Subhash Chander Chauhan vs M/S Kaliber Associates Pvt. Ltd. (In ...

[Arising out of order dated 06.03.2024 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench, Court - II), in C.P. (IB) No.41/ND/2024]

IN THE MATTER OF: Subhash Chander Chauhan R/o - T-66, Near West Patel Nagar, Baljeet Nagar, Patel Nagar, Central Delhi, Delhi (110008). ...Appellant

Versus

1. M/s. Kaliber Associates Pvt. Ltd. (Through Liquidator Sh. Mohan Lal Jain) B-1/12, 2nd Floor, Safdarjung Enclave, New Delhi - 110029. ...Respondent No. 1

2. West Star Constructions Pvt. Ltd. Through Interim Resolution Professional, Office at: Building No. 3, Kh. No. 385, Plot No. 2 100ft road Ghitorni MG Road NA New Delhi Email ID: lekhrajbajaj@rediffmail.com ...Respondent No. 2

Present: For Appellant : Appearance not marked.

For Respondents : Mr. Abhishek Naik, Mr. Gulfsha Kureshi and Mr. Raunaq Kalra, Advocates.

Mr. Anirban Bhattacharya, Mr. Rajeev Chowdhary and Ms. Priynaka Bhatt, Advocates for R-1.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by a Suspended Director of the Corporate Debtor, M/s.

West Star Constructions Pvt. Ltd. has been filed challenging the Order dated

06.03.2024, by which Section 7 Application filed by Respondent M/s. Kalibre

Associates Pvt. Ltd. (under Liquidation) has been admitted.

2. In the Appeal, Notices were issued on 15.04.2024, and following Interim

Order was passed:

"Issue notice. Counsel for the Liquidator and Counsel for the IRP accepts notice. Respondents may file reply within three weeks.

2. Learned Counsel for the IRP submits that the publication has been issued, claim has been received and CoC has already been constituted.

3. Let CoC may proceed but no decision shall be taken with regard to any resolution plan.

4. List the appeal on 16.05.2024."

3. Reply has been filed by Respondent No. 1. Both the Parties were heard

on 05.09.2024. Both the Parties have also filed their Written Submissions.

4. Brief facts necessary to be noticed for deciding the Appeal are:

i. M/s. Kalibre Associates Pvt. Ltd., advanced an amount of

₹1,00,00,000/- to the Corporate Debtor, M/s. West Star Constructions

Pvt. Ltd. on 20.11.2010.

ii. The Corporate Debtor was engaged in business operation relating to

providing consultancy services in real estate business.

iii. Insolvency Proceedings, commenced against M/s. Kalibre Associates

Pvt. Ltd. by Order dated 18.01.2019.

iv. Mr. Mohan Lal Jain was Resolution Professional (`RP') of M/s. Kalibre

Associates Pvt. Ltd.

v. Resolution Professional sent a letter dated 18.07.2019 to the Corporate

Debtor stating that an amount of ₹1,00,00,000/- is due plus interest

which may be remitted to M/s. Kalibre Associates Pvt. Ltd.

Comp. App. (AT) (Ins.) No. 666 of 2024 2 of 24 vi. Liquidation Proceedings commenced against M/s. Kalibre Associates

Pvt. Ltd. by Order dated 02.01.2020. Mohanlal Jain was appointed as

Liquidator of the M/s. Kalibre Associates Pvt. Ltd. Another Notice dated

20.07.2020 was sent to the Corporate Debtor on behalf of M/s. Kalibre

Associates Pvt. Ltd., requesting the Corporate Debtor to pay

₹1,00,00,000/- with 12% interest within seven days.

vii. Liquidator had filed an Application before the Adjudicating Authority,

seeking prior approval of the Adjudicating Authority for instituting

suit/legal proceedings on behalf of the M/s. Kalibre Associates Pvt. Ltd.

viii. Adjudicating Authority permitted the Liquidator to take all steps in

accordance with provisions of law by Order dated 21.02.2022.

ix. An Application under Section 7 was filed by M/s. Kalibre Associates

Pvt. Ltd. against the Corporate Debtor, claiming a Financial Debt of

₹1,00,00,000 and `date of default' was mentioned as 18.07.2019.

x. The Application under Section 7 was filed by Liquidator of the M/s.

