Budhpur Buildcon Private Limited vs Mr. Abhay Narayan Manudhane

IN THE MATTER OF: Budhpur Buildcon Pvt. Ltd 6th floor, 601, Hallmark Business, Opp. Guru Nanak Hospital Bandra East Mumbai ...Appellant

Vs.

Mr. Abhay Narayan Manudhane, Resolution Professional of Corporate Debtor Housing Development and Infrastructure Limited 1204, Maker Chamber V,Jamnalal Bajaj road, Nariman Point Mumbai - 400 021 ...Respondent

Present: For Appellant : Mr. Zal Andhyarujini, Sr. Advocate and Mr. Karan Bhide, Mr Nitesh Ranawat, Mr. Aman Raj Gandhi, Ms Disha Shetty, Ms ApoorvaKaushik, Mr Mustaqueen Bagsaria, Advocates

For Respondents : Ms Meghna Rao, Ms Prerna Wagh, Mr Shahdab Jan Advocates for RP Mr Subir Kumar, advocate in IA No.1739/2021 Mr. Abhinav Vasisht, Sr. Advocate, Ms Priya Singh, Mr Deepayan Manda, Advocates for Intervenor for Majestic Consumer Welfare Association. Mr Soumya Roop Sanyal, Advocate for Intervenor.

Company Appeal (AT)(Ins) No.589 of 2021 Page 1 of 63

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The Appeal has been filed by the Appellant under Section 61 of the

'Insolvency and Bankruptcy Code 2016' (the Code) against the impugned

order dated 02.08.2021 passed by the 'National Company Law Tribunal,

Mumbai Bench, Mumbai (the Adjudicating Authority) in I.A No. 2129 of

2020 in C.P. No. 27 of 2019.

The Appellant has sought the followings reliefs:

 To quash and set aside the impugned order passed by the

Adjudicating Authority in IA No. 2129 of 2020, in the matter of

Budhpur Buildcon Pvt. Ltd. (for short 'BBPL') Vs. Mr. Abhay

Narayan Manudhane;

 To quash and set aside the impugned letter dated 28.09.2020 issued

by the Respondent to the Appellant rejecting the Appellant's claim

for 'financial debt';

 To stay the effect and operation of the impugned order etc.

2. The Adjudicating Authority, while passing the impugned order dated

02.08.2021 has observed the followings:

"6. We have heard the parties at length. We have also

perused the documents submitted by them. Both the

Company Appeal (AT)(Ins) No.589 of 2021 Page 2 of 63 parties in IA 2129/2020 have raised various

allegations and counter allegations against each

other. The intervenors in IA 2300/2020 have also

advanced their arguments. In the light of the rival

contentions on both the sides the following issues fall

for consideration:

1. Whether the amount claimed by the applicant is a

financial debt within the definition of the Code?

2. Whether the RP has committed any illegality in

rejecting the claim of the petitioner as a Financial

Debt?

The observations and findings on the first issue is an

answer to the second issue also. In order to decide

the first issue, it is important to look at the definition

of 'Financial debt' in Section 5(8) of the Code. The

definition of Financial debt cannot be read in

isolation without considering some other relevant

definitions particularly the definition of 'claim' in

Section 3(6) and the definition of creditor in Section

3(10) and the definition of 'Financial Creditor' and

Company Appeal (AT)(Ins) No.589 of 2021 Page 3 of 63 'Financial Debt' under the Code which are extracted

hereunder:

Section 5(8) Financial debt: "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 the

acceptance credit facility or its de-materialised

equivalent;

c. Any amount raised pursuant to any 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

Standards or such other accounting standards as

may be prescribed;

e. Receivables sold or discounted other than any

receivables sold on non-recourse basis;

Company Appeal (AT)(Ins) No.589 of 2021 Page 4 of 63 f. Any amount raised under any other transaction,

including any forward sale or purchase agreement,

having the commercial effect of a borrowing.

[Explanation- For the purposes of this sub-clause,-

(i) Any amount raised from an allottee under a real

estate project shall be deemed to be an amount

having the commercial effect of a borrowing; and

(ii) The expressions, "allottee" and "real estate

project" shall have the meanings respectively

assigned to them in clauses (d) and (zn) of section 2

of the Real Estate (Regulation and Development) Act,

2016 (16 of 2016);]

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 or indemnity for any of the items referred

to in sub-clauses (a) to (h) of this clause;

Company Appeal (AT)(Ins) No.589 of 2021 Page 5 of 63 Section 5(7) Financial Creditor: "Financial Creditor"

means any person to whom a financial debt is owed

and includes a person to whom such debt has been

legally assigned or transferred to;

Section 3(6) Claim:

"claim" means

(a) a right to payment, whether or not such right is

reduced to judgment, fixed, disputed, undisputed,

legal, equitable, secured or unsecured; (b) right to

remedy for breach of contract under any law for the

time being in force, if such breach gives rise to a right

to payment, whether or not such right is reduced to

judgment, fixed, matured, unmatured, disputed,

undisputed, secured or unsecured;

Section 3() creditor: "creditor" means any person to

whom a debt is owed and includes a financial

creditor, an operational creditor, a secured creditor,

an unsecured creditor and a decree-holder;

7. It is very clear from the above definition that a

mere right to payment, whether or not such right is

reduced to judgment, fixed, disputed, undisputed,

Company Appeal (AT)(Ins) No.589 of 2021 Page 6 of 63 legal, equitable, secured or unsecured; and a right to

remedy for breach of contract under any law for the

time being in force, if such breach gives rise to a right

to payment, whether or not such right is reduced to

judgment, fixed, matured, unmatured, disputed,

undisputed, secured or unsecured is enough to

qualify as an Operational Debt. However, a mere

right to recovery or entitlement does not qualify as a

Financial Debt unless the debt falls within any one

of the categories mentioned under the definition

'Financial Debt'.

8. It is very clear from the submissions of both sides

as well as from the record that the applicant is

claiming the interest amount as a Financial Debt as

a penalty for the alleged breach of the various terms

and conditions of number of agreements entered into

between the applicant M/s Budhpur Buildcon Pvt.

Ltd. and the Corporate Debtor HDIL which is a mere

right for the alleged breach by the Corporate Debtor.

It is appropriate to mention here that the Corporate

Debtor is denying any breach on its part and on the

Company Appeal (AT)(Ins) No.589 of 2021 Page 7 of 63 other hand raised various lapses on the side of the

applicant. Therefore, the respondent RP has rightly

rejected the claim of the applicant as Financial Debt

as it is a mere claim. This Bench did not find any

illegality or irregularity committed by the RP.

9. The Applicant has contended that the Respondent

caused delay in the assessment of the claim of the

Applicant. We believe that this contention of the

applicant is untenable as it was the Applicant who

submitted its claim four months after the cut-off date.

Keeping in mind the size of the Applicant's claim, the

Respondent merely discharged its functions in

accordance with the Code with regard to the

verification of the claim. Here, it is important to refer

to Regulation 13 which specifies that the Interim

Resolution Professional must verify the claims within

7 days of its receipt. But it is settled that this timeline

of 7 days is merely directory and not mandatory. The

contention that the time period of 7 days is not

mandatory is buttressed by the fact that neither the

Code nor the Regulations provide for any

Company Appeal (AT)(Ins) No.589 of 2021 Page 8 of 63 consequence in case the timeline is not adhered to by

the Interim Resolution Professional. This proposition

is supported by the verdict of the Hon'ble Supreme

Court in State of Bihar v. Bihar Rajya Bhumi Vikas

Bank Samiti (2018) 9 SCC 472, para nos. 25, 26

affirmed that a procedural provision shall be

directory and not mandatory when no consequence

has been provided in the said provision for non-

compliance thereof.

10. The respondent proceeded with the verification

as per the provisions of the Code. However, the said

verification was further delayed by the onset of the

COVID-19 pandemic. Therefore, it cannot be said that

it was the respondent RP who had caused any delay.

