Jushya Realty Private Limited vs Ninety Properties Private Limited

For Appellant: Mr. Shatadru Chakraborty, Ms. Sonia Dube, Ms. Kanchan Yadav, Ms. Saumya Sharma, Advocates

For Respondent: Mr. Raghenth Basant, Ms. Anne Mathew, Ms. Prerna Acharya, Advocates.

Judgment (Hybrid Mode) (Date: 2.2.2024)

[Per.: Dr. Alok Srivastava, Member (Technical)]

In the present appeal, filed under section 61 of the

Insolvency & Bankruptcy Code, 2016 (in short 'IBC'), the Appellant Company Appeal (AT) (Ins.) No. 543 of 2023 Page 1 of 15 has challenged an order dated February 3, 2023 (hereinafter called

"Impugned Order") passed by the National Company Law Tribunal,

Mumbai Bench-IV (in short "NCLT") in CP (IB) 949/MB-IV (Jushya

Reality Pvt. Ltd. vs. Ninety Properties Pvt. Ltd.) whereby Learned

NCLT has dismissed the petition filed by the Appellant under

section 7 of the IBC by observing that the amount in default is not

financial debt and Appellant is not a financial creditor under the

provisions of IBC.

2. The facts of the case are that in December 2014, Shri Shabir

Nirban, director shareholder and promoter of the Respondent

Company approached the Appellant and offered to sell the

Appellant 100% shares held with the Respondent along with all

assets and liabilities of the Respondent by executing a share

purchase agreement. The Appellant has further stated that based

on the representations, undertakings and assurances provided by

the director of the Respondent, the Appellant agreed to acquire all

assets and liabilities of the Respondent as per its audited balance

sheet dated March 31, 2013, after carrying out valuation of the

shares of the Respondent, for a lump sum consideration of

Rs.4,50,00,000/-.

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 2 of 15

3. The Appellant has further stated that it made an advance

payment of Rs.1,25,00,000/- on 17.12.2014 out of the total

amount of Rs.4,50,00,000/- to the Respondent and the said

payment was made subject to execution of the share purchase

agreement after due diligence to be carried out by the Appellant

regarding the assets, financial data and compliances of the

Respondent. The Respondent had, at the time, agreed to provide

all documents to the Appellant, and according to him, the debt

stands acknowledged as the same was reflected in the balance

sheets of both the appellant and the Respondent.

4. The Appellant has further stated that the Respondent did

not take necessary steps as agreed between the parties, despite

receiving a payment of Rs.1,25,00,000/- in accordance with the

promised agreement. In view of such a situation, the Appellant

wrote many letters/reminders to the Respondent calling upon it to

forward the title documents for due diligence and to also execute

Share Purchase Agreement without any delay, but no steps were

taken by the Respondent despite repeated reminders and hence,

the Appellant asked the Respondent to refund the amounts paid

by him along with interest @ 18% p.a. The Appellant has added

that when the said amount was not refunded, the Appellant filed a

petition before Hon'ble NCLT under section 7 of the IBC.

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 3 of 15

5. The Appellant has submitted that the Learned NCLT, by the

Impugned Order, has dismissed the section 7 petition holding that

the amount in default is not a financial debt, without giving any

reasoning.

6. The main issue that arises for adjudication in this appeal is

whether the amount of Rs. 1.25 crores paid by the Appellant to

Shri Shabir Nirban, ex-Director of the Respondent Company

constitute a financial debt as defined in IBC and whether the

section 7 application filed regarding the purported financial debt

deserved to be admitted.

7. We heard the oral arguments advanced by the Learned

Counsels for both the parties and perused the record.

8. The Learned Counsel for Appellant submitted that the

Appellant had contended in the section 7 application that a sum of

Rs. 1.25 crores was advanced against the purchase of shares of

the Respondent Company. He has further argued that this

advance paid by the Appellant is reflected and admitted in the

balance sheets of the Respondent for the financial years 2014-15,

2015-16, 2016-17, 2017-18 and 2018-2019 and the advance has

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 4 of 15 also been admitted in the pleading of this Appellate Tribunal. He

has also submitted that the Respondent, in its reply before the

Adjudicating Authority, admitted that the transaction was made to

purchase real estate owned by the Respondent.

9. The Learned Counsel for Appellant has further submitted

that insofar as the Section 7 application being in limitation is

concerned, the petition was filed on 28.7.2021, which was well

within three years of admission made in the balance sheet for the

financial year ending 31.3.2019 and therefore, section 7

application is within limitation in accordance with section 18 of

the Limitation Act, 1963.

10. The Learned Counsel for Appellant has also submitted that

section 5(8) of the IBC covers any amount paid in respect of Share

Purchase Agreement and the definition is quite exhaustive. He has

claimed that this reason seemingly given by the Adjudicating

Authority does not appear to be a valid ground in rejecting the

section 7 application. Furthermore, he has argued that whether

the said transaction of Rs. 1.25 crores had commercial effect of

borrowing was also required to be considered by the Adjudicating

Authority to arrive at a conclusion. But since it was not reasoned

out in the Impugned Order, the Impugned Order may be set aside,

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 5 of 15 and the matter remanded for fresh consideration by the

Adjudicating Authority.