Kalibre Associates Pvt. Ltd. on 04.01.2024. Notices were issued by

Adjudicating Authority on 01.02.2024. Financial Creditor was directed

to serve Notice on the Corporate Debtor. No one appeared on

26.02.2024. Adjudicating Authority directed to proceed Ex-Parte

against the Corporate Debtor on the second date of hearing and on next

date, Adjudicating Authority vide Order dated 06.03.2024, admitted

Section 7 Application. Aggrieved by which Order this Appeal has been

filed.

Comp. App. (AT) (Ins.) No. 666 of 2024 3 of 24

5. We have heard Mr. Saurabh Jain, Learned Counsel appearing for the

Appellant and Mr. Anirban Bhattacharya, Learned Counsel appearing for the

Respondent No. 1. Mr. Abhishek Nair has appeared on behalf of the Interim

Resolution Professional (`IRP').

6. Learned Counsel for the Appellant challenging the Impugned Order

submits that Adjudicating Authority committed an error in admitting Section

7 Application, since Notices were never served on the Corporate Debtor and

the Adjudicating Authority on second date of hearing proceeded Ex-Parte

against the Corporate Debtor. Order impugned has been passed Ex-Parte to

the Corporate Debtor. Corporate Debtor had no opportunity to place its

defence. It is submitted that the Corporate Debtor is engaged in business

operation of providing consultancy services in real estate business. The

Respondent No. 1 Company approached the Corporate Debtor seeking the

services of the Corporate Debtor in October 2010. Respondent No. 1

Company, agreed to pay ₹1,00,00,000/- of the security amount for research

in market. In result amount of ₹1,00,00,000/- was paid by Respondent

Company to the Corporate Debtor on 20.11.2010. The Corporate Debtor

issued a Performa Invoice dated 15.12.2012 of ₹1,20,00,000/-. Tax invoices

were not issued subsequently an amount of ₹1,00,00,000/- was shown as

security in the books of the Corporate Debtor. It is submitted that no loan

was extended by Respondent Company to the Corporate Debtor nor there was

any Loan Agreement or any other document to prove a financial transaction.

The Liquidator of the Respondent No. 1 Company without any basis proceeded

to file Section 7 Application against the Corporate Debtor. It is submitted that

leave was taken by Liquidator from the Adjudicating Authority to take steps

Comp. App. (AT) (Ins.) No. 666 of 2024 4 of 24 for recovery of the amount of M/s. Kalibre Associates Pvt. Ltd., which did not

entitled the Liquidator to file Section 7 Application, proceeding under Section

7 are not proceeding for recovery of any debt and Liquidator has wrongly

initiated proceeding under Section 7. It is submitted that there was no

Financial Debt nor any material was shown by Liquidator to prove the debt

as Financial Debt. NeSL Certificate Report filed by the Financial Creditor

mentioned deemed to be authenticated without their being any response by

the Corporate Debtor. There was no Loan Agreement nor the disbursement

for any time value of money. Adjudicating Authority committed error in

admitting Section 7 Application. It is submitted that amount was given as

security to the Corporate Debtor by M/s. Kalibre Associates Pvt. Ltd. for

services which was rendered by the Corporate Debtor.

7. Mr. Anirban Bhattacharya Learned Counsel for the Respondent refuting

the submission of the Counsel for the Appellant contends that Adjudicating

Authority has rightly granted leave to the Liquidator under Section 33(5) of

the Insolvency and Bankruptcy Code, 2016 (for short `The IBC' or `The Code')

to institute suits/legal proceedings, including filing of Section 7 Application

and the Application filed by the Liquidator under Section 7 against the

Corporate Debtor was in accordance with the leave granted by the Liquidator

and the Application cannot be said to be not maintainable. It is submitted

that in the Balance Sheet of the Financial Creditor, the amount is mentioned

as "loan advances" in the Balance Sheet of the Financial Year 2017-18 and as

on 18.01.2019. There being debt of ₹1,00,00,000/- due on Corporate Debtor.