It is to further mention that Regulation 13 also

empowers the Resolution Professional to decide the

amount to be admitted, which implies that the

Resolution Professional has the power to 'not admit'

any sum under a claim. Therefore, from this it is clear

that the Resolution Professional is expected to apply

its mind to the facts and nature of the claim filed, and

Company Appeal (AT)(Ins) No.589 of 2021 Page 9 of 63 thereafter, reject the same in case the categorization

is wrong or incorrect. However, the Applicant's

interpretation of Regulation 13 i.e., that the

Resolution Professional has to merely collate claims

without application of mind and thereafter proceed to

admit the claim regardless, is contrary to the intent

of the Code as well as the regulations framed

thereunder to govern the functions of an Insolvency

Professional. The said interpretation would lead to

unintended consequences and absurd result.

"Further the applicant had also contended that

it would be in a better position to assess the

viability of any proposed Resolution Plan to be

submitted by the Prospective Resolution

Applicants and the impact thereof on the rights

and entitlements flowing from the said Project.

He submitted that the applicant lies in a much

better position to assess possible revival of the

Corporate Debtor than most of the members of

the CoC, especially owing to the fact of its being

intrinsically interested and interwoven in the

Company Appeal (AT)(Ins) No.589 of 2021 Page 10 of 63 performance of the obligations by the Corporate

Debtor under the Project Agreements and in light

of the rejection of claim by the respondent, the

prospective resolution applicant would also not

be in a position to competently deal with the

claims of the financial creditors as admittedly,

the applicant is the largest Financial Creditor of

the Corporate Debtor. But as the debt owed is

not a financial debt, the applicant cannot be

termed to be a financial creditor. Thus, this

argument of the applicant holds no water and is

hereby rejected. 14. Considering the facts and

circumstances in the matter at hand, we are in

total agreement with the contentions of the

respondent RP and the steps taken by him while

dealing with the applicant's claim. Therefore,

with the above directions, IA 2129/2020 is

hereby dismissed.

15. IA 2300/2020 was filed by the ex-promoters

and directors to intervene in IA 2129/2020 filed

by the applicant M/s Budhpur Buildcon Private

Company Appeal (AT)(Ins) No.589 of 2021 Page 11 of 63 Limited and we have heard the intervenors also

irrespective of merits in their above application

IA 2129/2020 even though the RP has well

presented their cause. In view of the above, the

grievance of the petitioner in the above IA

2300/2020 stands resolved and accordingly,

the above application is also disposed of. 16.

The CIRP of the Corporate Debtor is at an

advanced stage. When the present application

was filed by the applicant. There were

prospective Resolution Applicants willing to

submit their Resolution Plans. Since the outcome

of the present application has direct bearing on

the Prospective Resolution Applications, this

Bench orally directed the CoC not to take any

action till the disposal of this application. In view

of dismissing the above application filed by the

applicant M/s Budhpur Buildcon Private

Limited, the above oral direction is no longer

necessary and accordingly the CoC is at liberty

to take a call about the further course of action."

Company Appeal (AT)(Ins) No.589 of 2021 Page 12 of 63

3. The submission made by the Learned Senior Counsel for the Appellant/

Pleadings and Written Submission available on record are stated herein

below in a summarized manner:

a) It is the case of the Appellant that 'Letters of intents' were issued by

the Slum Rehabilitation Authority in favour of the Corporate Debtor

(CD) -Housing Development and Infrastructure Limited

/Respondent and the Respondent was undertaking the development

of various parcels of lands.

b) The Ld Sr. Counsel for the Appellant has stated that the

CD/Respondent was in need of funds for development of the said

project. Accordingly, the Appellant and the CD/Respondent entered

into various agreements which is enumerated herein below:

 Development Agreement dated 24th February, 2007 executed

between the CD and Adani Developers Pvt. Ltd (subsequently

de-merged into the Appellant) ADPL.

 Development Agreement dated 01.03.2008 executed by and

between the CD and ADPL, registered vide a Deed of

Confirmation dated 04.11.2009 with the office of sub-

Registrar of Assurances under Serial No. BDR-

15/10226/2009.

Company Appeal (AT)(Ins) No.589 of 2021 Page 13 of 63  Supplemental Development Agreement dated 14.10.2008

executed between the CD and ADPL.

 Supplemental Agreement dated 20.03.2012 executed by and

between the CD and ADPL.

 Development Agreement dated 05.04.2018 executed by and

between the CD and the Appellant

 Agreement dated 09.04.2018 executed by and between the

CD and the Appellant.

The aforesaid Agreements are hereinafter collectively referred

to as the 'Project Agreements'.

c) The Ld Sr. Counsel for the Appellant has also stated that the total

consideration payable by the Appellant to the CD is Rs. 1192 Crore

which was structured as payable periodically to finance the CD in

order to enable the CD/Respondent to construct and develop the

rehabilitation component of the said project. The agreements have

stated above provides full modus operandi for the business deal

including the Lease of instalments/ advances to be released by the

Appellant to the CD and CD was to inter-alia procure and provide

the saleable area for Rs.12,12,171 Sq. feet or so.

d) The Ld Sr. Counsel for the Appellant took the Bench through various

agreements as stated above starting from Exhibit A - the

Company Appeal (AT)(Ins) No.589 of 2021 Page 14 of 63 Supplement Agreement dated 20.03.2012 executed by and between

the CD and Adani Developers Pvt. Limited. They have also presented

briefly the list of dates and events. The Appellants also briefly

touched upon the issue that the impugned order is passed on

surmises and conjectures without consideration of relevant material

and is contrary to law, findings are based on extraneous grounds,

failure to follow due process of law as also the impugned order is

not backed by adequate reasons. They were also much insistent that

it is a Financial Debt as Section 5(8)(f) of the Code is a catch all

provisions and is residuary in nature. They have also relied upon

the judgment of Hon'ble Supreme Court Pioneer Urban Land and

Infrastructure Ltd & Anr vs. Union of India & Ors., (2019) 8 SCC

416, para 70, wherein the Hon'ble Court, while dealing with

transactions of real-estate development agreements interalia held

that "The expression "disbursed" refers to money which has been

paid against consideration for the "time value of money". In short, the

"disbursal" must be money and must be against consideration for the

"time value of money", meaning thereby, the fact that such money is

now no longer with the lender, but is with the borrower, who then

utilises the money.".,

Company Appeal (AT)(Ins) No.589 of 2021 Page 15 of 63 The judgment of Hon'ble Supreme Court in Swiss Ribbons Pvt.

Ltd. & Anr. vs. Union of India & Ors., 2019 SCC OnLine SC 73, inter-

alia determined the following characteristics of „financial debt‟ and

„financial creditors‟, which are present in the instant case:

(a) „Financial debt‟ for the purposes of Section 5(8) of the Code is

categorized as one that enables the Corporate Debtor to either set up

and/ or operate its business. In the present case, as is clear from the

aforesaid facts, the said Consideration payable under the Project

Agreements was so structured so as to provide periodical finances to

the Corporate Debtor for undertaking the construction and

development of the rehabilitation component of the said Project and

served to enable the Corporate Debtor to carry on its business.

(b) Even at the time of providing such advance payments as aforesaid

to the Corporate Debtor, the Appellant in fact undertook detailed

enquiry and study into the viability and feasibility of undertaking the

said Project and the consequences flowing from the Corporate

Debtor‟s inability to complete the same. Owing to the aforesaid, it is

submitted that it is also demonstrable that the Appellant is in a good

position to evaluate successful resolution of the Corporate Debtor‟s

business especially owing to it being intrinsically involved in the

Corporate Debtor‟s well-being and ability to complete the said Project.

