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Judgment
O R D E R
This petition is filed to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor under Section 7 of Insolvency and Bankruptcy Code, 2016 R/w Rule 4 of Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016.
Brief contents of the petition are as follows:
On 09.01.2018, a Memorandum of Understanding (MoU) was entered by and between the Petitioner/Financial and Respondent/ the Corporate Debtor, wherein the Corporate Debtor had agreed to transfer the absolute ownership of assets of the Corporate Debtor and of BSR Cancer Hospital Private Limited along with the land of 50000 sq. ft. approx. behind the hospital (Total land admeasuring 3.5 acres approx., building, hospital, and other assets) at Junvani Road, Smriti Nagar, Bhilai along with the Hospital at Rajnandgaon. The total consideration for the said property was 96 crores. Furthermore, as an advance towards the said property, the Applicant had to deposit 1.5 Crores to the Corporate Debtor towards submission to Bankers of the Corporate Debtor against the One-Time Settlement ("OTS") scheme along with a PDC of Rs. 2.5 crores in 1st week of February 2018. As per the terms and conditions of the MoU, the petitioner had already deposited an amount of Rs. 13,95,00,000/- (Rupees Thirteen Crores Ninety-Five Lakhs only) till 09.05.2018 into the account of the Corporate Debtor towards the outstanding dues of the banks. Subsequently, to make payments towards the acquisition of the aforesaid property, the petitioner along with its sister concern Ghanshyam Das Rungta Education Foundation acquired a loan of Rs. 25 crores and Rs. 27 crores respectively from SREI Infrastructure Finance Limited ("SREI") on summary terms of Sanction Letter. The Applicant has stated that somewhere in November 2018, SREI stopped disbursing the credit facilities to the Applicant. Due to the sudden blockage of funds from SREI, the Applicant approached Edelweiss Asset Reconstruction on 09.02.2019 with a letter of commitment for refinancing the Corporate Debtor and its sister concern. Accordingly, Edelweiss Asset Reconstruction vide Letter dated 11.02.2019 expressed its willingness to acquire the 2 accounts of the Corporate Debtor and its sister concern BSR Cancer Hospital Pvt. Ltd. for an aggregate purchase consideration of Rs. 24.36 crores on a full cash basis subject to terms and conditions of Annexure I mentioned therein from Axis Bank Ltd. However, due to non-payment of the consideration of Rs. 96 Crores by the Petitioner, the Corporate Debtor vide Demand Notice dated 16.06.2019 called upon the Petitioner to make the balance payment of Rs. 71 Crores. Pertinently, the Corporate Debtor had also informed the Applicant that the amount of Rs. 15 crores which was paid by the petitioner as an advance would be forfeited if the Applicant failed to make the payment of the balance consideration. The Applicant has submitted that in para 6 of the said Demand Notice, the Corporate Debtor has acknowledged that the petitioner had deposited an amount of Rs. 15 crores as part payment for the transfer of ownership of assets and Rs. 10 crores for selling off its sister concern BSR Cancer Hospital Pvt Ltd to M/s Mittal Institute of Medical Science. In response to the said Demand Notice, the Applicant vide letter dated 07.07.2019, informed the Corporate Debtor that due to its own negligence and no response from the Corporate Debtor in providing material documents, the petitioner failed to make the payment of Rs. 71 crores as per the MoU. Due to this, the Corporate Debtor was called upon by the Petitioner to remit the amount of Rs. 16.86 crores inclusive of interest charged at 15% p.a. The Petitioner has further submitted that despite receiving a cumulative amount of Rs. 19,14,00,000 Cr./-, the Corporate Debtor entered into an Agreement dated 27.12.2019 with Mr. Manmohan Kumar Khanduja, the owner of the land bearing the no. 811/-1-10, 812/1, 815 PH No. 56/15 and admeasuring 0.84 hectares, situated, lying and being at Junwani, Bhilai- 490020, Chhattisgarh and one Hi Tek Super Speciality Hospital Pvt. Ltd. (HTSHPL). By way of the said Agreement, Mr. Manmohan Kumar Khanduja had agreed and approved to transfer of the ownership of the said land appurtenant to the hospital building to HTSHPL in consideration of equity shares maximum to the tune of Rs. 25 crores only. Given the above conspectus of facts, the Petitioner submits that as the said amount of Rs. 16,10,00,000/- was paid by the Petitioner in the account of the Corporate Debtor towards the acquisition of the assets of the Corporate Debtor which was further paid to the Financial Institutions against the credit facilities availed by the Corporate Debtor, the same comes under the purview of financial debt as per the Section 5(8) of the Insolvency and Bankruptcy Code, 2016 and is liable to be remitted into the account of the Applicant.