Liquidator to protect the interest of the Financial Creditor has to take all steps

and the filing of Petition under Section 7 was well within jurisdiction. It is

Comp. App. (AT) (Ins.) No. 666 of 2024 5 of 24 submitted that RP has sent a Notice to the Corporate Debtor demanding an

amount of ₹1,00,00,000/- with interest by Notice dated 18.07.2019 and the

amount became due on 18.07.2019, when Demand Notice was issued. It is

pleaded that the amount having been reflected as "loan advance" in the

Balance Sheet of the Financial Creditor, it was a Financial Debt within

meaning of Section 5(8). It is submitted that even if receipt of amount of

₹1,00,00,000/- is considered to be Security Deposit, in that case also there

exists Financial Debt since the Corporate Debtor was liable to refund the

Security Deposit. It is submitted that NeSL record filed by the Financial

Creditor, fully proved the debt and default and the Adjudicating Authority did

not commit any error in relying on the NeSL Certificate in holding the debt

and default. The Corporate Debtor has not shown to have render any kind of

services to the Corporate Debtor for payment of amount of ₹1,00,00,000/-

which was paid by the Financial Creditor to the Corporate Debtor on

20.11.2012. It is submitted that in the Balance Sheet of the Corporate

Debtor, also the amount of ₹1,00,00,000/- is reflected as "other long-term

liabilities" which also clearly proves existence of the Financial Debt.

8. We have considered the submissions of the Counsel for the Parties and

perused the record.

9. There is no dispute between the Parties that amount of ₹1,00,00,000/-

was transferred by M/s. Kalibre Associates Pvt. Ltd. to the Corporate Debtor

on 20.11.2010. Part IV of Section 7 Application contains the particulars of

debt in following words:

"Part - IV PARTICULARS OF FINANCIAL DEBT

Comp. App. (AT) (Ins.) No. 666 of 2024 6 of 24

1. TOTAL AMOUNT That as per the records of the OF DEBT GRANTED Corporate Debtor available with the DATE(S) OF Liquidator an amount of Rs. DISBURSEMENT 1,00,00,000/- (Rupees One Crore Only) was disbursed by the Financial Creditor as loans and advances to the Corporate Debtor on 20.11.2010 vide Cheque No. 32001426

The disbursement of loans and advances is clearly reflected in the bank statement of the Financial Creditor.

A copy of the Bank Statement and copy of the Ledger of the Corporate Debtor as maintained by the Financial Creditor is annexed herewith and marked as ANNEXURE- 5.

2. AMOUNT CLAIMED Amount Claimed to be in TO BE IN DEFAULT default: Rs. 1,00,00,000/-

AND THE DATE ON (Rupees One Crore Only).

WHICH THE DEFAULT OCCURRED Date of Default: 18.07.2019 (Date of Demand letter issued by the IRP)

Limitation in normal course would have ended on 18.07.2022.

However, vide order dated 23.03.2020 the Hon'ble Supreme Court of India in "In Re:

Cognizance for extension of limitation", the limitation period stopped running. Further, vide order dated 10.01.2022 passed by the Hon'ble Supreme Court of India in "Miscellaneous Application No. 21 of 2022 in Miscellaneous Application No. 665 of 2021 in SMW(C) NO. 3 OF 2020 In Re: Cognizance for extension of limitation" para 5, the order dated 23.03.2020 was restored and in continuation of the Comp. App. (AT) (Ins.) No. 666 of 2024 7 of 24 subsequent orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it was directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings.". Therefore, after excluding the said period from 15.03.2020 till 28.02.2022, the limitation period would end on 02.07.2024."

10. In the documents, the Respondent Company has filed the copy of the

default of record as registered with NeSL and Bank Statement of M/s. Kalibre

Associates Pvt. Ltd., reflecting the payment to the Corporate Debtor. Audited

Financial Statement of Financial Creditor as on 31.03.2018 and Provisional

Balance Sheet as on 18.01.2019 of the Financial Creditor and Audited

Financial Statement of the Corporate Debtor for Financial Year ending as on

31.03.2019 and Audited Financial Statement ending on 31.03.2020 and

31.03.2021 as well as 31.03.2022. Copy of Demand letter dated 18.07.2019

was also filed.

11. It is to be noted that Orders passed by the Adjudicating Authority

admitting Section 7 Application is Ex-Parte Order, since the Corporate Debtor

could not appear before the Adjudicating Authority. It is the case of the

Appellant that Notices were not served. However, it is not necessary to enter

into issue as to whether Notices were served on the Appellant or not? Fact

remains that Order passed by the Adjudicating Authority was an Ex-Parte

Order.