Company Appeal (AT)(Ins) No.589 of 2021 Page 16 of 63

(c) „Financial creditor‟ for the purposes of Section 5(7) of the Code is

one whose stakes are intrinsically inter-woven with the well-being of

the Corporate Debtor. It is submitted that in the present case, as is

manifest from the transaction undertaken by the Corporate Debtor

and the Appellant, in order for the Appellant to successfully construct

and develop the free sale component of the said Project, the Corporate

Debtor was obligated to perform certain crucial and fundamental roles

and for it to be able and capable to undertake the said Project. To this

end, the Appellant financed the Corporate Debtor at each stage of the

said Project solely with the aim and intent to enable the Corporate

Debtor to construct and develop the rehabilitation component of the

said Project, in pursuance of which the Appellant‟s rights and

entitlements in the said Project would flow, in the form of the said free

sale component."

4. The submission made by the Respondent/Resolution Professional is stated

herein below in a summarized manner:

a. The Ld counsel for the Respondent/RP has stated that the

claims of creditors received from the CD was published on

28.08.2019. The cutoff date as per Regulation 12(2) of the IBBI

(CIRP) Regulations, 2016 would have been filed on or before

90 days of the insolvency commencement date i.e. before

Company Appeal (AT)(Ins) No.589 of 2021 Page 17 of 63 20.11.2019. However, the Appellant has submitted its claim

for a sum of Rs. 14,391 Crore on 08.01.2020 after months of

the cut off date.

b. The Ld. Counsel for the Respondent on this standalone

ground averts that the claim was liable to be rejected.

However, the Respondent sought through the email dated

28.03.2020 certain additional information/Clarification.

However, the global pandemic /Covid 19 resulted into

difficulties to the Resolution Professional (RP) and its team

non-access of the respective offices, as a result he commenced

verification of claim from 24.08.2020 and finally rejected the

same on 28.09.2020. It is the duty of Resolution Professional

to verify the claim from records of the CD and thereafter, the

claim is accepted or rejected.

c. The Ld Counsel for the Respondent has stated that no part of

the claim has actually been disbursed and the claim is solely

in the nature of interest/ penal interest for breach of the main

contract and the entire claim is merely an accretion of Penal

interest as per clause 4 of the Supplemental Agreement

20.03.2012.

Company Appeal (AT)(Ins) No.589 of 2021 Page 18 of 63 d. It was amply made clear by the Respondent/RP that parties

to a Joint Developmental Agreement cannot be a Financial

Creditor. The Ld counsel for the Respondent went on to

further elaboration by explaining that the Appellant is not an

'allottee' under the Code. Clause 6 of the Development

agreement dated 05.04.2018 explicitly records that the

appellant/Developer would alone be considered as Promoter

under the Real Estate Regulations and Development Act, 2016

(RERA) for the real estate project so being developed. He

further went on to clarifying that there is no commercial effect

of borrowing involved in the present case.

e. The Ld Counsel for the Respondent even went on to say that

the Respondent fails to perform its obligation and has forfeited

the security deposit of Rs. 340 crores, which was advanced in

return for free sale and saleable area. However, the

construction of rehabilitation & purchase of free sale

component has not taken place within the said timeline and

the Appellant has forfeited security deposit and as a result,

they assumed the rights/obligations of the CD to construct

the rehabilitation component and purchase saleable area.

Company Appeal (AT)(Ins) No.589 of 2021 Page 19 of 63 f. All this reflects as per the Ld counsel for the Respondent that

a routine commercial transaction between the parties without

having any commercial effect of borrowing and hence it

justified the order passed by the Adjudicating Authority.

5. We have carefully gone through the pleadings of the parties and extant

provisions of the Code including their written submissions and we are

having the following observations:

a. Let us first deal with IA No. 1739/2020 wherein Ld counsel for the

Applicant in IA No. 1739/2020 intended to argue on behalf of the

Intervener but was not allowed to argue at the final stage of hearing.

However, he was permitted to file Note of Written Submissions on

question of law for providing assistance in adjudicating the matter.

The Applicant/Intervener of the above IA has stated that he is privy

to the nature of obligations and transactions basis on which BBPL

claims to be a Financial Creditor. It is emerging from his written

submission that the Appellant has been defined as 'Developer' arose

out of Slum Rehabilitation Scheme, wherein the 'saleable area' to

be transferred to BBPL was dependent upon reciprocal promises to

be fulfilled by both, BBPL and the Corporate Debtor. In addition to

this, numerous other factors including rehabilitation of slum

dwellers and amalgamation of SR scheme, MCGM and SRA

Company Appeal (AT)(Ins) No.589 of 2021 Page 20 of 63 approvals etc. affected the transfer of such 'saleable area'. In fact,

the Applicant/Intervener has handed over the saleable area to

BBPL, which is presently being used by BBPL. In fact, an amount of

approximately Rs. 340 Crores given by the Corporate Debtor

towards the security deposit has been forfeited by the Appellant.

Even otherwise, as far as the Applicant/ Intervener in 2018 a fresh

agreement was executed wherein new timelines were provided.

Before the said timeline could be achieved, the Corporate Debtor

itself went into Insolvency, and hence, the Agreement in question

can never be implemented to seek claim based on delay and penalty.

The agreement of 2018 as far as Applicant/Intervener remembers,

does not contain any clause in relation to consequences that will

flow, in case either of the party goes into insolvency nor does it make

any provisions in case of default.

It has also been pointed by the ld counsel for the Applicant that at

no point of time prior to Insolvency of the Corporate Debtor, any

legal proceedings were initiated or a dispute claiming interest was

brought to the notice of the Corporate Debtor. The alleged claim has

submitted by BBPL and is a time barred Operational Debt and needs

adjudication by a trial court based on collection of evidences. The

Agreement in question is a Development Agreement with reciprocal

Company Appeal (AT)(Ins) No.589 of 2021 Page 21 of 63 promises and is in the nature of damage which requires adjudication

by a trial court. It has also been submitted that the nature of

transactions was contingent upon enumerable factors and the BBPL

was never entitled for any payment from the Corporate Debtor

except the development rights after the corporate debtors had

developed the land. The payments made by the BBPL wherein fact

requires to be adjusted against the land provided by the Corporate

Debtor. It has also been pointed out by the Applicant that the debt

is time barred. The amount even if it is assumed otherwise it is

resulting from delayed fulfilment of reciprocal promise and is merely

in the nature of penalty.

b. At the very outset, this Tribunal made it clear that the IA No. 1557

of 2021 in present appeal was filed before this Appellate Tribunal by

inter alia seeking for staying the operation of the impugned order

dated 02.08.2021 under challenge by submitting almost all the

issues that has been raised herein as also restraining the

Respondent from proceedings in furtherance of the impugned order

etc. and the same was heard by this Appellate Tribunal on

27.08.2021 where they have touched upon all the relevant issues

raised by the Appellant herein and the only issue that was left open

Company Appeal (AT)(Ins) No.589 of 2021 Page 22 of 63 i.e. para 15 of the order dated 27.08,2021 and the same is

reproduced below .

"15. Considering the averments being made and

the findings recorded by the Adjudicating Authority

read with part of Appeal reproduced above, prima

facie it appears that there is an issue to be dealt

with and decided in this Appeal. The observations

of the Adjudicating Authority also cannot be out

right ignored. Whether or not the Appellant could be

treated as the Financial Creditor looking to the

Agreements which are more of Development

Agreements, would require consideration."

The issue was also accordingly mentioned while hearing the

appeal on 19.07.2022 to the counsels representing the parties.

c. In order to bring brevity and clarity, it is imperative that the order

passed in IA No. 1557/2021 as heard and disposed of on 27th

August, 2021 by this Tribunal are to be reproduced and the same is

accordingly depicted below:

"27.08.2021: Heard Learned Senior Counsel for the

Appellant. Certified Copy of Impugned Order which was

Company Appeal (AT)(Ins) No.589 of 2021 Page 23 of 63 not earlier available has been filed with Dy. No. 29052.

The same is taken on record.

