on 07.03.2020 by written communication and Application under Section 7 was filed on 06.11.2020 is not barred by time. Learned Senior Counsel for the Respondent submits that with regard to sale of immovable property between the parties, even if sale is not effected within the stipulated period, there shall be no presumption as to time being essence of the contract. The Corporate Debtor by its conduct has waived its right for time being an essence under the MoU. Non-delivery of units to Respondent No.1 by the Corporate Debtor is a continuous default committed by the Corporate Debtor, which entitles Respondent No.1 to file Application under Section 7 in November, 2020. The learned Senior Counsel for Respondent in support of his submission has relied on various judgments of Hon ble Supreme Court lying down the position regarding as to when the time is essence of any contract, which judgments shall be considered while considering the submissions in detail. 5. The Interim Resolution Professional ( IRP ) appeared in person and has shown her concern regarding fees and expenses. It is submitted that she has issued public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in Schedule B . 9. Clause-2 notices that the Second Party agreed to pay on the day of execution of the MoU and the First Party has agreed to accept an amount equal to 15% of the Basic Sale Price, that is, Rs.1,26,00,000/- as per three cheques as mentioned. Clause-2, Clause-4 and Clause-5 contain conditions that Second Party shall have exclusive right to revise the Basic Sale Price as well as other charges in respect of their acquired area and any profit earned shall belong to Second Party. Clauses-9, 10 and 11 on which both the parties placed reliance are as follows: 9. That this agreement shall continue for the stipulated period of 36 months from the date of signing of this MOU, or till the possession of all the flats/ units as provided in schedule B to the Second Party as the case may be, or till transfer/ assignment of the entire super built up area/ flats in favour of nominee of the second party, whichever is earlier. 10. That the parties herein have agreed that if the first party fails to launch the scheme within 180 days from the date of signing of this agreement as assured by it to the second party, the First party shall be liable for default and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till date have not returned a single penny. That such false, assurances, allurement and fake commitments are nothing but your deliberate and dishonest intentions since inception to commit fraud/ cheating with me and you have caused wrongful loss to me and wrongful gain to yourself to the tune of Rs.1.83 crores (Rupees One Crore Eight Three Lcas Only) approximately in all as stated herein above. You are requested to kindly refund/ return my and my family members hard earned money along with agreed rate of interest and future compensation as agreed by you which was entrusted to your on your false commitments and assurances to deliver the Flat/ units in the above stated project within 7 days of receipt of this legal notice cum communication. 11. The case of Respondent No.1 is that as contemplated, option to void the transaction was exercised by Respondent No.1 on 07.03.2020 and thereafter in 15 days when amount was not refunded, the cause of action arose to Respondent No.1 to file Section 7 Application. As noted above, Application under Section 7 was filed claiming principal amount of Rs.1,26,00,000/- and interest @ 12% liquidated damages @ 24%, amounting to Rs.9,65,97,937/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of clause 11 of the Agreement shall be attracted. Further clause 11 states that if the 1st party breaches any of the commitments made under this agreement, the entire transaction shall be voidable at the option of the Second party and if the second party exercises its option, the 1st party shall refund the entire amount along with interest @ 12% per annum and compensation for the liquidated damages @ 24% per annum. The 2nd Party has further preferred to exercise its option w.e.f. 22.03.2022. 14. Therefore, default has arisen from the above mentioned date. Accordingly the limitation if any, shall apply within a period of 3 years from the date of exercise of option by the 2nd party. A default within the purview of Sec.3 (12) has occurred on 22.03.2020 when the CD failed to discharge debt owed to the Applicant herein within 15 days from 07.03.2020 (i.e. within 15 days from the date of exercise of option by the Applicant of holding the entire transaction in terms of clause 11 of MOU. 15. That there has been breach of terms under the MOU is evident as till date no allotment letter or transfer letter has been issued to the second party (Applicant) by the Corporate Debtor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be of the essence of the contract. Effect of such failure when time is not essential.-If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure. Effect of acceptance of performance at time other than that agreed upon.-If, in case of a contract voidable on account of the promisor s failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so. 19. Section 55, first part clearly contemplates that when a party to a contract promises to do a certain thing before a specified time, fails to do so, the contract or so much of it as has not been performed, becomes voidable at the option of promisee. When the First Party, that is, the Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of party to perform its promise. 