Comp. App. (AT) (Ins.) No. 666 of 2024 8 of 24

12. First submission which has been pressed by the Counsel for the

Appellant is that Liquidator of M/s. Kalibre Associates Pvt. Ltd. has no

jurisdiction to file Section 7 Application against the Corporate Debtor. He had

taken leave from the Adjudicating Authority to recover the dues of the

Company in Liquidation i.e., M/s. Kalibre Associates Pvt. Ltd. It ought to

have taken steps for recovery and not to file Application under Section 7.

13. The above submissions have been refuted by the Counsel for the

Liquidator and submitted that in the Application filed by Liquidator, a specific

prayer was made seeking prior approval to institute suits/legal proceedings

on behalf of the Corporate Debtor, including filing of the Section 7 of the Code.

The Appellant has brought on the record copy of the Order dated 21.02.2022

passed in the Liquidation Proceedings of M/s. Kalibre Associates Pvt. Ltd. in

I.A. No. 5846/2021, which was filed by the Liquidator following Order was

passed:

"IA-5846/2021- By filing this IA, the applicant has prayed for granting prior approval to the Applicant to institute suits / legal proceedings on behalf of the CD including filing applications under Section 7 of the Code for initiation of CIRP against the Companies/Borrowers of the Corporate Debtor having outstanding dues of above Rs.1,00,000 / (Rupees One Lakh Only) to Rs. 3,00,000 /- (Rupees Three Crores Only) for recovery of dues/default committed by such companies/borrowers in payment of their debt.

Heard the Ld. Counsel appearing for the Applicant and perused the averments made in the application. Considering the submissions and the averments made in the application, we hereby allow the prayer. The Liquidator is directed to take all steps in accordance with the provision of law.

With this, the present IA stands disposed of."

14. When we look into the Order, it is clear that prayers made in the

Application has been allowed by the Adjudicating Authority, the prayers made Comp. App. (AT) (Ins.) No. 666 of 2024 9 of 24 in the Application has been noticed in the Order itself, were "for granting prior

approval to institute suits/legal proceedings on behalf of the Corporate

Debtor, including filing of the Section 7 Application of the Code for initiation

of the CIRP against the Company/borrowers of the Corporate Debtor, having

outstanding dues...". The approval granted by the Adjudicating Authority,

thus was clearly permitted filing of Section 7 Application also. Thus, we

accept the submission of the Counsel for the Liquidator that Order dated

21.02.2022 clearly permitted the Liquidator to file an Application under

Section 7 against the borrowers. Thus, submission of the Appellant on this

ground cannot be accepted.

15. The submission of the Appellant which have been advanced before us

is that there was no Financial Debt and the amount was advanced by the

M/s. Kalibre Associates Pvt. Ltd. towards the security for payment towards

services, which was to be rendered by the Corporate Debtor. Corporate

Debtor was engaged in business of providing consultancy service regarding

the real estate and carrying out the research in the market. It is the case of

the Appellant that Financial Creditor had approached the Corporate Debtor,

seeking their services an amount of ₹1,00,00,000/- was extended as security,

for the payment against the services. Appellant's case is that Performa Invoice

of ₹1,20,00,000/- was also issued by Corporate Debtor, which Performa

Invoice has been brought on record as (Annexure A-2) to the Appeal, which

Performa Invoice is as follows:

Comp. App. (AT) (Ins.) No. 666 of 2024 10 of 24

16. Section 7 Application which was filed by the Liquidator claimed debt as

a Financial Debt and it was pleaded in Part IV that amount of ₹1,00,00,000/-

was disbursed by the Financial Creditor as loans and advance to the

Corporate Debtor on 20.11.2020. The Balance Sheet of the Financial Creditor

has been brought on the record in the Balance Sheet of 2017-18 under the

heading short terms loans and advances, name of Corporate Debtor is

mentioned in the end where an amount of ₹1,00,00,000/- was mentioned

Comp. App. (AT) (Ins.) No. 666 of 2024 11 of 24 both as on 31.03.2017 as and on 31.03.2018. The same amount of

₹1,00,00,000/- is further reflected in the provisional Balance Sheet as on

18.01.2019, whereunder Para 2.12 short-term loans and advances amount of

₹1,00,00,000/- was mentioned against the name of Corporate Debtor as on

18.01.2019. From the Balance Sheet, it is clear that loans and advances are

grouped under the same heading.