2. I.A. No. 1789 of 2020 has been filed for leave to the

Appellant to urge additional grounds in view of the

impugned order which subsequent to the filing of Appeal

became available. The Application is allowed.

3. The Appellant has filed Amended Memorandum of

Appeal vide Dy. No. 29191. The same is taken on record

and will be treated as the Amended Memorandum of

Appeal

4. Heard Counsel for the parties. Perused Impugned

Order. Considering the disputes being raised, issue

notice. Counsel for the Resolution Professional dispenses

with service of formal notice.

5. Learned Counsel for the Appellant seeks interim reliefs

as claimed in I.A. No. 1557/2021. The Learned Counsel

submits that the impugned order deserves to be stayed

as the Committee of Creditors may proceed to take a

decision with regard to liquidation and the Appellant who

claims to be Financial Creditor will be deprived of its right

to participate in the CIRP.

Company Appeal (AT)(Ins) No.589 of 2021 Page 24 of 63

6. Counsel for the Appellant submits that the Resolution

Professional rejected the claim of the Appellant to be a

Financial Creditor and the Appellant had filed I.A. No.

2129 of 2020 before the Adjudicating Authority.

Reference is made to the impugned order Annexure A-1

(Page 63) of the Amended Memorandum of Appeal, where

the Appellant had prayed to quash letter dated 28th

September, 2020 of the Resolution Professional. The

Corporate Debtor is 'Housing Development and

Infrastructure Limited', who had taken up development

of various parcels of lands and had applied to the Slum

Rehabilitation Authority (SRA) in Mumbai for

amalgamation of the slum rehabilitation schemes. The

Corporate Debtor wanted to appoint a third party

developer/ financier/ investor to assist the Corporate

Debtor to develop the said project and construct the free

sale component. It is claimed that with such intention

various agreements as recorded in Para 7.2 of Amended

Appeal were entered into and the material clause is

reproduced in Para 7.3 of the Amended Memo of Appeal,

which reads as under:

Company Appeal (AT)(Ins) No.589 of 2021 Page 25 of 63 "4. Without prejudice to any other right which the

Developer may have under this Agreement or under

the Project Agreements or any other agreement/deeds

entered into between the Parties or under law or

otherwise, in the event of default by the Transferor to

perform the Transferor's Obligations in accordance

with the Timelines, then in such a case, the Transferor

shall cure such breach/default within the period of 60

days from the date of occurrence of such event of

default, failing which the Transferor shall be liable to

pay interest to the Developer at the rate of 2% per

month on all amounts (including the Paid

Consideration)." [Emphasis supplied]"

7. Relying on such clause, the Learned Counsel for the

Appellant submits that status of the Appellant is that of the

Financial Creditor.

8. Learned Senior Counsel for the Appellant submitted that

when the I.A. was filed by the Appellant before the

Adjudicating Authority, the Adjudicating Authority had

orally directed the Committee of Creditors not to consider

the Agenda Item regarding liquidation. Learned Counsel

for the Appellant referred to Agenda Item No. 6 and No. 7

Company Appeal (AT)(Ins) No.589 of 2021 Page 26 of 63 of 7th Meeting of the CoC which was issued for the meeting

of 7th August, 2021, copy of which is at page 328 of Dy.

No. 28665. The relevant portion referred to by the Learned

Counsel from Item No. 6 and 7 may be reproduced:

SL Agenda item

No.

6. To note the status of application filed by M/s. Budhpur Buildcon Private Limited before Hon'ble NCLT.

As the CoC Members are aware that M/s Budhpur Buildcon Private Limited (BBPL) (An Adani group company) had filed a claim of Rs.14,391 crores as Financial Creditor. The said claim was not admitted by the Resolution Professional (RP) giving detailed reasons for the same. Aggrieved by the RP's decision on the said claim, BBPL had filed an application with the Hon'ble National Company Law Tribunal (NCLT) challenging decision of the RP. Mr. Rakesh Wadhawan & Others had also filed Intervention Application in the matter.

As informed to the CoC from time to time various hearings took place before Hon'ble NCLT from December 2020 to April 2021 in the matter wherein the Bench orally directed not to consider the agenda item regarding liquidation. Further on 28th April, 2021, the Hon'ble NCLT directed not to consider liquidation till the order on application filed by M/s BBPL and also other applications are decided. Further, at the hearing held on 30th April, 2021, the Hon'ble NCLT had directed all the parties to submit their written submissions within a week's time and the matter was reserved for orders and the order was awaited.

Company Appeal (AT)(Ins) No.589 of 2021 Page 27 of 63 Since no order was passed by Hon'ble NCLT subsequent to 30th April, 2021, the RP requested his legal advisors to move Hon'ble NCLT. Accordingly, the advocates or FP, M/s Crawford Bayley & Co., filed a praecipe in Hon'ble NCLT on 20th July, 2021 with a request for necessary clarifications and further orders. The Hon'ble NCLT pronounced order on 2nd August, 2021 dismissing the application filed by M/s BBPL.

The Hon'ble NCLT also pronounced that the oral directions passed during the course of hearing stand vacated. The written order in the matter is awaited.

The CoC Members are requested to take note of the same.

7. To discuss and consider the filing of application with the Hon'ble National Company Law Tribunal, Mumbai Bench under Section 33(2) of Insolvency and Bankruptcy Code, 2016, (Code) for the initiation of liquidation and/or dissolution of Corporate Debtor.

As members of the Committee of Creditors (CoC) are aware that after considering the extension granted by Hon'ble NCLT for 90 days, CIRP period comes to an end on 28th April, 2021. CoC Members are also aware that the RP had filed an application with Hon'ble NCLT seeking exclusion of the period from 14th April, 2021 to 28th April, 2021 (period of commencement of lockdown due to COVID-19) and from 28th April, 2021 till date of disposal of Application filed by M/s BBPL from the CIRP period for the CD and to allow the RP to conduct the corporate insolvency resolution process of the Corporate Debtor. The matter is pending with Hon'ble NCLT till date.

Since the Hon'ble NCLT has dismissed application of BBPL, the CoC members are requested to consider initiation of liquidation proceedings of the Corporate Debtor (CD). Thus,

Company Appeal (AT)(Ins) No.589 of 2021 Page 28 of 63 the Resolution Professional (RP) seeks permission of the members of the CoC to apply before the Hon'ble NCLT, Mumbai Bench, for the initiation of liquidation proceedings against the CD under Section 33(2) of the Code.

The Members of the CoC are requested to take note and vote on the same which is put up for e- voting as specified in Item B-1 below.

9. Referring to the same the Learned Counsel submits that when

the Adjudicating Authority was considering the I.A. filed by the

Appellant it had orally directed the CoC not to take up the

Agenda of liquidation. Learned Counsel submits that same

direction needs to be given to CoC now in the Appeal when the

Appellant has carried the dispute in Appeal as impugned order

had rejected the claim of the Appellant to be Financial Creditor.

10. It is argued that in view of the discussion in Agenda Item 7,

the Resolution Professional moved the Adjudicating Authority

and by an order dated 16th August, 2021 has excluded certain

period. The Learned Senior Counsel submitted that in view of

the exclusion, period of 270 days would expire on 30th

September, 2021. Counsel for the Resolution Professional,

however, submits that the 90 days period expired much earlier

and he has to take instructions as according to him by 30th

September, 2021, 330 days would expire.

