Anil Mahindroo & Anr vs Earth Iconic Infrastructure (P) Ltd

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

Company Appeal (AT) (Insolvency) No. 74 of 2017

IN THE MATTER OF:

Anil Mahindroo & Anr .Appellants

Vs.

Earth Iconic Infrastructure (P) Ltd. .Respondent

Present: For Appellants: - Mr. Vikas Tiwari and Mr. Neeraj Kr. Gupta, Advocates

ORDER

02.08.20 17 The appellants, who claimed to be 'Financial Creditor' filed

an application under section 7 of the Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as "I & B Code) for initiation of insolvency

process in respect of the Respondent- 'Corporate Debtor'.

2. Ld. Adjudicating Authority (National Company Law Tribunal)

Principal Bench, New Delhi by impugned order dated 8th March, 2017

dismissed the application with the following observations:

"27. Brief facts of the case necessary for disposal of

the instant petition are that a MOU, allotment letter was

executed between the applicants and Respondent

Company. They were allotted one flat reference No.

ETTS 1959 on the first floor in the project Earth Titanium

Studios developed by Respondent Company at Greater -2-

Noida, UP. The MOU contains an express promise made

on behalf of the Respondent Company for guaranteed a

returned on the investment and has been styled as

'commitment amount' till the actual possession is

delivered. The total sale consideration for the flat was

Rs. 20,80, 000 plus taxes. The possession of the flat was

to be delivered in September 2016. On the date of

signing of the MOU part payment of sale consideration

alongwith service tax was paid and Respondent

Company had undertaken to make payment of

commitment of amount of Rs. 20,000/-per month and it

was to increase with the payment of the next instalment.

The last instalment of the sale consideration was

payable in May 2015. Eventually the applicants have

paid the entire agreed sale consideration plus taxes.

The Respondent Company paid the commitment amount

to the applicants till February 2016 and has stopped

paying the same subsequently.

28. The facts of the instant case are akin to those of a

decided, case in material particulars namely Nikhil

Mehta & Sons (HUF) & Ors. V. M/s AMR Infrastructures

Ltd. IC.P.No. (IS.B)-03(PB)/201 7] decided on 23.1.2017

by this Bench. The aforesaid petition was also filed

under section 7. of the Code. After hearing learned

counsel for the applicants we have expressed the view -3-

that applicants could not be regarded as Financial

Creditors within the meaning of section 5(7) & (8) of the

Code nor their advance payment for purchase of the flat

could be regarded as a 'Financial Debt' merely because

there is a stipulation in the MOU with regard to payment

of assured return. In view thereof we adopt the same

reasons which have been given in the case of Nikhil

Mehta (supra). A copy of the aforesaid order in the Nikhil

Mehta and sons' case may be added by the office which

shall constitute as apart of this order as well."

3. While dismissing the application, Ld. Adjudicating Authority

observed that any observation made in the said order shall not be

construed as an expression of opinion on the merit of the controversy as

the Ld. Adjudicating Authority had refrained from entertaining the

application at the initial stage.

4. Ld. Counsel for the appellant brought to our notice the decision of

this Appellate Tribunal in "Nikhil Mehta and Sons v. AMR Infrastructure

Ltd" dated 21st July, 2017 passed in Company Appeal (AT) (Insol.) No. 07

•of 2017. It is submitted that the original judgment passed by Ld.

Adjudicating Authority in "Nikhil Mehta and Sons v. AMR Infrastructure

Ltd" has been referred in the impugned order dated 8th March, 2017, which

has been ordered to be communicated to the appellant along with copy of

the impugned order.

-4-

5. The aforesaid order passed by Ld. Adjudicating Authority in 'Nikhil

Mehta & Sons' was challenged before this Appellate Tribunal. In 'Nikhil

Mehta & Sons v. AMR Infrastructure Ltd', considering the

agreement/ Memorandum of Understanding relating to purchase of shops

and flats, this Appellate Tribunal, held as follows: -

"20. From the aforesaid agreement/Memorandum

Understanding it is clear that appellants are "investors" and

has chosen "committed return plan". The respondent in their

turn agreed upon to pay monthly committed return to

investors. Thus, the amount due to the appellants come within

the meaning of 'debt' as defined in Section 3(11) of the 'I & B

Code' which reads as follows: -

'(11) "debt" means a liability or obligation in respect of a

claim which is due from any person and includes a

financial debt and operational debt;"

23. From the 'Annual Return' of the Respondent and Form-

16A, we find that the 'Corporate Debtor' treated the appellants

as 'investors' and borrowed the amount pursuant to sale

purchase agreement for their commercial purpose treating at

par with 'loan' in their return. Thereby, the amount invested

by appellants come within the meaning of 'Financial Debt', as

defined in Section 5(8)(f) of I & B Code, 2016 subject to

satisfaction as to whether such disbursement against the consideration is for time value of money, as discussed in the

subsequent paragraphs.