17. There being no dispute that amount of ₹1,00,00,000/- was transferred

to the Corporate Debtor on 20.11.2010 and from the Balance Sheets, annual

Financial Statements of the M/s. Kalibre Associates Pvt. Ltd., which is on

record, it is clear that same amount of ₹1,00,00,000/- is reflected till

18.01.2019, that is when the provisional Balance Sheet was prepared prior to

the initiation of the CIRP. The above facts make it clear that there was no

interest component in the amount of ₹1,00,00,000/- since none of the

Financial Statements, any interest provided for.

18. We are conscious that payment of interest is not necessary condition

for a debt to be treated as a Financial Debt. Financial Debt can also be a debt

without any interest. However, the precondition for amount to be treated as

a Financial Debt is disbursement for time value of money.

19. Section 5(8) provide as follows:

"5. 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;

Comp. App. (AT) (Ins.) No. 666 of 2024 12 of 24

(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;

(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 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."

20. The Notice which was issued by the RP to the Corporate Debtor prior to

filing of the Section 7 Application has also been brought on record which was

issued by the RP Mohan Lal Jain, who is now working as a Liquidator. In the

said Demand Notice, the claim was made of ₹1,00,00,000/- plus interest and Comp. App. (AT) (Ins.) No. 666 of 2024 13 of 24 subsequent in Notice dated 20.07.2020 which was issued on behalf of the

Liquidator payment of ₹1,00,00,000/- with 12% interest was claimed.

21. When we look into Part IV of the Section 7 Application, it is clear that

in the amount claimed, no interest is demanded. Thus, it is now admitted

case of the Respondent Company that there was no interest payment. When

it is admitted that there was no interest payment of ₹1,00,00,000/- burden

was on the Respondent, i.e., Applicant before the Adjudicating Authority to

prove that debt is a Financial Debt. The Liquidator who has filed the

Application under Section 7 has only relied the Balance Sheets of the

Financial Creditor and the Corporate Debtor as well as NeSL Report.

22. The amount of ₹1,00,00,000/- given to the Corporate Debtor, was

under the heading loans and advances, to prove that the said amount was

loan. There is no other material available on the record nor any Loan

Agreement or any other acknowledgement by the Corporate Debtor.

23. The Appellant has also brought on the record the Financial Statement

of Corporate Debtor which has also been referred to in the Section 7

Application filed by the Respondent Company. Financial Statement of the

Corporate Debtor, there is Note No. 3 which deals with long-term borrowings

and Note 4 deals with the other long-term liabilities. Note 6 deals with the

short-term borrowings. It is useful to extract the Balance Sheet of the

Corporate Debtor as on 31.03.2019, Note 3 to Note 9 which is as follows:

NOTE NO. 3

LONG TERM BORROWINGS in Rs. 31st March 2020 31st March 2019

Comp. App. (AT) (Ins.) No. 666 of 2024 14 of 24 A. Term Loans

B. Deposits: a) From Related Parties: S.C. Garments Pvt Ltd 14685000.00 14658000.00 Sewa International Fashions 20684100.00 20570800.00 Ltd. b) From others Nischay Finvest Pvt Ltd 500000.00 500000.00

Total Long Term Borrowings 35869100.00 35755800.00

NOTE - 4 As at As at OHER LONG TERM 31.03.2020 31.03.2019 LIABILITIES Security Received from NIIT 26100000.00 26100000.00 Kaliber Associates 10000000.00 10000000.00 Total 36,100,000.00 36,100,000.00

NOTE - 5 Also at Also at LONG TERM PROVISIONS 31.03.2020 31.03.2019 NIL NIL

NOTE - 6 Also at Also at SHORT TERM BORROWINGS 31.03.2020 31.03.2019 a) Loans and advances from - - related parties b) Deposits - - Total - -

NOTE - 7 Also at Also at

Comp. App. (AT) (Ins.) No. 666 of 2024 15 of 24 Trade Payables 31.03.2020 31.03.2019 - - - - - -

NOTE - 8

OTHER CURRENT Also at Also at LIABILITIES Cheque Issue but Not Present 31.03.2020 31.03.2019 into Bank - -

- -

NOTE - 9 Also at Also at 31.03.2020 31.03.2019 SHORT TERM PROVISIONS (a) Provision for employee - - benefits: - - (b) Others Audit Fees Payable 227,506.00 199,926.00