11. The Learned Counsel for Appellant has cited the judgment of

this Tribunal in the matter of Sanjay D. Kakade vs. HDFC

Ventures Trustee Company Ltd. and Others (2023 SCC Online

NCLAT 2241).

12. In reply, the Learned Counsel for Respondent company has

argued that the section 7 application as filed by the Appellant does

not make out the existence of any debt or default in its repayment.

Furthermore, he has argued that there is no agreement, written or

oral, between the parties regarding the debt and therefore, the

Learned Adjudicating Authority has given a correct finding that the

amount claimed as purported debt is not a financial debt and

dismissed the section 7 application. He has further argued that

the Respondent has, in its detailed report before the Learned

Adjudicating Authority, brought out the correct facts with regard

to the transaction and has not made any admission regarding the

debt. In this connection, the Learned Counsel has referred to

section 3(11), 3(12) and section 5(8) of the IBC to explain that the

purported transaction between the Appellate and the Respondent

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 6 of 15 is not covered under the definition of 'financial debt' nor there is

any 'default' in repayment of the debt.

13. Clarifying about the nature of transaction between the

Appellate and Respondent in regard to Rs. 1.25 crores, the

Learned Counsel for Respondent has stated that the petitioner is

the owner of the immovable property being land bearing C.S.

1/118 of Malabar and Cumbala Hill division admeasuring 3042 sq.

ft. with a building comprising of tenanted premises. The property

is situated at Teen Batti, Walkeshwar Road, Mumbai, very close to

the Governor of Mumbai's bungalow near the seafront. The

building is capable of redevelopment under the provision of

Development Control Regulation 33(7) under which old tenanted

buildings are permitted to be redeveloped with incentive FSI and

the real value of the property given its development potential is

more than Rs. 15 crores.

14. The Learned Counsel for Respondent has further submitted

that as per the Scheme of Redevelopment under provision of

Development Control Regulation 33(7), an existing tenant could get

upto 35% additional area on ownership basis in the new building

to be constructed in place of the old building and with a view to

encash on this opportunity the petitioners approached Mr. Sabir

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 7 of 15 Nirban, ex-director and ex-shareholder of Respondent Company to

acquire tenancy rights of Flat No. 6 on the third floor of A wing in

the building. He has further argued that with a view to acquire the

tenancy rights, the Petitioner deposited a sum of Rs. 1,25,00,000/-

(Rupees One Crore Twenty-Five Lakhs only) "as advance" out of the

total consideration of Rs. 4,50,00,000/- (Rupees Four Crores Fifty

Lakhs only) in December 2014. He has submitted that it is for this

reason, the amount of Rs. 1,25,00,000/- (Rupees One Crore

Twenty Five Lakhs only) is shown as "Advance from Debtors" in the

balance sheet of the Respondent Company. He has added that

thereafter, the Petitioner made no further payments and hence it is

not entitled to make any claim against the Respondent, in view of

its own default. He has also argued that the value of the tenanted

premises is actually much more than Rs. 4,50,00,000/- as the

Petitioner would become entitled to receive an ownership flat with

sea view of an area of minimum 950 sq. ft. carpet on Walkeshwar

Road, Mumbai and, therefore, the story peddled by the Appellant is

a falsehood.

15. The Learned Counsel for Respondent has further submitted

that even if, at the highest argument, it is considered that the

purported oral agreement existed between Shri Shabir Nirban, ex-

Director and ex-shareholder of the Respondent Company and the

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 8 of 15 Appellant to purchase the entire shareholding of the Respondent in

December, 2014, the Appellant has ought to have sought

enforcement and specific performance of the same oral agreement

within the three years i.e. before the December, 2017. Admittedly,

the Appellant requested the Respondent for the first time in June

2018 to execute the Share Purchase Agreement and even if, one

was to accept the argument the Appellant regarding the existence

of oral agreement regarding execution of Share Purchase

agreement is accepted, the said claim is barred by the limitation.

16. The Learned Counsel for Respondent has further argued

that the Appellant is using the section 7 petition as a tool for

recovery of this time-barred debt which is not a financial debt,

and certainly IBC is not meant to recovery of such debt. Therefore,

even on this ground, the petition under section 7 was correctly

dismissed.

17. We peruse the definitions relating to "debt" and "default" as

well as "financial debt" under the IBC. The relevant provisions are

reproduced below:-

"3. Definitions. - In this Code, unless the context otherwise requires, -

(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;

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 9 of 15 (12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not 1 [paid] by the debtor or the corporate debtor, as the case may be;

xx xx xx xx

5. Definitions. - In this Part, unless the context otherwise requires, -

(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 dematerialised 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 Standards or such other accounting standards as may be prescribed;

(e) receivables sold or discounted other than any receivables sold on non-recourse 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 fluctuation in any rate or price and for calculating the value of any derivative Company Appeal (AT) (Ins.) No. 543 of 2023 Page 10 of 15 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- clause (a) to (h) of this clause;"

18. We now look at the transaction that took place between the

Appellant and Shri Shabir Nirban, ex-Director of the Respondent

Company of an amount Rs.1.25 crores. The Appellant has stated

that in or about December, 2014, Shri Shabir Nirban approached

the Appellant and offered to sell him 100% shares held in

Respondent Company alongwith all the assets and liabilities of the

Respondent, and based on the representations, undertakings and

assurances provided by the director of the Respondent Company,

the Appellant agreed to pay a lump sum consideration of Rs. 4.50

crores after carrying out valuation of the shares of the Respondent.

