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Judgment
ORDER
PER: BACHU VENKAT BALARAM DAS, MEMBER (JUDICIAL)
This Application has been filed by Hallow Securities Private Limited, through its Authorized Representative Mr. Nishant Chhajer, Office at 9, LSC, Masjid Moth, Greater Kailash, Part — II, New Delhi — 110048, the Financial Creditor (‘Applicant’) before this Adjudicating Authority under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC” or “Code”) r/w Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, seeking an Order to initiate Corporate Insolvency Resolution Process (“CIRP”) and declaring moratorium against M/s. Broad Homes Private Limited, Flat No. 14, Ground Floor, Pul Pehlad Pur, DDA MIG Suraj Apartment, New Delhi 110044 the Respondent/Corporate Debtor. The Corporate Debtor is registered with Registrar of Companies, Delhi and is therefore within the jurisdiction of this Adjudicating Authority.
Brief Background of Proceedings: As per the factual matrix canvassed by the parties, initially Applicant entered into a term sheet dated 16.03.2020 with the Respondent and the Applicant invested a sum of Rs. 29,70,00,000/- (Rupees Twenty Nine Crores and Seventy Lacs) with the Corporate Debtor for procuring/acquiring suitable land parcels in Delhi NCR region and later by way of an Addendum to the term sheet dated 04.03.2023 both the parties i.e the Corporate Debtor and the Financial Creditor agreed that the amount that has been transferred shall be treated as loan and the same shall be repaid on or before 3 months with interest at the rate of 12% starting from the date of execution of this addendum. In the event the said amount is not repaid within this agreed time period, a further penal interest at the rate of 2% per month shall be accrued till the actual realisation of the same. In light to this modification made to the term sheet by way of an addendum this Adjudicating Authority on 14.05.2024 passed the following order extracted hereunder:
“This application has been filed by M/s. Hallow Securities Pvt. Ltd. under Section 7 of the IBC, seeking initiation of CIRP against M/s. Broad Homes Private Limited, the Corporate Debtor herein. The Applicant is directed to file an affidavit w.r.t. the maintainability of the present application within one week.”
In Compliance of the said order the Applicant filed the maintainability affidavit.
Relevant Extracts from the maintainability Affidavit filed by Applicant
“1.I am the …………………………………………………………………………
7.I say that in view of the addendum dated 04.03.2023 to the term sheet, the parties herein agreed that if the CD is unable to find any suitable land, then the CD would be liable to repay the entire amount with an interest rate of 12% PA from the date of the addendum until the realisation of the same. From the addendum to the term sheet, it is clear that the nature of the transaction that took place between the FC and CD was the disbursement of a loan along with a time value for money, which clearly falls under the definition of debt as defined under the IBC, 2016…
10.It is submitted that initially, in terms of the term sheet dated 16.03.2020 the FC had advanced the sum as an investment to the CD, but the nature of the transaction was changed by way of the addendum dated 04.03.2023. The deponent submits that it is a settled principle of law that an addendum to an agreement or MoU or any understanding must be read together with the original agreement or MoU or any understanding to ascertain the true intent of the parties and the comprehensive set of terms and conditions that govern the relationship between the parties. It is submitted that the addendum should not be considered in isolation but as an integral part of the agreement, MoU, or any understanding between the parties. In light of the foregoing, it is submitted that the transaction that took place between the FC and CD as well as the loan that the FC gave to the CD qualify as "financial debt………………………………………………………………………………………..
12.The deponent herein humbly submits that the aforesaid addendum to the term sheet is a part of the term sheet itself, and the same has to be construed with the original term sheet to ascertain the full scope and intention of the parties. The said addendum should not to be interpreted in isolation and the rights and liabilities of the parties should be govern under the said addendum, In view of the transaction mentioned in the addendum to the term sheet, it is reiterated that the nature of the transaction that took place between the FC and CD was the disbursement of a loan along with a time value for money, which clearly falls under the definition of debt as defined under the IBC, 2016, for which the CD has defaulted in repaying the same. ………………………………………………….”