227,506.00 199,926.00

Total Provisions 227,506.00 199,926.00

24. When we look into the Financial Statement of the Corporate Debtor, it

is clear that long-term borrowings are separately provided for and other long-

term liabilities are separately mentioned in Note 4 and with regard to two

entries under other long-term liabilities, it is mentioned as:

Comp. App. (AT) (Ins.) No. 666 of 2024 16 of 24 NOTE - 4 As at As at OHER LONG TERM 31.03.2020 31.03.2019 LIABILITIES Security Received from NIIT 26100000.00 26100000.00 Kaliber Associates 10000000.00 10000000.00 Total 36,100,000.00 36,100,000.00

25. The above entry indicates that Corporate Debtor in its Balance Sheet

has not shown the amount as borrowing rather the said amount has been

shown as security receipt from M/s. Kalibre Associates Pvt. Ltd.

26. Learned Counsel for the Respondent relying on the Judgment of the

Hon'ble Supreme Court in the matter of `Global Credit Capital Ltd. & Anr.'

Vs. `Sach Marketing Pvt. Ltd. & Anr.' reported in 2024 SCC OnLine SC

649, submits that even the security can be treated to be a Financial Debt.

Learned Counsel for the Appellant has relied on Paragraphs 14, 17 & 18 of

the Judgment, which are as follows:

"14. Where one party owes a debt to another and when the creditor is claiming under a written agreement/arrangement providing for rendering 'service', the debt is an operational debt only if the claim subject matter of the debt has some connection or co-relation with the 'service' subject matter of the transaction. The written document cannot be taken for its face value. Therefore, it is necessary to determine the real nature of the transaction on a plain reading of the agreements. What is surprising is that for acting as a Sales Promoter of the beer manufactured by a corporate debtor, only a sum of Rs. 4,000/- per month was made payable to the first respondent. Apart from the sum of Rs. 4,000/- per month, there is no commission payable to the first respondent on the quantity of sales. Clause (6) provides for termination of the appointment by giving thirty days' notice. Though clause (10) provides for the payment of the security deposit by the first respondent, it is pertinent to note that there is no clause for the forfeiture of the security Comp. App. (AT) (Ins.) No. 666 of 2024 17 of 24 deposit. The amount specified in clause (10) has no correlation whatsoever with the performance of the other conditions of the contract by the first respondent. As there is no clause regarding forfeiture of the security deposit or part thereof, the corporate debtor was liable to refund the security deposit after the period specified therein was over with interest @21% per annum. Since the security deposit payment had no correlation with any other clause under the agreements, as held by the NCLAT, the security deposit amounts represent debts covered by subsection (11) of Section 3 of the IBC. The reason is that the right of the first respondent to seek a refund of the security deposit with interest is a claim within the meaning of subsection (6) of Section 3 of the IBC as the first respondent is seeking a right to payment of the deposit amount with interest. Therefore, there is no manner of doubt that there is a debt in the form of a security deposit mentioned in the said two agreements.

17. To decide whether the second condition had been fulfilled, it is necessary to refer to the factual findings recorded in the impugned judgment. The NCLAT has referred to the letter dated 26th October 2017 addressed by the corporate debtor to the first respondent. We have perused a copy of the said letter annexed to the counter. By the said letter, the corporate debtor informed the first respondent that for the year 2016-2017, the corporate debtor had provided the interest amounting to Rs. 18,06,000/- in the books of the corporate debtor and that the sum will be credited to the account of the first respondent on the date of payment of TDS. In paragraph 21 of the impugned judgment, it is held that the financial statement of the first respondent for the Financial Year 2017-2018 shows revenue from the interest on the security deposit. It is also held that the amounts were treated as long-term loans and advances in the financial statement of the corporate debtor for the Financial Year 2015-2016. Moreover, in the financial statement of the corporate debtor for the Financial Year 2016-2017, the amounts paid by the first respondent were shown as "other long-term liabilities". Therefore, if the letter mentioned above and the financial statements of the corporate debtor are considered, it is evident that the amount raised under the said two agreements has the commercial effect of borrowing as the corporate debtor treated the said amount as borrowed from the first respondent.

18. Therefore, we have no hesitation in concurring with the NCLAT's view that the amounts covered by Comp. App. (AT) (Ins.) No. 666 of 2024 18 of 24 security deposits under the agreements constitute financial debt. As it is a financial debt owed by the first respondent, sub-section (7) of Section 5 of the IBC makes the first respondent a financial creditor."