11. We have perused the impugned order and the findings

recorded at Para 6 to 16. The Adjudicating Authority extensively

heard and has in details dealt with the matter. In Para 7 and 8

Company Appeal (AT)(Ins) No.589 of 2021 Page 29 of 63 of the impugned order the Adjudicating Authority observed as

under:

"7. It is very clear from the above definition that a

mere right to payment, whether or not such right is

reduced to judgment, fixed, disputed, undisputed,

legal, equitable, secured or unsecured; and a right to

remedy for breach of contract under any law for the

time being in force, if such breach gives rise to a right

to payment, whether or not such right is reduced to

judgment, fixed, matured, unmatured, disputed,

undisputed, secured or unsecured is enough to

qualify as an Operational Debt. However, a mere

right to recovery or entitlement does not qualify as a

Financial Debt unless the debt falls within any one

of the categories mentioned under the definition

'Financial Debt'. 8. It is very clear from the

submissions of both sides as well as from the record

that the applicant is claiming the interest amount as

a Financial Debt as a penalty for the alleged breach

of the various terms and conditions of number of

agreements entered into between the applicant M/s

Budhpur Buildcon Pvt. Ltd. and the Corporate Debtor

HDIL which is a mere right for the alleged breach by

Company Appeal (AT)(Ins) No.589 of 2021 Page 30 of 63 the Corporate Debtor. It is appropriate to mention

here that the Corporate Debtor is denying any

breach on its part and on the other hand raised

lapses on the side of the applicant. Therefore, the

respondent RP has rightly rejected the claim of the

applicant as Financial Debt as it is a mere claim. This

Bench did not find any illegality or irregularity

committed by the RP."

12. At this stage we note Amended Appeal Para 7.11 which reads as

under:

"7.11.That in the aforesaid circumstances, the Appellant

submitted the said Claim for 'financial debt' whereby it

claimed an amount of Rs.14,391,00,00,000/- (Rupees

Fourteen Thousand Crore Three Hundred and Ninety-

One Lac Only) as due and payable by the Corporate

Debtor towards the said Interest Stipulation under

Clause 4 of the said 2012 Agreement at the rate of 2%

on the amount of Rs.721, 03,00,000/- (Rupees Seven

Hundred and Twenty One Crore and Three Lakhs Only)

disbursed by the Appellant to the Corporate Debtor

under the Project Agreements as aforesaid ("said

claim"). It is relevant to note that in accordance with the

terms of the said Project Agreements, the said Claim did

Company Appeal (AT)(Ins) No.589 of 2021 Page 31 of 63 not contemplate repayment of any principal amounts

disbursed under the Project Agreements and that the

said Claim was restricted to amounts payable towards

interest due and payable under the said 2012

Agreement. A copy of the Form 'C' dated 08.01.2020

submitted by the Appellant to the Respondent is

annexed hereto and marked as EXHIBIT-D."

13. The Adjudicating Authority after Para 7 and 8 of the Impugned

Order dealt with the allegation with regard to delay in the assessment

of the claim made by the Appellant by Resolution Professional and in

Para 14 observed as follows:

"14. Considering the facts and circumstances in

the matter at hand, we are in total agreement with

the contentions of the respondent RP and the

steps taken by him while dealing with the

applicant's claim. Therefore, with the above

directions, IA 2129/2020 is hereby dismissed."

14. In para 16 the observations are:

"16. The CIRP of the Corporate Debtor is at an

advanced stage. when the present application was

filed by the applicant. There were prospective

Resolution Applicants willing to submit their

Resolution Plans. Since the outcome of the present

Company Appeal (AT)(Ins) No.589 of 2021 Page 32 of 63 application has direct bearing on the Prospective

Resolution Applications, this Bench orally directed

the CoC not to take any action till the disposal of this

application. In view of dismissing the above

application filed by the applicant M/s Budhpur

Buildcon Private Limited, the above oral direction is

no longer necessary and accordingly the CoC is at

liberty to take a call about the further course of

action."

15. Considering the averments being made and the findings

recorded by the Adjudicating Authority read with part of Appeal

reproduced above, prima facie it appears that there is an issue

to be dealt with and decided in this Appeal. The observations of

the Adjudicating Authority also cannot be out right ignored.

Whether or not the Appellant could be treated as the Financial

Creditor looking to the Agreements which are more of

Development Agreements, would require consideration.

16. As regards staying further progress before the CoC, we take

note that CIRP started on 20th August, 2019 and already two

years are over. Senior Counsel, Mr. Krishnendu Datta,

intervened to submit that the intervenor wanted to file a

Resolution Plan for part resolution of the Corporate Debtor with

regard to one of the projects of SRA. The application on that count

Company Appeal (AT)(Ins) No.589 of 2021 Page 33 of 63 is also pending with the Adjudicating Authority. The Learned

Counsel for the Resolution Professional submitted that the CoC

did not agree to accept the resolution of the Corporate Debtor in

parts. It is stated that the Corporate Debtor had about 70 projects

in hand and thus there were applicants who wanted to give

offers of Resolution Plans project-wise, which CoC did not find

practicable.

17. When the application of Appellant was pending before the

Adjudicating Authority, the Adjudicating Authority had only

orally asked the CoC to delay taking decision on the question of

liquidation. Now, the Adjudicating Authority has applied its mind

and taken a conscious decision not accepting the Appellant as

the Financial Creditor and observed in Para 16 of the impugned

order that CIRP is at an advance stage and reason why it had

earlier given oral direction. If for an individual person claiming to

be Financial Creditor the progress of CIRP is to be stayed, it

would be counter-productive according to us considering the

objects of the IBC. Now, when we already have decision not in

the favour of the Appellant, it is all the more reason for us to not

to grant any interim orders to stay the proceedings which are

taking place before the CoC.

18. It is stated that although extension has been granted by the

Adjudicating Authority vide order dated 16th August, 2021, that

Company Appeal (AT)(Ins) No.589 of 2021 Page 34 of 63 order also has not been uploaded. Such order has been passed

is not disputed by the Resolution Professional. Fact remains that

there is time available in the CIRP till 30th September, 2021. The

present Appeal will not come in the way of the CoC for either

rejecting or accepting any Resolution Plan or from taking any

other decisions including decision with regard to liquidation, as

per law, when period prescribed under Section 12 of IBC is

coming to an end, if Resolution Plan is not there.

19. We are not convinced that interim orders as are being sought

by the Appellant should be passed as we do not find that any

prima facie case is made out which will justify further holding up

of the progress of CIRP. I.A. No. 1157 of 2020 is rejected.

20. Respondent to file reply within two weeks. Rejoinder, if any,

may be filed within one week thereafter. Parties to file brief

Written Submissions, not more than three pages, and copies of

the judgments on which they want to refer or rely on, within three

weeks. List the Appeal 'For Admission (After Notice)' Hearing on

25th October, 2021."

d. What is being observed that the issue left open is only one i.e.

whether or not Applicant could be treated as the 'Financial

Creditor' looking to the Agreements which are more of

Development Agreements. Accordingly, would require

consideration? We have gone through the Supplemental

Company Appeal (AT)(Ins) No.589 of 2021 Page 35 of 63 Agreement dated 20.03.2012 (appearing at page no. 51 of the

Appeal paper book) executed by and between the CD/

Respondent and Adani Developer Pvt. Ltd (ADPL).

(i) From the perusal of the above agreement, it is very much clear

that these are all business agreements where each party has

a role and there is a mechanism to release payment at various

stages and the recoupment of such payments including the

management of project land in consideration, failure of which

will result into forfeiture of deposit, penal interest, liquidated

damages etc.

(ii) Clause 4 of the Supplemental Agreement dated 20.03.2012

leads largely to this claim. Hence, for reiterating the same are

specifically mentioned herein below:

"Clause 4 - Without prejudice to any other right which the

Developer may have under this Agreement or under the Project

Agreements or any other agreement/deeds entered into

between the Parties or under law or otherwise, in the event of

default by the Transferor to perform the Transferor's

Obligations in accordance with the Timelines, then in such a

case, the Transferor such cure such breach/default within the

period of 60 days from the date of occurrence of the such event

Company Appeal (AT)(Ins) No.589 of 2021 Page 36 of 63 of default, failing which the Transferor shall be liable to pay

interest to the Developer at the rate of 2% per month on all the

amounts (including the Paid Consideration)."

