Rishab Jain (Director) vs S.S. Enterprises & Anr

Rishabh Jain Managing Director, HOMES CONNECT Private Limted A-19, Second Floor, Sector-64, NOIDA ...Appellant

Vs

1. S.S. Enterprises Through Its Proprietor Ranjan Kumar Bajaj, C-289, Sector-10 NOIDA, Uttar Pradesh-201 301

2. M/s Home Connect Developers Pvt. Ltd, Through IRP Mr. Ranjeet Kumar Verma, Sector-53, 1F, Ansal Plaza, Sector-1 Vaishali, Ghaziabad, UP- 201 010 ....Respondents Present: For Appellant: Mr. Saurabh Jain, Advocate. For Respondents: Mr. Ritesh Agrawal, Mr. Teejas Bhatia and Mr. Aishwarya Adlokha, Advocates for Respondent No. 1 Mr. Shailendra Singh, Advocate for Respondent No. 2

ORDER

27.01.2020 The Appellant is Managing Director of 2nd Respondent M/s

Home Connect Developers Pvt. Ltd.- the Corporate Debtor. Mr. Ranjan Kumar

Bajaj, Proprietor of 1st Respondent- S.S. Enterprise filed Application under

Section 7 of Insolvency and Bankruptcy Code, 2016 (in short 'IBC') before the

Adjudicating Authority (National Company Law Tribunal, New Delhi Bench)

vide (IB)-1094/ND/2019. The Application has been admitted by Impugned

Order dated 25.10.2019 and thus the present Appeal.

Company Appeal(AT)(Insolvency) No. 1383 of 2019 Page 1 of 8

2. The Appellant is trying to state that the transaction between the parties

could not be said to be a Financial Debt but that Respondent No. 1(Respondent

in short) should have been treated as Operational Creditor.

3. Respondent-Financial Creditor claimed before the Adjudicating

Authority that Corporate Debtor is in the business of construction and

proposed to develop a project "Galactic City" in Greater NOIDA. The Financial

Creditor claimed that it was also in business in carrying out civil contract in

the name of S.S. Enterprises. It is stated that Corporate Debtor contacted

Financial Creditor for grant of financial assistance and a loan of Rs. 50 lakhs

were given with interest @ 1% per month. This happened on 05.09.2017 when

a Memorandum of Understanding (in short 'MoU') was executed (page-61). It

is stated that the parties again entered into 2nd MoU on 12.09.2017 when the

Financial Creditor gave a further deposit of Rs. 40 Lakhs. According to the

Financial Creditor, the Corporate Debtor had agreed to grant a construction

contract worth Rs. 10 Crores to the Financial Creditor. Financial Creditor

claimed that by yet another third MoU dated 03.11.2017 (page-69), two earlier

MoUs were superseded where the Corporate Debtor acknowledged deposit of

Rs. 90 lakhs and agreed to repay the same with 2% interest per month with a

lock in period of 11 months. Both the parties agreed to this. The lock in period

was agreed between the parties after which the Financial Creditor could

demand back the deposit by giving one month's notice. Financial Creditor

claimed that the Corporate Debtor even executed and delivered two post-dated

cheques guaranteeing the repayment. Financial Creditor claimed that after 11

months, he demanded back the deposit and as it was not paid back, the

Company Appeal(AT)(Insolvency) No. 1383 of 2019 Page 2 of 8 cheques were presented but they got dishonoured. Financial Creditor claims

that a Legal Notice was sent to the Corporate Debtor and then Section 7

Application was moved.

4. The Appellant claims that the matter is a case of cross security deposit

by virtue of which, both the parties were secured and in the event of failure of

compliance of the execution of the construction contract and in the event of

complete disregard to the admitted position of the construction, there was

protection in terms of cross Security Deposit by allotment of four plots which

the Corporate Debtor claimed it had allotted. The Appellant for Corporate

Debtor claims that the MoU provides that in the event of non-payment of

Security Deposit, the Corporate Debtor shall not claim back four plots as

agreed in the MoU.

5. Parties have argued on the above lines as per Appeal and Reply and

referred to the three MoUs which we have referred above. Learned Counsel for

the Appellant states that in the notice dated 27.11.2018 which was sent by

the Financial Creditor in paragraph-11 it was stated that the Company had

allotted villa 1, 2, 17 and 18. According to the learned Counsel, the plots had

been allotted and considering the wordings of third MoU, the Financial

Creditor was protected. According to the Counsel, considering MoUs, the

transaction should not have been treated as that of a Financial Debt but it

should be treated as an Operational debt.

6. We have gone through three MoUs referred above. In first two MoUs

dated 05.09.2017 (Page 61) and 12.09.2017 (Page 67) there was reference to

Company Appeal(AT)(Insolvency) No. 1383 of 2019 Page 3 of 8 the amount being given as Security Deposit against construction contract and

it was specifically mentioned that the Corporate Debtor will pay interest @ 1

% per month and also provided for return of Security Deposit. The fact remains

that the parties did not go into execution of any construction contract and

entered into third MoU dated 13.09.2017(page 69). The contents of the third

MoU may be reproduced. In it, Corporate Debtor is "First Party" and

Respondent No. 1, Financial Creditor, S.S. Enterprise is 'Second Party'. It

states:

...