The appellant has further stated that in accordance with the oral

agreement, he paid an advance of Rs. 1.25 crores on December 17,

2014 by means of cheque bearing No. 766042 drawn on HDFC

Bank, Tirupati Apartment, B.D. Road, Mumbai Branch. He has

further stated that the promised Share Purchase Agreement was

not executed regarding which he sent a reminder to the

Respondent in January, 2018.

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 11 of 15

19. Quite clearly the Appellant has not annexed any document

relating to the promised Share Purchase Agreement, and only

relied on the existence of the transaction of Rs. 1.25 crores in

balance sheets of various years as proof of financial debt.

Therefore, the Appellant has been able to establish, that the said

transaction of Rs. 1.25 crores was made with regard to the future

execution of Share Purchase Agreement. The only argument that

the Appellant makes in his favour regarding the Share Purchase

Agreement is that he sent a reminder in January, 2018 to the

Respondent to execute the Share Purchase Agreement. Such a

communication made after a passage of over four years, and that

too, regarding a promise made in 2014 cannot be taken as a

conclusive proof of any oral agreement made in the year 2013 or

2014 for execution of Share Purchase Agreement

20. Moreover, the definition of "financial debt" as enumerated in

section 5(8) of the IBC is quite exhaustive and covers 'debts which

were made along with interest disbursed against the consideration

for the time value of money'. Clauses (a) to (i) under section 5(8) of

the IBC do not state oral purchase agreement explicitly, but clause

(f) states that any amount raised under any other transaction,

including any forward sale or purchase agreement, having the

commercial effect of a borrowing could be considered as a financial

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 12 of 15 debt. In the present case, neither section 7 petition nor any

pleadings or documents submitted by the Appellant, have any

document to show that there was a Share Purchase Agreement to

be signed nor any covered fact of the borrowing have been

evidenced. In such a situation, it is difficult to accept the

contention of the Appellant that the transaction of Rs.1.25 cores

was in fact repayment of a 'financial debt'.

21. Further, we note from the definition of 'debt' and 'default' as

enumerated in section 3(11) and 3(12) of the IBC that the financial

debt had to be in the shape of liability and non-payment of such

liability in the given time would cause default. In the present

situation again, no date of default is made out and so we find that

neither the said transaction is in the shape of a financial debt or in

commercial effect of borrowing is evidenced and no default is also

made out.

22. As argued by the Learned Counsel for Respondent, and also

admitted by the Learned Counsel for Appellant, the said

transaction of Rs. 1.25 crores was ostensibly against the purchase

of the property situated at Teen Batti, Walkeshwar Road, Mumbai,

which was capable of redevelopment under the provision of the

Development Control Regulation 33(7) and the value of property in

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 13 of 15 view of this development potential was more than Rs. 15 crores.

Therefore, a total consideration as claimed by the Appellant as

about Rs.4.5 crores does not appear to constitute a tenable

argument as a total amount of Rs. 4.5 crores would not be

sufficient consideration for acquisition of the said property.

23. Therefore, and also because it is necessary under the IBC to

go into the nature of contract to see if it is a financial and

operational debt. We do not consider it necessary to go any

further into the nature of the contract, whether written or

otherwise between the two parties suffice to say that if transaction

was made in December, 2014 against the purchase of a specific

property, the Appellant should have asserted its right within the

stipulated period of three years being the specific purchase of the

contract to try to enforce such contract through IBC does not

appear to be correct legal course of action.

24. We also peruse the judgment in the matter of Sanjay D.

Kakade vs. HDFC Ventures Trustee Company Ltd. and Others

(supra) cited by the Learned Counsel of Appellant in support of his

contention that the Share Purchase Agreement and any amount

transacted vis-a-vis such purported Share Purchase Agreement

would constitute a financial debt. We note that in this judgment,

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 14 of 15 this Tribunal has considered a written Share Subscription and

Shareholders Agreement between the shareholders as proof of

financial debt. Quite obviously there is a delay in signing of

shareholder subscription agreement, which was in consideration in

the said appeal. We, therefore, find the ratio laid down in the

matter of Sanjay D. Kakade vs. HDFC Ventures Trustee

Company Ltd. and Others (supra) does not apply in the facts and

circumstances of the present case.

25. In view of the detailed discussion as outlined above, we do

not think that the Adjudicating Authority has committed any error

in dismissing the section 7 application. We conclude that the

appeal is devoid of merit and consequently it is dismissed. No

order as to costs.

(Justice M. Venugopal) Member (Judicial)

(Dr. Alok Srivastava) Member (Technical)

New Delhi 2nd February, 2024

/aks/

Company Appeal (AT) (Ins.) No. 543 of 2023 Page 15 of 15