(iii) Based on above input, now we have looked at the provisions

of Section 5(7) & (8) of the Code, which is depicted below:

"Section 5 (7) "financial creditor" means any person

to whom a financial debt is owed and includes a

person to whom such debt has been legally assigned

or transferred to;

Section 5(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;

Company Appeal (AT)(Ins) No.589 of 2021 Page 37 of 63

(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

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;

[Explanation. -For the purposes of this sub-clause,-

(i) any amount raised from an allottee under a real

estate project shall be deemed to be an amount

having the commercial effect of a borrowing; and

(ii) the expressions, "allottee" and "real estate

project" shall have the meanings respectively

assigned to them in clauses (d) and (zn) of section 2

of the Real Estate (Regulation and Development) Act,

2016 (16 of 2016);]

(g) any derivative transaction entered into in

connection with protection against or benefit from

Company Appeal (AT)(Ins) No.589 of 2021 Page 38 of 63 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"

(iv) It is not in dispute that this is an inclusive definition of

"financial debt" but certain conditions must be complied with

to be a financial debt i.e the CD must have borrowed the

money from the Creditor against the payment of interest /time

value of money. It means, the transactions require to be purely

in borrowing nature. This does not cover the business

transaction between the Creditor and Debtor which is

applicable in business organization where either sale or

purchase involved or construction activities involved or in

Real Estate Project, multiple agencies with multiple terms and

conditions are involved and each is supposed to gain or lose

Company Appeal (AT)(Ins) No.589 of 2021 Page 39 of 63 based on the performance of the business. In order to meet

the time schedule whether in purchase or sale or development

agreement or in any Real Estate project, there is always a

clause for liquidated damages and the same may be either in

the percentage form or sometime even other form of penal

interest. Even in the international business scenario to ensure

timely completion of the business deal/ the project, some type

of monetary punishments in the form of liquidated damages

by way of deduction from bill or payment or by way of interest

is incorporated. The ultimate objective of any business deal,

time is the essence and each party is to meet that time

schedule. What we have observed in this case is that the

element of interest which has been put as 2% interest p.m

after 60 days from the date of occurrence of such event of

default to perform and the obligation is purely in the form of

liquidated damages or compensation.

e. In this context, it is prudent to refer Section 74 of the Indian

Contract Act,1872 which is extracted below:

"Section 74 in The Indian Contract Act, 1872

Compensation for breach of contract where penalty

stipulated for:-

Company Appeal (AT)(Ins) No.589 of 2021 Page 40 of 63 When a contract has been broken, if a sum is named

in the contract as the amount to be paid in case of such

breach, or if the contract contains any other stipulation

by way of penalty, the party complaining of the breach

is entitled, whether or not actual damage or loss is

proved to have been caused thereby, to receive from

the party who has broken the contract reasonable

compensation not exceeding the amount so named or,

as the case may be, the penalty stipulated for.

Explanation.-- A stipulation for increased interest from

the date of default may be a stipulation by way of

penalty.]

(Exception) -- When any person enters into any bail-

bond, recognizance or other instrument of the same

nature or, under the provisions of any law, or under

the orders of the 35 [Central Government] or of

any 36 [State Government], gives any bond for the

performance of any public duty or act in which the

public are interested, he shall be liable, upon breach of

the condition of any such instrument, to pay the whole

sum mentioned therein. Explanation.-- A person who

Company Appeal (AT)(Ins) No.589 of 2021 Page 41 of 63 enters into a contract with Government does not

necessarily thereby undertake any public duty, or

promise to do an act in which the public are interested.

Illustrations..."

The above already implies that this section

provides for damages where the contract fixes the

amount to be paid in case of its breach or provides

for a penalty.

f. Hence, by any stretch of imagination, the Code, nowhere in

Section 5(8) of the Code provides for such eventuality to be

considered as 'Financial Debt'. Hence, in terms of the provisions

of the Code, we are not in a position to sustain the claim of the

Appellant to consider its case as a Financial Debt.

g. Now let us examine the case with reference to cited judgment by

the parties:

1) Both the parties have cited - Pioneer Urban

Land and Infrastructure Pvt. Ltd & Anr. Vs.

Union of India & Ors. (2019) 8 SCC 416, para

68, 69, 70, 74 to 79 of this judgment and the

same are reproduced below:

Company Appeal (AT)(Ins) No.589 of 2021 Page 42 of 63 "68.Thus, in order to be a "debt", there ought to be a

liability or obligation in respect of a "claim" which is

due from any person.

"Claim" then means either a right to payment or a right

to payment arising out of breach of contract, and this

claim can be made whether or not such right to

payment is reduced to judgment. Then comes

"default", which in turn refers to non-payment of debt

when whole or any part of the debt has become due

and payable and is not paid by the corporate debtor.

Learned counsel for the Petitioners relied upon the

judgment in Union of India v. Raman Iron

Foundry (1974) 2 SCC 231, and, in particular relied

strongly upon the sentence reading:

"11....Now the law is well settled that a claim for

unliquidated damages does not give rise to a debt until

the liability is adjudicated and damages assessed by

a decree or order of a court or other adjudicatory

authority."

Company Appeal (AT)(Ins) No.589 of 2021 Page 43 of 63

69.It is precisely to do away with judgments such as

Raman Iron Foundry (supra) that "claim" is defined to

mean a right to payment or a right to remedy for breach

of contract whether or not such right is reduced to

judgment. What is clear, therefore, is that a debt is a

liability or obligation in respect of a right to payment,

even if it arises out of breach of contract, which is due

from any person, notwithstanding that there is no

adjudication of the said breach, followed by a

judgment or decree or order. The expression "payment"

is again an expression which is elastic enough to

include "recompense", and includes repayment. For

this purpose, see Himachal Pradesh Housing and

Urban Development Authority and Anr. v. Ranjit Singh

Rana (2012) 4 SCC 505 (at paragraphs 13 and 14

therein), where the Webster's Comprehensive

Dictionary (International Edn.) Vol. 2 and the Law

Lexicon by P. Ramanatha Aiyar (2nd Edn., Reprint) are

quoted.

70. The definition of "financial debt" in Section 5(8) then goes on to state that a "debt" must be "disbursed"

Company Appeal (AT)(Ins) No.589 of 2021 Page 44 of 63 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."

74.What is clear from what Shri Venugopal has read

to us is that a wide range of transactions are

subsumed by paragraph (f) and that the precise scope

of paragraph (f) is uncertain. Equally, paragraph (f)

seems to be a "catch all" provision which is really

residuary in nature, and which would subsume within

it transactions which do not, in fact, fall under any of

the other sub-clauses of Section 5(8).

75. And now to the precise language of Section 5(8)(f).

First and foremost, the sub-clause does appear to be a

residuary provision which is "catch all" in nature. This

is clear from the words "any amount" and "any other

transaction" which means that amounts that are

"raised" under "transactions" not covered by any of

the other clauses, would amount to a financial debt if

Company Appeal (AT)(Ins) No.589 of 2021 Page 45 of 63 they had the commercial effect of a borrowing. The

expression "transaction" is defined by Section 3(33) of

the Code as follows:

(33) "transaction" includes an agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor;

As correctly argued by the learned Additional Solicitor General, the expression "any other transaction" would include an arrangement in writing for the transfer of funds to the corporate debtor and would thus clearly include the kind of financing arrangement by allottees to real estate developers when they pay instalments at various stages of construction, so that they themselves then fund the project either partially or completely.

76. Sub-clause (f) Section 5(8) thus read would

subsume within it amounts raised under transactions

which are not necessarily loan transactions, so long as

they have the commercial effect of a borrowing. We

were referred to Collins English Dictionary &

Thesaurus (Second Edition, 2000) for the meaning of

the expression "borrow" and the meaning of the

expression "commercial". They are set out

hereinbelow:

Company Appeal (AT)(Ins) No.589 of 2021 Page 46 of 63 "borrow-vb 1. to obtain or receive (something, such as

money) on loan for temporary use, intending to give it,

or something equivalent back to the lender. 2. to adopt

(ideas, words, etc.) from another source; appropriate.