27. From Paragraph 4 of the above Judgment of the Hon'ble Supreme

Court, it is clear that Hon'ble Supreme Court has held that it is necessary to

find out the real nature of the transaction to find out the nature of debt. The

said Judgment of the Hon'ble Supreme Court was rendered after considering

the Written Agreement between the Parties and considering the terms and

conditions, one of the Agreements term was that the minimum security of

₹53,15,000/- with a Company which will carry interest @ 21% p.a. and

further interest was to be provided on ₹7,85,850/- @ 21%. In the present

case, there is no consideration of transaction as a Security Deposit by the

Adjudicating Authority and without there being any consideration by the

Adjudicating Authority on the nature of the transaction, we are not able to

accept submission of the Counsel for the Respondent that even if the amount

is treated as a Security Deposit, it will be a Financial Debt. As held by the

Hon'ble Supreme Court in `Global Credit Capital Ltd. & Anr.' (Supra), the

real nature of the transaction has to be found out before coming to the

conclusion that whether debt is a Financial Debt or not?

28. In the facts of the present case, the Adjudicating Authority in the

Impugned Order has relied on record of default by NeSL and held that Report

is sufficient evidence to arrive at the conclusion to an amount of debt. There

can be no dispute that report of NeSL is an important piece of evidence, but

in the facts of the present case where the Corporate Debtor has no opportunity

to place its defence, it cannot be said that reliance on NeSL Certificate was

conclusive evidence to come to the conclusion that there was a Financial Debt.

Comp. App. (AT) (Ins.) No. 666 of 2024 19 of 24

29. Adjudicating Authority in Paragraph 3 of the Order has noticed the

Balance Sheets maintained by the Corporate Debtor. Although the Balance

Sheets have been noticed, but the Adjudicating Authority failed to notice that

long-term borrowing and long-term liabilities have been mentioned under two

different heads. Hence, non-mention of the amount of ₹1,00,00,000/- under

the heading long-term borrowing has to be given some meaning and purpose.

Long-term liabilities can be different kind of liabilities which may be an

Operational Debt, Financial Debt or any other nature of debt. However, the

real nature of transaction between the parties needs to be examined and

adjudicated by the Adjudicating Authority before admitting Section 7

Application.

30. In the present case, the Corporate Debtor unfortunately could not

appear before the Adjudicating Authority to raise his defence, hence in the

facts of the present case, we are of the view that ends of justice be served in

remitting the matter before the Adjudicating Authority for fresh consideration

with liberty to the Appellant to file its Reply within three weeks. We are

satisfied that there is no appropriate consideration of the real nature of

transaction on basis of which Section 7 Application was filed by the

Adjudicating Authority.

31. Learned Counsel for the Respondent has also placed reliance on the

Judgment of this Tribunal in the matter of `Arunkumar Jayantilal

Muchhala' Vs. `Awaita Properties Pvt. Ltd. & Anr.' in Comp. App. (AT)

(Ins.) No. 121/2023. From the Paragraph 18 of the Judgment it is noted that

the amount has been shown under the heading of long-term borrowing that

Comp. App. (AT) (Ins.) No. 666 of 2024 20 of 24 unsecured loan Related Parties. In Paragraph 18 of the Judgment following

was observed:

"18. In the present case, the Respondent No. 1 has submitted a bank certificate to substantiate the disbursal of funds to the Corporate Debtor and validated the same with the Annual Reports and Balance Sheets of the Corporate Debtor to show that it was a loan. Respondent No. 1 has placed on record the Balance Sheet of the Corporate Debtor wherein this amount has been shown under the head of 'Long Term Borrowings - Unsecured loan from Related Parties'. This clearly evidences that the disbursal was a loan. Even the notice sent by the Respondent No. 1 on 20.02.2018 as placed at pages 58- 59 of the APB clearly stated that they had extended a loan to the Corporate Debtor to meet its working capital requirements repayable on demand at an interest rate of 15% p.a. Keeping in mind that there was no document/agreement in respect of the loan amount, it is quite natural that there was no document/agreement which determined the payment of interest and the rate of interest but that cannot be a ground for assuming that the loan was not interest- bearing. It is an undisputed fact that the Respondent No. 1 has not placed on record any document which shows that the disbursal made was in the nature of loan wherein interest was specifically payable. Be that as it may, we are of the considered opinion that the IBC does not provide for any prescriptive requirement for the Financial Creditor to place on record formal written agreements/documents between the parties to establish that the disbursal made was in the form of loan with interest. Given this background we therefore find that the Adjudicating Authority committed no error in holding that there was a financial debt owed by the Corporate Debtor to Respondent No. 1."

