Rajan Arora & Ors vs Mmr Saha Infrastructure Pvt Ltd

Rajan Arora &Ors. ...Appellants

Versus

M/s MMR Saha Infrastructure Pvt. Ltd. ...Respondent

For Appellant: Mr. DebopriyoMoulik, Mr. Ravi Prakash, Advocates For Respondents: Mr.N.P. Singh, Advocate.

ORDER

(Per: Justice Rakesh Kumar Jain)

26.08.2022: This appeal is directed against the order dated 27.07.2020

by which an application filed by the Appellants under Section 7 of the

Insolvency and Bankruptcy Code, 2016 (in short 'Code') and Rule 4 of the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016 (in short 'Rules') has been dismissed.

2. In brief, the present Appellants are the members of the same family who

had entered into an agreement to purchase two units situated in high street

in the project of the Respondent in sector-52, Noida, known as "52nd Avenue".

3. The Appellant No. 1 to 3 purchased a unit bearing no. HS-B 004,

admeasuring 2500 square ft. vide MOU dated 01.02.2014 at a price of Rs.

8,400/- per square ft. amounting to a total sale consideration of Rs.

2,10,00,000/-. The Appellants have paid an amount of Rs. 2,17,00,000/-

towards the sale consideration of their unit. The Appellant No. 4 to 7,

purchased a unit bearing No. HS-B-003, admeasuring 2400 sq. ft. situated in

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the same project i.e. "52nd Avenue", vide MOU dated 03.02.2015 at a price of

Rs. 8,400/- per square foot amounting to a total sale consideration of Rs.

2,01,60,000/- and paid an amount of Rs. 1,90,82,810/-.

4. The aforesaid two units were purchased by all the seven Appellants

under the assured return schemes, as per which the Respondent was required

to pay an assured return calculated @ 14 % per annum, on the payments

made by the Appellants, which was to be paid to them as per their

proportionate share in the unit, each month, till their unit was complete and

ready in all aspects and its possession is offered to them.

5. It is also case of the Appellant that in terms of the MOU executed

between the parties, the Respondent was required to pay and was also paying,

a monthly assured return of Rs. 2,45,000/- before TDS to Appellant No. 1 to

3 to the extent of their share in the unit on or before 06th day of each calendar

month and similarly, the Respondent was also paying a monthly assured

return of Rs. 2,13,788/- before TDS to Appellants No. 4 to 7 as per their share

in the unit in the same term i.e. on or before 6th day of each calendar month.

6. According to the Appellants, the Respondent has actually paid the

assured return to them till the month of December, 2017 which was paid in

October, 2018 to all the Appellants except the Appellant No. 3 to whom it was

paid in December, 2018. Thereafter, assured returns was not paid despite the

fact that construction of the units is not complete and the possession is not

delivered. The Appellants then sent an email to the Respondent on 10.05.2019

and 17.05.2019 demanding the payment of assured returns and arrears but

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they received the reply dated 30.05.2019 in which, according to the

Appellants, excuses were made by the Respondent in not making the

payments or delay to perform their obligations. As a result, the Appellants filed

the application under Section 7 of the Code on 21.08.2019 before the

Adjudicating Authority. The said application has been dismissed by the

impugned order dated 27.07.2020 only on the ground that the Appellant is

not entitled to any assured return because it failed to execute the unit buyer's

agreement on the company standard format in terms of the MOU entered into

between the parties.

7. Counsel for the Appellant has raised the issue that the amount paid by

the Appellant was a financial debt and therefore, the application filed by the

Appellant as a Financial Creditor was maintainable for the purpose of

initiation of CIRP.

8. He has argued that the Respondent had been paying assured returns

till December, 2017. The Appellant has been filing returns in which the

interest income arising out of those payments was assessed under Section

194(a) of the Income Tax Act, 1961 (in short 'the Act') as interest on other than

securities. The Appellants have appended Form 26AS with the memo of appeal

relating to them in order to substantiate this fact. He has then relied upon the

decision of this Tribunal rendered in the case of Nikhil Mehta & Sons Vs. AMR

Infrastructure Ltd., CA (AT) (Ins) No. 07 of 2017, decided on 21.07.2017. It is

contended that in the said case the facts were almost similar as it was also

case of investment made by the Appellants therein for the purchase of three

units and it was agreed between the parties that the Respondent shall pay the

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assured returns to the buyer. It is also submitted that in that case the interest

which was paid on the assured returns was reflected in the Income Tax Return

as interest other than the interest on securities. The said amount, invested by

the Appellant therein was held by this Tribunal as a loan and thus was termed

as a financial debt. Therefore, it is submitted that the amount paid by the

Appellant in this case also has to be taken as a loan and ultimately a financial

debt for the purpose of invoking the provisions of Section 7 of the Code.

9. The other issue raised by the Appellant is that the impugned order is

illegal because it has referred to clause 7 of the MOU in a pedantic manner

without looking into the fact that the Respondent had been continuously

paying the assured returns for continuously three years and had suddenly

stopped the same on the ground of crisis in the market because of Kishan

Aandolan and in this regard he has also referred to the email of the

Respondent dated 10.05.2019 which is also appended with the memo of

appeal. He has then submitted that once the assured amount has been paid

then clause 7 of the MOU becomes inconsequential as there was novation of a

contract between the parties sub-silentio and on which the Respondent had

been acting upon continuously three years and then suddenly stopped the

payments. It is also submitted that the execution of the unit buyer's agreement

was only a ministerial act by the act and conduct of the Respondent the

amount was being paid and the Respondent cannot take advantage of clause

7 of the MOU to deny the same.