Brief Contents of the Reply are as follows:
The Respondent (Corporate Debtor) in its reply has raised some pre-existing disputes concerning the aforementioned MoU, therefore, it has submitted that the same cannot form the basis for initiation of the present CIRP. As per the Corporate Debtor, the aforesaid MoU was conditional and dependent upon timely payments by the Petitioner as per the terms set out in the MoU. The Corporate Debtor submitted that as the Petitioner failed to pay the agreed amount in time, therefore, it violated the terms of the MoU, as a result, the Corporate Debtor was entitled to forfeit the initial sum of Rs. 15 crores and the MoU stood revoked. The Corporate Debtor submits that the treatment of the forfeited amount as a “financial debt” is impermissible since the same already stood forfeited. As per the Corporate Debtor, the forfeited amount is in the nature of an advance paid for the alleged acquisition of assets of the Corporate Debtor and therefore, such transaction does not amount to financial debt. Hence, the present petition ought to be dismissed. That insofar as the date of default is concerned, the Corporate Debtor submitted that the Applicant in its Form-1 has mentioned the date of default as 21.02.2020 and heavily relied upon the letter dated 06.02.2020 in order to arrive at the date of default of the alleged financial debt. In response, the Corporate Debtor submitted that the date of default arises from the date of debt falling due as per S. 3 (12) of the Code and that the date of debt falling due cannot be unilateral without any acceptance by the Corporate Debtor. Therefore, such a date of default of 21.02.2020 is completely baseless, and in the absence of the same, there cannot be a default that triggers the CIRP of the Corporate Debtor. It is further submitted that the trigger for admission of Insolvency against a Corporate Debtor is the occurrence of "default" as defined u/s 3 (12) of the Code, which is unclear in the present case. Based on the above submissions, the Corporate Debtor has prayed for the dismissal of the section 7 application of the Applicant.
Brief contents of the Rejoinder are as follows:
The Applicant has stated in its rejoinder affidavit that the Corporate Debtor has not denied the fact that it had received the finance from the Applicant and there has been a default by the Corporate Debtor in repaying the same. The Applicant has stated that it has not violated any of the terms of the MoU. It was further denied that part of the amount given by the Applicant to the Corporate Debtor could be forfeited or the MoU could have been revoked or that the advance amount could have been forfeited by the Corporate Debtor.
The point for consideration is:
(i). Is there any debt and payable by the corporate debtor/respondent?
In this case there is no much dispute regarding the facts, except regarding the service of legal notice dated 06.02.2020 to the respondent. The petitioner/financial creditor and respondent/corporate debtor entered into memo of understanding dated 09.01.2018 by which corporate debtor agreed to sell, and petitioner was agreed to buy the properties of respondent viz BSR Super Specialty Limited, Bhili, BSR Cancer Hospital Private Ltd along with land of 50000 sq fts, at Bhili and Hospital at Rajnandgaon running on rented premises at Bhili for total sale consideration of Rs. 96 crores. Petitioner paid a sum of Rs.1.5 crore as an advance to pay towards the OTS proposal of respondent along with post-dated cheque for Rs. 2.5 crore. The time fixed for completion of sale transaction was by 31.03.2018. The petitioner paid further amount and totally paid a sum of Rs.15,00,00,000/- till 09.05.2018 into account of the corporate debtor.
From the records it shows that the petitioner planned to buy the properties of the respondent, after obtaining the financial assistance from the financial institutions. Initially, the SREI finance company agreed to give financial assistance granting loans of Rs.25 corers and Rs.27 crores by loan sanction letter dated 31.08.2018. But later from November 2018 SREI stopped to give loan. Then the petitioner moved to Edelweiss Asst Reconstruction to obtain loan. The Edelweiss Asst Reconstruction expressed its willingness to give loan to the tune of Rs.27 crores to the petitioner by letter dated 11.02.2019.
When the sale was not completed within the fixed time as mentioned in MOU dated 09.01.2018, and after the expiry of one year on 30.03.2019 the respondent entered into sale agreement with M/s Mittal Institute of Medical Science, with the consent of petitioner and sold the part of the property land measuring 0.58-acre, Hospital Building, plant and machinery, spares etc. to M/s Mittal Institute of Medical Science for consideration of Rs.10,00,00,000/-. These properties were already under the mortgage with Bankers of respondent hence the sale consideration amount was deposited by the purchaser in the Bank account of respondent Bankers Axis Bank and SIDBI, they had issued no objection certificate.
In the situation the respondent sent ultimatum/notice dated 16.06.2019 to the petitioner, asking him to pay the balance sale consideration of Rs.71,00,00,000/-and take the conveyance within 15 days’ time. The petitioner sent a reply notice dated 07.07.2019, demanding certain documents from the respondent to procure funds from the financial institutions. In the reply petitioner demanded to refund of the advance amount together with interest at Rs. 16.86/- crores. The respondent by notice dated 22.09.2019 revoked the MOU dated 09.01.2018 and appropriated the entire advance amount of Rs.15 crores and further demanded Rs.25,00,00,000/ towards damages.