24. Learned Adjudicating Authority has rightly highlighted

the opening word of the definition clause which indicate that

a 'financial debt' is a debt along with interest which is

disbursed against the consideration for the time value

of money and may include any of the events enumerated in

sub-clause (a) to (i). Therefore, it is to be seen whether the

amount paid by the appellants to the Corporate Debtor, fulfil

the other condition of "disbursement against consideration of

time value and money", to come within the definition of

"Financial Creditor" having satisfied that the Corporate Debtor

raised the amount through a transaction of sale and purchase

of agreement having commercial effect of a borrowing (Section

5(8)(t)).

25. The agreement shows that the respondent agreed to

complete the construction of shopping mall on or before

December 2009, in all respects. and was required to complete

and handover the shop in the shopping mall before the said

date. It is not the case of the respondent that the construction

was stopped or delayed on account of factors beyond the

control of the respondent, as stipulated in the later part of the

Memorandum of Understanding. It was agreed upon by the

respondent that since the appellants have paid most of the -6-

amount the respondent was ready to pay "monthly committed

returns" to the appellants. However, as the appellants were

not required the monthly return till December 2008 i.e. for 9

months so the Respondent-Corporate Debtor undertook to

make a consolidated payment of Rs. 99,600/- less TDS. For

every calendar month the Corporate Debtor was liable to pay

committee return w.e.f. January 2009 till the date of handing

over of the possession to the appellants. Therefore, it is clear

that the amount disbursed by the appellants was "against the

consideration of the time value of the money" and "the

Respondent-Corporate Debtor raised the amount by way of

sale - purchase agreement, having a commercial effect of

borrowing." This is also clear from annual returns filed by

Respondent and not disputed by the Respondent-Corporate

Debtor in their annual returns, wherein the amount so

raised/borrowed has been shown as 'commitment charges'

under the head "Financial cost". The financial, cost includes

"Interest of loans" and other charges. Therefore, the

'commitment charge' which include interest on loan, shown

against the head "Financial cost" having accepted by the

Corporate Debtor in their. annual return, we hold that the

appellants have successfully proved that they are 'financial

Creditor' within the meaning of Section 5(7) of the 'I & B Code'.

I

26. Learned Adjudicating Authority while rightly interpreted

the provisions of law to understand the meaning of expression

'financial creditor' at paragraph 12 of the impugned judgement

as quoted above, but failed to appreciate the nature of

transactions in the present case and wrongly came to a

conclusion "that it is a pure and simple agreement of sale and

purchase of a piece of property and has not acquired the

status of a financial debt as the transaction does not have

consideration for the time value of money".

6. The judgment passed by Ld. Adjudicating Authority in the case of

"Nikhil Mehta and Sons v. AMR Infrastructure Ltd" was set aside and matter

has been remitted back to the Ld. Adjudicating Authority for admission.

7. Notice was issued on respondents both by Speed-post and e-mail.

In spite of service of notice both by Speed-post and e-mail, the Respondent-

Corporate Debtor refused to appear.

8. From the agreement/ Memorandum of Understanding dated 14th

May, 2014, we find that the said agreement relates to the allotment of

apartment .admeasuring 520 sq. ft., therein the following terms and

conditions of payment (commitment amount) has been stipulated and

agreed between the parties: -

"The Company hereby undertakes to make a fixed

payment of Rs. 13,000/- (Rupees Thirteen Thousand

only (hereinafter referred to as the 'Commitment -8-

Amount') every calendar month to the Allottee(s) w.e.f.

May - 2014 till the date of First PDC, which the

Allottee(s) duly accepts. After realization of the

abovementic.ined First PDC dated 1.11.14 on its due

date, the Company assures the Allottees(s) that the

Commitment amount shall be Rs. 11,160/- and will be

effective from the date of realization of the first PDC till

the date of realization of the Second PDC as mentioned

in this MOU. Further, subject to realization of the Second

PDC on its due date, the Commitment Amount shall be

of Rs. 21,320/- with immediate effect of its realization

till the date of offer ofpossession. The Company hereby

clarifies that the monthly Commitment Amount in all the

situations stated above is subject to the timely payment

of all the instalments as per the plan opted by the

Allottee(s). The Company shall stop the payment of

commitment Amount, where any of the abovementioned

PDC's gets bounced on account of any reason

whatsoever, and/or in case of non-payment of the

balance amount on due date (as mentioned in this MOU)

by the Allottee(s). The Flexi Payment Plan of the

Allottee(s) shall change into Construction Linked

payment Plan (CLP) without any notice to the Allottee(s)

and after the change of payment plan into CLP,

commitment Amount will not be paid by the Company to -9-

the Allottees(s). Further, the Allottee(s) is also liable to

return to the Company 50% of the Commitment Amount

already paid to the Allottee(s). If in any case

Commitment Amount is not returned, Company may

adjust the same by reducing the area allotted to the

Allottee(s) or recover the amount with interest at any

time as the Company deems fit and appropriate. The

Allottee(s) knows and understands that Commitment

Amount is applicable only in the case of Down Payment

Plan and Flexi Payment Plan."