10. On the other hand, Counsel for the Respondent has vehemently argued

that there is no error in the impugned order which may call for interference by

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this Tribunal. It is submitted that execution of the unit buyer's agreement was

a sine qua non for the purpose of payment of assured returns in terms of

Clause 7 of the MOU. It is also submitted that the Ld. Tribunal has rightly

came to the conclusion that there was no evidence brought on record to show

that unit buyer's agreement was actually executed between the parties and

therefore, the Appellants cannot claim the said amount through the process

of the CIRP. Counsel for the Respondent has also argued that the Appellants

have themselves admitted to have executed the unit buyer's agreement,

therefore, there is a relationship of the home buyers and developer between

the parties and therefore, it is an investment in the real estate by the

Appellants to purchase the tenement/units and is, thus, covered by

explanation to Section 5(8) of the Code.

11. In rebuttal, Counsel for the Appellant has submitted that the unit

buyer's agreement was only signed by them but the agreement did not take

place in the absence of signature of the Respondent. It is also submitted that

the Adjudicating Authority has also recorded a finding that there was no unit

buyer's agreement between the parties, therefore, the application filed by them

was dismissed. It is, thus, submitted that the objection raised by the

Respondent that the admission made by the Appellant would be suffice to hold

that there was unit buyer's agreement between the parties is a fallacy.

12. We have heard Counsel for the parties and perused the record with their

able assistance.

13. Insofar as, the first issue is concerned, as to whether the amount paid

by the Appellants to the Respondent was a financial debt or not it is to be seen

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from the fact that the Respondent had been paying the assured returns to the

Appellants.

14. As regards the execution of the home buyer agreement is concerned,

though the Appellants have averred that they had executed the unit buyer's

agreement in their application before the Adjudicating Authority but in Reply

the Respondent has denied it by making an averment that "it is relevant to

mention here that unit buyer's agreement in respect of the above said unit had

not been executed between the applicants and the respondent company till

date". Moreover, this has been finding of the Ld. Tribunal as well which is so

recorded in para 5 of the impugned order which reads thus "a perusal of the

clause of MOU signed between the parties on 01st February, 2014 reveals that

the assured return shall be payable only upon execution of the Unit Buyer's

Agreement on the Company standard format. The Financial Creditors have not

shown any proof to establish the fact that they have got the unit buyer's

agreement duly executed by both the parties".

15. In the absence of evidence led before this Tribunal and a finding

recorded in this regard by the Tribunal that there is no unit buyer's agreement

executed between the parties, the decision in the case of Nikhil Mehta and

Sons (Supra) shall apply with full force wherein it has been held that "from the

annual report of the Respondent and Form 16A, we find that the Corporate

Debtor treated the appellants as investors and borrowed the amount pursuant

to sale purchase agreement for their commercial purpose treating at par with

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

the meaning of Financial Debt as defined in Section 5(8)(f) of the Code subject

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to satisfaction as to whether such disbursement against the consideration is

for time value of money, as discussed in the subsequent paragraphs".

16. We too have no hesitation to hold that the transaction between the

parties, brought on record through evidence, suggest nothing else but the fact

that it was a financial debt advanced by the Appellants to the Respondent for

the time value of money and as such would fall within the definition of

financial debt provided under the Code and the Appellants have rightly

invoked the jurisdiction of the NCLT by filing the application under Section 7

of the Code. Insofar as, the second issue is concerned, Clause 7 of the MOU

has been reduced to only a ministerial act because of the act and conduct of

the Respondent who had been paying the assured returns to the Appellants

for a long time. In this regard, Judgment relied upon by the Appellant rendered

in the case of the Kanchan Udyog Limited Vs. United Spirits Limited, Civil

Appeal No. 1168 of 2007 shall come into play in which Hon'ble Supreme Court

has pleased to hold that the novation of the contract could take place sub

silentio. In this case also silence on the part of the Respondent or their act and

conduct in making the payment of assured returns without execution of the

alleged unit buyer's agreement is sufficient to show the intention on the part

of the Respondent to pay the amount without execution of the unit buyer's

agreement and it was not the only reason for stopping the same. No other point

has been raised.

17. Thus, looking from any angle, the impugned order cannot be sustained

and therefore, the present appeal is hereby allowed and the impugned order

is set aside. As a necessary corollary, the application filed by the Appellant

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under Section 7 of the Code is hereby admitted. The matter is remanded back

to the Adjudicating Authority to proceed further in accordance with law with

for appointment of IRP and moratorium in terms of Section 14 of the Code.

The parties are directed to appear before the Adjudicating Authority on 07th

September, 2022.

The registry is directed to send this order to the concerned Adjudicating

Authority for information.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Dr. Alok Srivastava] Member (Technical)

SC/RR

Company Appeal (AT) (Ins.) No. 716 OF 2020