In this case it is obvious that the sale was not concluded because of petitioner could not secure the financial assistance from the financial institutions. The time fixed in MOU dated 09.01.2018 is to complete the sale by 31.03.2018, but petitioner could not complete the sale till the date of revocation letter dated 22.09.2019. The contention of the petitioner that due to non-production of certain documents by the respondent, he could not process the loan application with financial institution is unsustainable, because the petitioner already parted with Rs.15 crores and SREI financial institutions already sent sanction letter to grant loan but subsequently withdraw the sanction. The Edelweiss financial institution also sanctioned loan. These factors shows that the Petitioner already collected all the material documents from the respondent and processed the loan applicants. Now only to suppress his inability to purchase the property come forward with this unsustainable plea. Further during the subsistence of agreement to sell/MOU the petitioner never and ever expressed its ready and willingness to perform its part of contract.
The respondent by his notice dated 22.09.2019 revoked the contract/MOU and appropriated the advance amount paid by the petitioner. The revocation is made after giving ultimatum by notice dated 16.06.2019. There is no dispute regarding the revocation of MOU, the petitioner also not claiming specific performance of contract, the petitioner only questions the correctness of the forfeiture of entire advance amount paid by the petitioner. In MOU there is no forfeiture clause, even in the absence of any specific clause, the person who suffered loss by breach of contract by another party is entitled to appropriate the reasonable amount from earnest money towards loss or damage suffered by him. This is covered under Section 73 of Indian Contract Act 1872. The question is whether forfeiture of entire advance amount is just and reasonable or not cannot be decided in this summary proceeding, it can be decided after recording evidence only by civil court.
The respondent revoked the contract by notice dated 22.09.2019, the petitioner filed this petition on 17.10.2022, of course within limitation because of Supreme Court Suo-Moto writ petition order, the period from 15.03.2020 to 28.02.2022 to be excluded while calculate the period of limitation, but the issue is whether this petition can be entertained before deciding the validity of revocation, the validity of revocation of contract and reasonableness of quantum of forfeited amount are all can be agitated only before the civil court. In consequence at present there is no existence of debt, when there is no debt the question of default does not arise.
In view of above discussion, it is found that the petitioner is defaulting party, the petitioner committed breach of contract, in such a situation the person who committed wrong should not be permitted to take advantage of his own wrong.
On the petitioner side stated that petitioner sent advocate notice dated 6.02.2020 by which the petitioner demanded the refund of advance amount within 15 days with interest. On the respondent side denies this notice. The onus of proof lies upon the petitioner but petitioner not proved that the said notice was delivered on the respondent. Even otherwise this notice has no significant role to decide the Lis.
On the petitioner side relies upon certain citations pressing the point that the advance amount paid by the petitioner is comes under the ‘financial debt’. The question whether the debt is financial debt or not will arises only if there is a debt, but here as on date of filing this petition there was no debt, because as discussed above the MOU was revoked and advance amount was already forfeited.
On the petitioner side very much rely upon the NCLAT-Delhi order dated 22.05.2023 passed in company Appeal No.982 of 2022 Shivam Agrioils Pvt Ltd vs Shree Krishna Vanaspati Industries Pvt. Ltd -Vs- Shree Krishna Vanaspati, Indusries Pvt. Ltd. of course the petitioner rely this citation for the purpose to determine that the advance amount paid by the petitioner is financial debt, but this citation deals with two issues one issue is regarding character of the debt and another issue is regarding entitlement of the person to maintain the petition under section 7 IBC 2017 who had paid only a part of sale consideration. The second issue discussed in the supra citation squarely applicable to this case, there in para 41 the order runs as follows:
Both the MoUs and A2S clearly provided that only on full payment of consideration amount by the Appellant that the Corporate Debtor was liable for cancellation of existing lease deed and registration of fresh lease deed by SIDCUL. Breach of obligation on the part of the Corporate Debtor would arise only after the Appellant fulfilled the pre-condition of making final payment and that having not taken place, the Corporate Debtor cannot be held liable for any breach of obligation and to provide for attendant compensation. Thus, the MoU s and A2S had been frustrated due to non-payment by the Appellant of the agreed consideration amount contained therein and for this breach the Corporate Debtor cannot be held responsible as that would tantamount to allowing the Appellant to take advantage of his own wrong. The full payment had clearly not been made by the Appellant having Company Appeal (AT)(Insolvency) No.982 of 2022 admittedly paid only Rs.10.46 crore, we agree with the finding of the Adjudicating Authority that unless the entire payment was made, no right would accrue to the Appellant to enter into the shoes of SBI and have right to title and possession of the subject property.
In view of the foregoing discussions, it is answered that there is no debt and payable by the respondent/corporate debtor, in consequence, this petition is dismissed. No order as to costs.
Certified copy of the order may be issued to all the concerned parties, if applied for, upon compliance with all requisite formalities.