"1. The Second party has given security deposit

against the construction contract in Galactic City

project of Rs. 90,00,000/- (Rupees Ninety Lakh only) to

the First Party and the First Party has received the

same.

a. (In the First Separate MOU dated 05.09.2017 for Rs.

50 lakh agreed and signed between the parties on

stamp paper no. DR229835 & 36 (two copies) one

copy kept by each party) and

b. (In the Second Separate MOU dated 12-09-2017 for

Rs. 40 lakh as agreed and signed between the

parties on stamp paper no. DR300853 & 54 (two

copies one copy kept by each party).

2. The First Party will pay additional interest @

2% per month (@ two % per month) on monthly basis to

the second Party.

Company Appeal(AT)(Insolvency) No. 1383 of 2019 Page 4 of 8

3. There will be a lock in period of 11 months

from the date of this MOU according to which the

Second Party will not demand the security deposit back

from the First Party and vice-versa the First Party

cannot return or repay the security deposit before 11

months. However in case of urgency/exception in lock

in period if the First party want to repay and vice-versa

the Second Party needs his Security Deposit amount

back than he can do so by giving one month notice and

within notice period the First party will return the loan

amount along with interest as mentioned above in Para

no. 2.

4. The First Party hereby allot to the Second

Party its Villa Plot bearing Unit No. 1,2,17 and 18

situated at Galactic City, Plot No. 6, Knowledge Park-

V, Greater Noida (west), measuring total Area of 100

sq. yd. each unit as a guarantee of security deposit.

5. In order to assure the second party and to

secure the repayment of security deposit and interest

of the second party, the following post dated cheque

has been issued by the First Party.

A Cheque No. 000179 to 000189 for Rs.

1,80,000/- each (Rs. One lakh Eight Thousand only),

drawn on Andhra Bank, for interest payable as

mentioned in Para No. 2 above.

Company Appeal(AT)(Insolvency) No. 1383 of 2019 Page 5 of 8

6. After 11 months of this MOU the Second

party can demand its Security Deposit back from the

First Party by giving him one months' prior notice and

within said notice period the Frist Party will return the

loan along with interest, as mentioned above in Para

no. 2 and the Second Party will return the aforesaid

units, as mentioned in Para no. 4 above, the First Party.

7. In case of any default in the repayment of

the security deposit amount by the first party, in that

case the first party will not claim back these plots, as

mentioned in Para no. 4 above, given as guarantee

from the second party.

8. This agreement/MOU is signed in two

original copies and one copy kept by each party.

7. It is apparent from the wordings of this MoU dated 13.09.2017 that the

return of the amount was being assured with an allotment of plots and

issuance of cheques. The amount was referred as loan at more than one place.

As regards allotment, paragraph-11 of the Notice dated 27.11.2018 (Annexure-

A9) appears to be more in the context of wording of the MoU where it is stated

that First Party allots certain plots. There is nothing that actual allotment

letters were issued, or possession handed over. The intent of the parties in all

the MoUs appear to be of extending Financial Debt.

8. The Adjudicating Authority in paragraph-9 observes as under:

Company Appeal(AT)(Insolvency) No. 1383 of 2019 Page 6 of 8

..

"9. The Corporate Debtor tends to seek benefit of the

word 'security deposit. While the MoU may have been

worded as such, one has to go to the intent of the

parties which clearly gives rise to the surmise that

same was given by way of financial assistance

attracting interest payable thereon. The fact that the

amount was secured, not only by cheques but also by

allotment of plots, would not change the nature of the

financial claim. Reliance is sought to be made on the

terms of the MoU which provides that in the event of

default, the petitioner would be entitled to the 4 plots.

Admittedly the possession of these plots was never

offered and the same is more by way of an option to

secure the debt. As per the terms and conditions the

amount was payable on demand. The Corporate

Debtor's failure to return the same has given rise to a

default. Under such circumstances, where the claim of

Rs. 90 lakhs and the interest due thereon remains

unpaid, the financial creditor is entitled to the prayer

made herein."

..

9. Considering the reasonings recorded by the Adjudicating Authority and

examining the wordings of the third MoU, as produced above and taking

Company Appeal(AT)(Insolvency) No. 1383 of 2019 Page 7 of 8 conspectus of the whole matter, we do not find any reason to interfere with

the Impugned Order of the Adjudicating Authority. The Adjudicating Authority

has found it to be Financial debt outstanding and admitted the Section 7

Application. We do not differ from the Adjudicating Authority. (The words

"Operational Creditor" used in paragraph-11 of the Impugned Order by the

Adjudicating Authority appears to be typing/clerical error).

10. There is no substance in the Appeal. The Appeal is dismissed. No costs.

[Justice A.I.S. Cheema] Member (Judicial)

[Justice Anant Bijay Singh] Member (Judicial)

(Kanthi Narahari) Member(Technical) Akc/Md

Company Appeal(AT)(Insolvency) No. 1383 of 2019 Page 8 of 8