9. The appellants have enclosed the Balance Sheet of the Respondent

Company as on 31St March, 2015 wherein against the 'current liabilities',

apart from 'short term borrowings', the following liabilities have been

shown: -

4. Current liabilities

(a) Short term 6 670,368 Borrowings

(b) Trade Payables 7 5,225,389 140,372,795

(c) Other current 8 11*748,474,195 867,749,891 liabilities

(d) Short-term 9 370,641 49,501 provisions Total: 1,754,740,593 1,008,172,187 1,764,825,748 1,018,244,845

10. In the end of the said Balance Sheet, against the Note 8 "other

current liabilities" have been shown as quoted hereunder: -10-

Particulars As at 31 March As at 31 March 2015 2014 Rs. Rs. (a) Other payables (i) Statutory Remittance 5,783,392 5,548,820 Duties & Taxes) (ii) Others (a) Advance from 1,729,554,149 860,069,589 Customer (b) Retention 227,042 31,274 (c) Book Overdraft 8,138,140 (d) Expenses Payable 4,771,472 2,100,208 Total: 1,748,474,195 867,749,891

*Represents advances adjustable against sale consideration of shops/plots/office/flats net of debtors adjustable against sale consideration of shops/plots/flats etc. and are generally not refundable. It also includes amount credited toward commitment charges paid/payable.

*The amount of Rs. 1,35,09,464 (PVR Rs. 17,80,000) was being directly deposited into the bank account of the company, which are not identifiable by the company."

11. In the present case, the Respondent has not taken any plea that the

appellants failed to pay the balance amount on due date or any of the

cheque has been bounced on account of any reasons. The respondent has

also not denied the allegation that the 'commitment amount" as mentioned

in the agreement! Memorandum of Understanding has not been paid

month to month and there is a default.

12. From the agreement/ Memorandum of Understanding, we find that

the appellants are also "investors" and have chosen "committed return

plan" like "Nikhil Mehta and Sons v. AMR Infrastructure Ltd". Thereby we

hold that the amount as is due to the appellants, come within the meaning

of "debt" as defined in Section 3(11) of the 'II & B Code'.

13. The Balance Sheet has been enclosed by the appellants, wherein the

amount deposited by 'persons', including the appellants as shown also -11-

suggest that the Respondent 'Corporate Debtor' treated the appellants as

'investors' and borrowed the amount pursuant to sale purchase agreement

for their 'commercial purpose' treating the amount at par with 'loan' in

their return. Thereby, the amount invested by appellants come within the

meaning of 'Financial Debt', as defined in Section 5(8)(f) of I & B Code,

2016, subject to satisfaction as to whether such disbursement against the

consideration is for time value of money.

14. "Disbursed against the consideration for the time value of money",

as mentioned in the opening line of Section 5 has been rightly highlighted

and considered by the Ld. Adjudicating Authority in "Nikhil Mehta and

Sons v. AMR Infrastructure Ltd", but the Appellate Tribunal while agreed

with such findings but disagreed with the other part of findings in the said

case.

15. In the present case, we find that no case has been made out by the

respondent that the construction was stopped or delayed on account of

•factors beyond its control. It has also not been disputed that the

respondent failed to pay monthly committed returns which was to be paid

month to month till, the completion of the project! apartment. Thereby we

find and hold that the appellants in this case have also successfully proved

that the money disbursed by them is against the consideration for the time

value of money and for all purpose, they come within the meaning of

'Financial Creditor' as defined in Section 5(7) of the 'l & B Code'.

16. For the reasons aforesaid, we set aside the impugned judgment

dated 8th March, 2017 passed by the Ld. Adjudicating Authority in C.P.No. -12-

(IB)-16(PB)/2017 and remit the matter to Adjudicating Authority to admit

the application preferred by appellants and pass appropriate order, if the

application under Section 7 of the 'I & B Code' is otherwise complete. In

case it is found to be not complete, the appellants should be given seven

days' time to complete the application as per proviso to Section 7 of the

'I & B Code'.

17. The appeal is allowed with aforesaid observations. However, in the

facts and circumstances of the case,, there shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Mr. Balvinder Singh) Member(Technical) ar