32. The Financial Statement of Financial Creditor where it is mentioned as

loan and advances and the Financial Statement of Corporate Debtor where it

is mentioned as long-term liabilities have already been noticed by us in

proceeding Paragraph of this Judgment. As observed, there is no appropriate

consideration by the Adjudicating Authority, regarding nature of debt and

without completely looking to the Balance Sheets of the Corporate Debtor,

Comp. App. (AT) (Ins.) No. 666 of 2024 21 of 24 Adjudicating Authority has admitted Section 7 Application relying on only

NeSL Report.

33. Learned Counsel for the Respondent has also relied on the Judgment

of this Tribunal in the matter of `Vipul Himatlal Shah & Anr.'

Vs. `Teco Industries & Anr.' in Comp. App. (AT) (Ins.) No. 470/2022. This

Tribunal in Paragraph 16 has observed that the Adjudicating Authority or

Appellate Authority are not required to further examine the record maintained

by the Information Utility, more so when the record on the Information Utility

is deemed authenticated and no dispute or refutation of the said record has

been done by the Corporate Debtor earlier. In the present case as noticed

above, Appellant unfortunately, could not appear before the Adjudicating

Authority and case proceeded Ex-Parte against him. Undoubtedly Report of

the NeSL is relevant evidence, but it cannot be conclusive proof for nature of

transaction. A three Member Bench of this Tribunal in the matter of `Dheeraj

Wadhawan' Vs. `Yes Bank Ltd. & Anr.' in Comp. App. (AT) (Ins.) No. 953

of 2021, decided on 16.03.2022, while dealing with information recorded in

the Information Utility had observed that record of Information Utility is

relevant but record of Information Utility is not conclusive proof. Following

was held in Paragraph 31 of the Judgment:

"31. As noted above, there being no default by the principal borrower on 01.08.2019, all subsequent action by the Bank on the alleged default dated 01.08.2019 are unsustainable. Hence, information recorded in the information utility on the strength of loan recall notice dated 18.11.2019 in no manner can be read as material to prove that default was committed by the Bank on 01.08.2019. Under the statutory scheme, the record of information utility is relevant but record of information utility is not conclusive proof of any default and a Corporate Debtor

Comp. App. (AT) (Ins.) No. 666 of 2024 22 of 24 is always at liberty to disapprove the statement as contained in the information utility record."

34. The Adjudicating Authority has to advert to nature of transaction for

coming to the conclusion that there is a Financial Debt on basis of which

Section 7 Application can be admitted. More so, when in the present case, it

is not even the case of the Respondent that there was any interest payable,

no material has been shown to prove that the amount given to the Corporate

Debtor of ₹1,00,00,000/- was disbursement towards time value of money.

Amount is of ₹1,00,00,000/- is shown right from 2010 to 2020 and in the

Balance Sheet of the Corporate Debtor, the amount is shown as Security

amount as long-term liability.

35. From the facts as noticed above, we are satisfied that ends of justice be

served in remitting the matter for fresh consideration before the Adjudicating

Authority, with liberty to the Appellant to file a Reply within 3 weeks from

today.

36. In result, Appeal is allowed Order dated 06.03.2024 is set aside.

Appellant is allowed three weeks time to file a Reply to Section 7 Application

before the Adjudicating Authority. The Respondent under Section 7

Application will also have opportunity to file a Rejoinder to the Reply within

two weeks thereafter. Parties may request the Adjudicating Authority to fix a

date after six weeks for fresh consideration of Section 7 Application. We make

it clear that our observations made in the Orders have been made only for

purposes of deciding the Appeal and may not be treated any conclusive

opinion on the issues which are open to consideration in Section 7

Application. Adjudicating Authority may proceed to decide Section 7

Comp. App. (AT) (Ins.) No. 666 of 2024 23 of 24 Application in accordance with law, without being influenced by any of the

observations made in this Appeal.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

NEW DELHI

23rd September, 2024

himanshu

Comp. App. (AT) (Ins.) No. 666 of 2024 24 of 24