3. Not standard. to lend.

4. (intr) Golf. To putt the ball uphill of the direct path

to the hole: make sure you borrow enough."

commercial. -adj. 1. of or engaged in commerce. 2.

sponsored or paid for by an advertiser: commercial

television. 3. having profit as the main aim:

commercial music. 4.

(of chemicals, etc.) unrefined and produced in bulk for

use in industry. 5. a commercially sponsored

advertisement on radio or television."

77. A perusal of these definitions would show that even though

the Petitioners may be right in stating that a "borrowing" is a loan

of money for temporary use, they are not necessarily right in

stating that the transaction must culminate in money being given

back to the lender. The expression "borrow" is wide enough to

include an advance given by the home buyers to a real estate

Company Appeal (AT)(Ins) No.589 of 2021 Page 47 of 63 developer for "temporary use" i.e. for use in the construction

project so long as it is intended by the agreement to give

"something equivalent" to money back to the home buyers. The

"something equivalent" in these matters is obviously the

flat/apartment. Also of importance is the expression "commercial

effect". "Commercial" would generally involve transactions

having profit as their main aim. Piecing the threads together,

therefore, so long as an amount is "raised" under a real estate

agreement, which is done with profit as the main aim, such

amount would be subsumed within Section 5(8)(f) as the sale

agreement between developer and home buyer would have the

"commercial effect" of a borrowing, in that, money is paid in

advance for temporary use so that a flat/apartment is given back

to the lender. Both parties have "commercial" interests in the

same - the real estate developer seeking to make a profit on the

sale of the apartment, and the flat/apartment purchaser profiting

by the sale of the apartment. Thus construed, there can be no

difficulty in stating that the amounts raised from allottees under

real estate projects would, in fact, be subsumed within Section

5(8)(f) even without adverting to the explanation introduced by

the Amendment Act.

Company Appeal (AT)(Ins) No.589 of 2021 Page 48 of 63

78. However, Dr. Singhvi strongly relied upon the report of the

Bankruptcy Law Reforms Committee of November, 2015 and in

particular paragraph 3 of 'Box 5.2 - Trigger for IRP' which states

that financial creditors are persons where the liability to the

debtor arises from a "solely" financial transaction. This

Committee report, which led to the enactment of the Code, is an

important guide in understanding the provisions of the Code.

However, where the provisions of the Code, as construed in the

light of the objects of the Code, are clear, the fact that from a huge

report one word is picked up to indicate that all financial creditors

must have debtors who owe money "solely" from financial

transactions cannot possibly have the effect of negating the plain

language of Section 5(8)(f) of the Code. In fact, what is important

is that the threshold limit to trigger the Code is purposely kept

low - at only one lakh rupees - making it clear that small

individuals may also trigger the Code as financial creditors (as

financial creditors include debenture holders and bond holders),

along with banks and financial institutions to whom crores of

money may be due.

79. That this amendment is in fact clarificatory is also made clear

by the Insolvency Committee Report, which expressly uses the

Company Appeal (AT)(Ins) No.589 of 2021 Page 49 of 63 word "clarify", indicating that the Insolvency Law Committee

also thought that since there were differing judgments and

doubts raised on whether home buyers would or would not be

included within Section 5(8)(f), it was best to set these doubts at

rest by explicitly stating that they would be so covered by adding

an explanation to Section 5(8)(f). Incidentally, the Insolvency Law

Committee itself had no doubt that given the 'financing' of the

project by the allottees, they would fall within Section 5(8)(f) of

the Code as originally enacted."

h. The Respondent has also cited the same judgment i.e. Pioneer

Urban Land and Infrastructure Pvt. Ltd & Anr. Vs. Union of

India & Ors. (2019) 8 SCC 416, in which they have referred para 71.

71.In the present context, it is clear that the

expression "disburse" would refer to the

payment of instalments by the allottee to the real

estate developer for the particular purpose of

funding the real estate project in which the

allottee is to be allotted a flat/apartment. The

expression "disbursed" refers to money which

has been paid against consideration for the

Company Appeal (AT)(Ins) No.589 of 2021 Page 50 of 63 "time value of money". In short, the "disbursal"

must be money and must be against

consideration for the "time value of money",

meaning thereby, the fact that such money is

now no longer with the lender, but is with the

borrower, who then utilises the money. Thus far,

it is clear that an allottee "disburses" money in

the form of advance payments made towards

construction of the real estate project. We were

shown the 'Dictionary of Banking Terms'

(Second edition) by Thomas P. Fitch in which

"time value for money" was defined thus:

"present value: today's value of a payment or a

stream of payment amount due and payable

at some specified future date, discounted by a

compound interest rate of DISCOUNT RATE.

Also called the time value of money. Today's

value of a stream of cash flows is worth less

than the sum of the cash flows to be received or

saved over time. Present value accounting is

Company Appeal (AT)(Ins) No.589 of 2021 Page 51 of 63 widely used in DISCOUNTED CASH FLOW

analysis."

That this is against consideration for the time

value of money is also clear as the money that is

"disbursed" is no longer with the allottee, but, as

has just been stated, is with the real estate

developer who is legally obliged to give money's

equivalent back to the allottee, having used it in

the construction of the project, and being at a

discounted value so far as the allottee is

concerned (in the sense of the allottee having to

pay less by way of instalments than he would if

he were to pay for the ultimate price of the

flat/apartment)."

What it is abundantly clear that the claim is an accretion of penal

interest emerging from clause 4 of the Agreement dated 20.03.2012.

i. The Appellant also cited the Judgment in Mahammad Raja

Mia Vs. Naderjjama Mia, AIR1932 Cal 53 last para of this

judgment is reproduced below:

Company Appeal (AT)(Ins) No.589 of 2021 Page 52 of 63 "For the reason given, I am of opinion that the

rate of interest sued for in this case comes

within section 74 of the Contract Act and must

be held to be penal notwithstanding the fact that

only one rate of interest is mentioned in the

bond. An ingenious argument was advanced on

behalf of the Appellant with the object of

showing that, in the particular circumstances of

this case, that rate ought not to be deemed to be

penal. It is true, it is said, that 150 per cent or

even 75 per cent p.a may at first sight appear to

be exorbitant and, therefore, penal, but if the

circumstances are taken into consideration, it

will be apparent that in reality it was not so. The

terms of the loan were generous providing for

repayment of the principal in equal instalments

extending over a period of no less than six years

without any interest if payment was made on

the due dates. Interest was only to be paid in

the event of default and then too not from the

date of bond but from the date of default.

Company Appeal (AT)(Ins) No.589 of 2021 Page 53 of 63 Therefore, it is argued, if the defendants failed

to take advantage of this liberal terms and did

not pay up within the time stipulated they have

only themselves to blame and the rate of interest

claimed ought not to be considered to be penal.

Even, however, if allowances are made for these

circumstances interest at 75% must I think be

deemed to be in the nature of a penalty, and that

being so it was open to the court to give relief by

reducing the rate of interest from 75 per cent to

25 percent. I agree, therefore, that the appeal

fails and must be dismissed."

j. The Appellant also cited the Judgment in Arjan Bibi Vs. Asgar Ali

Chowdhuri, MANU/WB/0155/1886 para 3-6:

3. It seems to us that this stipulation does not fall

under Section 74 of the Contract Act. No sum is named

here as the amount to be paid by the defendant in case

of a breach. It simply stipulates that if the money is not

paid within two months and fifteen days the borrower

agrees to pay the amount borrowed with interest at the

Company Appeal (AT)(Ins) No.589 of 2021 Page 54 of 63 rate of 2 annas per rupee per month. It therefore falls

within Section 2 of Act XXVIII of 1855.