On 31.05.2024 this Adjudicating Authority passed the following order:
“Learned Counsel appears for the Applicant. In compliance with the order dated 14.05.2024, the Applicant has filed an affidavit along with a copy of the Addendum to Term Sheet dated 16.03.2020. It is submitted by the Learned Counsel appearing for the Applicant that addendum was executed whereby the investment was converted into a loan and therefore, the default amount falls under the definition of financial debt. Heard the submissions made by the Learned Counsel appearing for the Applicant. Issue notice to the Respondent.”
Vide order dated 16.07.2024, this Adjudicating Authority directed the Applicant to file an affidavit stating that the instant application filed under Section 7 is not a collusive one. In compliance of which the Applicant has filed the Affidavit which in sum and substance states that there is no understanding between Financial Creditor and the Corporate Debtor. Financial Creditor has acted independently and without any influence or coordination with Corporate Debtor and the Section 7 Application has been filed without any collusion.
Vide order dated 23.10.2024 this Adjudicating Authority directed the parties to file brief note of submissions within one week and also directed the Respondent/Corporate Debtor to file an affidavit stating that there is no collusion between the parties. In compliance with the order dated 23.10.2024, the Respondent filed an affidavit which in sum and substance states that the Corporate Debtor has no relation or common management with the Financial Creditor and are two distinct entities without any commonality and this Application is not filed in collusion with Financial Creditor in any manner. On 27.11.2024 Mr. Ketan Madan, Learned Counsel appearing for the Respondent/Corporate Debtor submitted that he does not wish to file written submissions and the reply affidavit may be treated as written submissions.
Submissions of the Applicant/Financial Creditor:
It is submitted that the Applicant entered into a term sheet dated 16.03.2020 with the Respondent and the Applicant invested a sum of Rs. 29,70,00,000/- (Rupees Twenty Nine Crores and Seventy Lacs) with the Corporate Debtor for procuring/acquiring suitable land parcels in Delhi NCR region for development of a residential cum commercial and mixed-use project.
Applicant advanced amounts to the Corporate Debtor on various dates and in tranches with a clear understanding that once suitable lands are being acquired, the Applicant and the Corporate Debtor shall jointly develop residential, commercial and mixed use projects on such land to earn good profit. The said term sheet was executed for a period of 1 year from the date of execution.
The Corporate Debtor was not able to find any land parcel for more than a year. That the Corporate Debtor kept assuring the Applicant that many discussions with various landowners are underway and that it would conclude the proposed deals at the earliest.
The Corporate Debtor assured the applicant that one of its subsidiary company has been allocated land parcel from Noida Authority in Sector 98, Noida and that its subsidiary shall be developing a project named “Isle” on the duly allocated land. The Corporate Debtor further assured that the said project shall have huge profitability and projections of such huge profits were based on the Valuation Report dated 18.02.2017.
The Corporate Debtor agreed to adjust the investments of the applicant in profit sharing of “Project Isle” situated in Sector 98, Noida in 50:50 ratio. However, in the month of April 2022 Noida Authority cancelled the allocation of land and thus the said project got cancelled.
The Corporate Debtor was unable to find any suitable land for the project even on completion of two years and therefore the Applicant not having any other alternative, recalled the amount invested with the Corporate Debtor and issued a Demand Notice dated 18.11.2022.
The Corporate Debtor received the said Demand Notice on 20.11.2022 and approached the Financial Creditor requesting further extension of three months. The Financial Creditor and the Corporate Debtor then agreed to enter into Addendum to the said Term Sheet to modify/amend certain clauses of the said Term Sheet to secure the investment of the Applicant.
That as per the terms of the said Addendum to term sheet dated 04.03.2023 the applicant granted three months to the Corporate Debtor to acquire land parcel and in lieu of the same the Corporate Debtor agreed that in case it is unable to find any project land within the said extended period granted by the applicant, the Corporate Debtor shall be liable to repay the entire money paid by the applicant with interest at 12% p.a. from the date of addendum till the date of realization of the same. The said arrangement was agreed upon between the Applicant and the Corporate Debtor to make good the loss of interest on the investment that has been made by the Applicant till the date of execution of the said Addendum of the term sheet.
It is submitted that the Applicant and the Corporate Debtor had agreed in the said addendum that in case the Corporate Debtor materializes any deal and procures any land for development project than the parties shall also share profits in the ratio of 50:50 over and above the agreed interest component that the Corporate Debtor has agreed to pay to the Applicant from his share of the agreed profit.
