Amrit Kumar Agrawal vs Tempo Appliances Pvt Ltd

Amrit Kumar Agrawal ....Appellant Vs. Tempo Appliances Pvt. Ltd. ....Respondent

Present:

Appellant: Mr. Avneet Singh Sikka, Advocate

ORDER

(Through Virtual Mode)

25.11.2020: Appellants' application under Section 7 of the Insolvency and

Bankruptcy Code, 2016 ("I&B Code" for short) against 'Tempo Appliances Pvt.

Ltd.' (Corporate Debtor) came to be dismissed in terms of the impugned order

dated 28.09.2020 by the Adjudicating Authority (National Company Law

Tribunal), New Delhi Bench-V on the ground that the default in payment of

Settlement Agreement does not come under the definition of financial debt.

Appellant, being aggrieved thereof, has filed the instant appeal on the ground

that the Respondent who was the Corporate Guarantor was liable in terms of the

Memorandum of Understanding dated 22.09.2017 to discharge the liability with

respect to the financial debt advanced to the principal borrower- 'Tempo

Appliances India Ltd.' and this was independent of Settlement Agreement,

whereunder the Corporate Guarantor had undertaken to discharge the liability

arising out of dishonoring of cheques issued by the Principal Borrower in favour

of the Financial Creditor.

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2. After hearing learned counsel for the Appellant, we are of the considered

opinion that the impugned order is not flawed. Admittedly, in terms of the

Memorandum of Understanding dated 22.09.2017, Appellant agreed to advance

a loan of Rs.1,50,00,000/- to 'Tempo Appliances India Ltd.' (Principal Borrower)

with interest @18% per annum payable monthly. Respondent herein i.e. 'Tempo

Appliances Pvt. Ltd.' together with its Director Mr. Suresh Kumar Aggarwal stood

as guarantor for the said loan amount. The Principal Borrower issued two

account payee cheques dated 20.09.2019 and 20.10.2019 for amount of Rs. 86

lakhs and Rs. 18 lakhs respectively in favour of the Appellant towards discharge

of outstanding liability. However, both cheques bounced when presented for

encashment. This led to filing of the complaint under Section 138 of the

Negotiable Instruments Act against 'Tempo Appliances India Limited' (Principal

Borrower). While the matter was pending determination before learned

Metropolitan Magistrate, South East District, Saket Courts, Delhi, an amicable

settlement was reached and Settlement Agreement was executed between the

Appellant and the Respondent in terms whereof Respondent agreed to pay the

balance loan amount of Rs. 86 lakh along with interest calculated as specific

amount and issued two post-dated cheques to discharge the said liability. These

cheques were also dishonored when presented by the Appellant.

3. A glance on the Settlement Agreement dated 16.01.2020 executed inter se

the parties to this appeal lays it bare that preceding this Settlement Agreement

Memorandum of Understanding dated 22.09.2017 had been executed between

the Appellant and the Principal Borrower, wherein Respondent herein stood as

guarantor. Since the cheques issued by the Principal Borrower were dishonored

Company Appeal (AT) (Insolvency) No. 1005 of 2020 3

on presentation, Respondent as guarantor came forward to pay the outstanding

amount of Rs.86 lakh with interest calculated at Rs.22 lakh and issued two

cheques in consideration of such liability. It appears that the payment schedule

had been agreed upon. A bare look at this Settlement Agreement would reveal

that the same supersedes the Memorandum of Understanding dated 22.09.2017

entered between the Appellant and the Principal Borrower. The issue for

consideration is that whether in terms of this agreement the obligation to pay

the outstanding liability of Rs. 86 lakh together with interest on the part of

Respondent constituted a 'financial debt' within the purview of Section 5(8) of

the 'I&B Code' and whether the Appellant can be treated as 'Financial Creditor'

entitled to trigger Corporate Insolvency Resolution Process as Financial Creditor

against the Respondent. Section 5(8) of the 'I&B Code' is reproduced herein

below:

"5. Definition.- ..........(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 contract which is deemed as a finance or capital lease under the Indian Accounting

Company Appeal (AT) (Insolvency) No. 1005 of 2020 4

Standards or such other accounting standards as may be prescribed;

(e) receivables sold or discounted other than any receivables sold on nonrecourse 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 fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;

(i) 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) of this clause;"

4. Mere obligation to pay does not bring the liability within the ambit of

'financial debt'. The debt, along with interest, if any, should be disbursed against

the consideration for the time value of money. Breach of terms of an agreement

including a Settlement Agreement whereunder payment may be due would not

fall within the ambit of Section 5(8) so as to constitute a 'Financial Debt'.

Admittedly, inter se the parties, there is no disbursement against the

consideration for the time value of money. Principal borrower is not a party to

Company Appeal (AT) (Insolvency) No. 1005 of 2020 5

Settlement Agreement. Viewed in the context of Settlement Agreement, there is

no borrowing on the part of Respondent from the Appellant. Mere obligation to

pay under a Settlement Agreement would not amount to disbursal of amount for

consideration against the time value of money and breach thereof would not

entitle the Appellant in the instant case to trigger Corporate Insolvency

Resolution Process against the Respondent. Viewed from this prospective, we

find that bouncing of cheques issued in discharge of obligation under the

Settlement Agreement would not fall within the purview of default in regard to

financial debt.

5. Thus, viewed we find no legal infirmity in the order. The Appellant may

have other remedies available under law for effecting recovery of money due in

terms of the Settlement Agreement but the triggering of Corporate Insolvency

Resolution Process is not warranted. Insolvency proceedings stand at a different

footing and cannot tantamount to recovery proceedings. Corporate Insolvency

Resolution Process cannot be initiated for purposes of recovery of money.

The appeal being devoid of merit is dismissed.

[Justice Bansi Lal Bhat] Acting Chairperson

[Justice Anant Bijay Singh] Member (Judicial)

[Shreesha Merla] Member (Technical) AR/g

Company Appeal (AT) (Insolvency) No. 1005 of 2020