24. When we read all Clauses of agreement of MoU, the agreement itself clearly contemplate that it was to continue for only 36 months from the date of signing of MoU. Thus, it was open for the Second Party to exercise its option for voiding the agreement after 180 days of signing the agreement, if scheme was not launched or in any event, after expiry of 36 months period from the date of signing of agreement when possession of flats/ units was not given to Respondent No.1. It is not in the sweet will of Respondent No.1 to exercise option after expiry of 6 years from violation of Clause-10, which arose after 180 days of the signing of the agreement, that is, when the scheme was not launched. We are of the view that Clauses-9, 10 and 11 have to be read together and the exercise of the option by the Second Party has to be either after 180 days from the signing of the agreement or immediately after three years when the period of contract came to an end. In the Application under Section 7, the date on which default occurred is mentioned as 22.03.2020, which cannot be said to be correct, since the date of default as per the averments of Respondent No.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration, therefore, is whether time was of the essence of the contract that was executed between the parties on July 12, 1955 (Ex. 34). It cannot be disputed that question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to be gathered from the terms of the contract . Further in paragraph 8, the Hon ble Supreme Court laid down following: 8. It will be clear from the aforesaid statement of law that even where the parties have expressly provided that time is of the essence of the contract such a stipulation will have to be read along with other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental; for instance, if the contract were to include clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract such clauses would be construed as rendering ineffective the express provision relating to the time being of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently misconceived. The parties did not go to trial on the basis that time was of the essence of the contract for no issue was framed regarding time being the essence of the contract. Neither is there any discussion in the judgment of the trial court regarding this point. The trial court after considering the evidence came to the conclusion that appellant was always ready and willing to perform his part of the contract while the respondents were not. In the circumstances therefore the High Court was in error in setting as one of the points for determination whether time was of the essence of the contract. The High Court after referring to the agreement was of the view that the agreement was entered into between the parties during the course of a litigation between the appellant and the respondents and in pursuance of the agreement the parties were directed to withdraw their cases and were directed further not to take fresh legal steps during the period of two months within which the sale deed was to be executed. On taking into account the circumstances of the case and the conduct of the parties of serving on each other notices, counter notices and telegrams the High Court inferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within six months, in the last paragraph they made it clear that in the event of failure to execute the sale deed, the earnest money will be forfeited. In such circumstances, the abovementioned clauses in the last three paragraphs of the agreement of sale would render ineffective the specific provision relating to the time being the essence of contract. 28. From the law laid down by the Hon ble Supreme Court as noted above it is clear that time is not the essence of contract with regard to sale of immovable property, unless there are special features and terms and conditions in the contract, which makes the time as essence of the contract. We in the present case, while considering the question for limitation for filing Section 7 Application, are not essentially concerned with the question as to whether the time is essence of the contract under the MoU dated 25.01.2013, rather we need to look into it for the purposes of commencement of the limitation period for filing Section 7 Application to find out as to when right to sue accrued to the Respondent on the breach of the terms and conditions of MoU by the Corporate Debtor. Whether, the right to sue, which accrued to Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al principal amount with 12% interest as upto date within three days. Subject to deposit of the aforesaid amount, no further steps shall be taken in the CIRP process. We make it clear that the IRP shall continue till the matter is finally decided and will ensure that the Corporate Debtor remains a going concern. I.A. No. 1766 of 2022 stands disposed off. 31. In pursuance of the order dated 03.06.2022, the Appellant has deposited FD of Rs.2,68,00,000/- drawn in favour of Registrar National Company Law Appellate Tribunal . We have noticed that there is no dispute regarding payment of an amount of Rs.1,26,00,000/- by Respondent No.1 to the Corporate Debtor on 25.01.2013. The Appellant has deposited the Bank Draft including the interest @ 12%. In the interest of justice, we are of the view that the amount deposited under orders of this Tribunal dated 03.06.2022, be refunded to Respondent No.1 to avoid further litigation between the parties. We order accordingly. 32. Now coming to the submission of IRP regarding her fees and expenses, it is to be noted that the impugned order was passed on 04.05.2022 and the Appeal was immediately filed on 09.05.2022 and this Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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