4. The distinction between an agreement to pay interest

at a certain rate and an agreement to pay a certain sum

of money as the amount to be paid in case of breach is

stated in a decision of this Court in the case

of Mackintosh v. Crow I.L.R. 9 Cal. 689. Mr. Justice

WILSON in delivering the judgment of the Court, after

examining the various cases bearing upon this point and

explaining the nature of the provisions of Section 2 of Act

XXVIII of 1855, and Section 74 of the Contract Act, says:

"In all such cases this element is present, that by the

terms of the contract a sum is made payable by reason

of the breach, capable of calculation at the time of the

breach, and payable in all events, though in the second

class of cases the payment is spread over a term. But

where the contract is merely that if the money is not paid

at the due date, it shall thenceforth carry interest at an

enhanced rate, I do not see how it can be said that there

is any sum named as to be paid in case of breach. No one

can say at the time of the breach what the sum will be. It

Company Appeal (AT)(Ins) No.589 of 2021 Page 55 of 63 depends entirely on the time for which the borrower finds

it convenient to retain the use of the money. It is a fresh

sum becoming due month by month, i.e., as the case may

be, for a new consideration. And in my opinion the case

falls under the first rule of law abovementioned, not

under the second. This view of the, law was acted upon

by this Court In Mackintosh v. Hunt I.L.R. 2 Cal. 202."

5. It is true that in this case the rate of interest stipulated

for is to be payable from the date of the loan; but this

circumstance does not, in our opinion, take the case out

of the purview of Section 2 of Act XXVIII of 1855; because

there is only one rate of interest stipulated to be paid

here. The bond does not provide for the payment of two

rates of interest, one lower and the other higher, the latter

being payable under certain circumstances. In this case

it cannot be therefore held that a lower rate is the

stipulated rate of interest agreed to be paid by the debtor

under Section 2, Act XXVIII of 1855, and that a higher

rate is named in order to determine the amount of

compensation to be paid under Section 74 of the Contract

Act in case of a breach. The agreement in this case, is

Company Appeal (AT)(Ins) No.589 of 2021 Page 56 of 63 that no interest would be payable if the money covered

by the bond be paid within the time mentioned in it, but

if it be not paid within that time, interest at the rate of 2

annas per rupee per mensem would be payable. This

agreement falls, in our opinion, under Section 2 of Act

XXVIII of 1855.

6. We may point out here that the authority of the cases

in which a higher rate of interest has been considered to

be in the nature of a penalty has been much shaken by

the decision of the Judicial Committee of the Privy Council

in Balkishen v. Run Bahadur Singh I.L.R. 10 Cal. 305. In

that case a solenamah provided for the payment of six

per cent, interest upon the money payable under it, but

under certain circumstances the rate was to be doubled.

Their Lordships observed: "They do not concur with the

High Court that the payment of a double rate of interest

was in the nature of a penalty. The solenamah was an

agreement fixing the rate of interest, which was to be at

the rate of 6 per cent, under certain circumstances, and

12 per cent, under others."

Company Appeal (AT)(Ins) No.589 of 2021 Page 57 of 63 k. The Respondent has cited the judgment of Hon'ble Supreme Court

in Anuj Jain, IRP for Jaypee Infratech Limited Vs Axis Bank Limited

& Ors; para 46:

"46. Applying the aforementioned fundamental

principles to the definition occurring in Section

5(8) of the Code, we have not an iota of doubt

that for a debt to become 'financial debt' for the

purpose of Part II of the Code, the basic elements

are that 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

Company Appeal (AT)(Ins) No.589 of 2021 Page 58 of 63 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(8) would be falling within the

ambit of 'financial debt' only if it carries the

essential elements stated in the principal clause

or at least has the features which could be

traced to such essential elements in the principal

clause. In yet other words, the essential element

of disbursal, and that too against the

consideration for time value of money, needs to

Company Appeal (AT)(Ins) No.589 of 2021 Page 59 of 63 be found in the genesis of any debt before it may

be treated as 'financial debt' within the meaning

of Section 5(8) of the Code. This debt may be of

any nature but a part of it is always required to

be carrying, or corresponding to, or at least

having some traces of disbursal against

consideration for the time value of money."

l. The Appellant has cited the Judgment of Hon'ble Supreme

Court in Feteh Chand Vs. Balkishan Dass, (1964) 1 SCR 515:

AIR1963SC 1405 para 8:

8. The claim made by the plaintiff to forfeit the amount of

Rs. 24,000/- may be adjudged in the light of s. 74 of the

Indian Contract Act, which in its material part provides :-

"When a contract has been broken, if a sum is named

in the contract as the amount to be paid in case of such

breach, or if the contract contains any other stipulation

by way of penalty, the party complaining of the breach

is entitled, whether or not actual damage or loss is

proved to have been caused thereby, to receive from the

party who has broken the contract reasonable

Company Appeal (AT)(Ins) No.589 of 2021 Page 60 of 63 compensation not exceeding the amount so named or,

as the case maybe, the penalty stipulated for."

The section is clearly an attempt to eliminate the

somewhat elaborate refinements made under the

English common law in distinguishing between

stipulations providing for payment of liquidated

damages and stipulations in the nature of penalty.

Under the common law a genuine preestimate of

damages by mutual agreement is regarded as a

stipulation naming liquidated damages and binding

between the parties: a stipulation in a contract in

terrors is a penalty and the Court refuses to enforce it,

awarding to the aggrieved party only reasonable

compensation. The Indian Legislature has sought to cut

across the web of rules and presumptions under the

English common law, by enacting a uniform principle

applicable to all stipulations naming amounts to be

paid in case of breach, and stipulations by way of

penalty. The second clause of the contract provides that

if for any reason the vender fails to get the sale-deed

registered by the date stipulated, the amount of Rs.

Company Appeal (AT)(Ins) No.589 of 2021 Page 61 of 63 25,000/- (Rs. 1,000/- paid as earnest money and Rs.

24,000/- paid out of the price on delivery of possession)

shall stand forfeited and the agreement shall be

deemed cancelled. The covenant for for- feiture of Rs.

24,000/- is manifestly a stipulation by way of penalty."

m. All the above citations reflect one thing categorically and clearly

that there must be a disbursal of fund by the Creditor to the Debtor

purely in the form of release of fund as a "borrowing" and must have

a "time value of money". The method may be different but the

nature must be borrowing and in extended terminology even the

liability in respect of guarantee is also covered. There must be a

"Financial Debt" which is owed by the other side i.e. the Debtor. It

should be amply clear that the CD owe the "Financial Debt" to the

Creditor. There is a difference between the levy of liquidated

damages or penal interest for default and the financial debt per se.

Hence, we cannot borrow unrelated concept from unrelated

judgments to prove that wherever a word "interest" is there it means

corresponding to a "Financial Debt" and we accordingly confirm

that "Financial Debt" will always carry an interest towards time

value of money. However, interest per se in any business contract

cannot be termed to make the "debt" as a "Financial Debt", if it is

Company Appeal (AT)(Ins) No.589 of 2021 Page 62 of 63 in the nature of liquidated damages or in the nature of penal

interest, which is a result of compensation for breach of contract

which is stipulated for penalty. Hence, while examining the case,

whether the Appellant is a Financial Creditor or not we are now

arriving at a conclusion based on above said discussions both on

law & on facts and the citations produced by the parties, some of

which have been explicitly cited as above reveals that the Appellant

is not a "Financial Creditor" and hence, we are upholding the order

of the Adjudicating Authority.

n. Accordingly, the Appeal deserves to be dismissed and is dismissed.

The order of the Adjudicating Authority is sustained.

Interim order, if any, passed by this Appellate Tribunal, is vacated.

Pending application, if any, stands disposed of.

No order as to cost.

[Justice Rakesh Kumar] Member (Judicial)

(Dr. Ashok Kumar Mishra) Member(Technical) 9th September, 2022

New Delhi Raushan.K

Company Appeal (AT)(Ins) No.589 of 2021 Page 63 of 63