That the additional extended period as per the Addendum to the term sheet also expired on 04.06.2023. However, the Corporate Debtor was unable to adhere to its commitment. Therefore, the entire amount of Rs. 29,70,00,000/- is liable to be paid by the Corporate Debtor to the applicant with agreed applicable interest. The Applicant issued a notice for recovery of its legal dues from the Corporate Debtor vide Legal Demand Notice dated 02.09.2023 as last and final opportunity to pay the dues of the applicant however the same is without any response.
The total amount claims to be in default is Rs. 29,70,00,000/- along with 12% interest p.a. payable on unpaid debt till the date of the final order. Thus, the Corporate Debtor is liable to repay a sum of Rs. 32,28,75,616/- to the applicant.
Submissions of the Respondent/Corporate Debtor:
It is submitted that the Applicant was in search of procuring/ purchasing a piece of land which could be used for development of real estate project in NOIDA and the Respondent being in the business of real estate development and construction around Delhi & NCR was approached by the Applicant for the said purpose so that the project could be jointly developed. Later the parties entered into a term sheet with the intent that the Respondent shall procure good deal of land for the Applicant as the Respondent was having expertise in the said field. It was decided that the Financial Creditor would invest initial sum of Rs. 30,00,00,000/- (Rupees Thirty Crores Only) for acquisition of land.
The Respondent also identified various lands and forwarded the deals to the Applicant after which the parties agreed to jointly develop the said project. It was only after the deals were forwarded by the Respondent Company to the Applicant, payments were released by the Applicant to the Respondent to give advance payments for arranging the meetings with the landowners. Amounts received by the Respondent were only based on the mutual discussions and as per the prospective dealing that can be entered into between Applicant and the landowners.
That even after best efforts of the Respondent Company, the Financial Creditor did not finalise any deal and resultantly all the efforts of the Respondent Company had gone in vain. Thus, in the meanwhile the money received by the Respondent was utilised by Respondent in its business.
That the Respondent shared the detail of one of the residential projects in Sector 98 Noida, the land of which was leased by NOIDA in favour of its subsidiary company and the said subsidiary company was facing some crunch and ready to dilute their share to save and complete the project. The Respondent offered the said project as well to the Applicant and asked the Financial Creditor to join hands in development of the said project. The parties further agreed that the entire payments advanced by the Applicant were to be adjusted towards its share in the joint development of the Project named “Lotus Isle” (i.e. in the subsidiary company of the Respondent) However, in the month of April, 2022 NOIDA Authority cancelled the allocation of land. Resultantly, the Financial Creditor withdrew its intent to invest in Project “Lotus Isle”.
The Respondent asked the Applicant to grant time for repayment of its money. As the Respondent was running into financial crunch due to loss of business during Covid pandemic. Respondent returned a sum of Rs. 2,00,00,000/- (Rupees Two Crores Only) to the Applicant on 08.07.2022.
It is submitted that as per the transaction between the parties the respondent was obliged to pay Rs. 29,70,00,000/- which is as per the addendum to the term sheet. Respondent has been working as per the instructions of the Applicant and it is due to the conduct of the Applicant that no deal as envisaged could be fructified. Even after service of notice the Respondent has made attempts to get the matter settled however, the Applicant has not acted reasonable at any time. The addendum is a one-sided agreement which has been got executed by using the dominant position. Such sum of money could not have been repaid in a short period of three months and levy of penal interest @ 2% per month on the amounts advanced is clear proof of the fact that the Financial Creditor has used its dominant position to execute addendum to the term sheet.
It is submitted that the interest was only agreed after 04.03.2023 that to without any penal interest only @12% per annum. That the respondent is undergoing financial difficulty at this stage, the obligation under Term Sheet dated 16.03.2020 and Addendum to the Term sheet dated 04.03.2023 could not be honoured. However, respondent may be able to pay the debts in case reasonable time is granted provided the Financial Creditor is restraint from exploiting its dominant position.
5. Analysis and Findings
The Corporate Debtor and Financial Creditor initially entered into a term sheet dated 16.03.2020 for acquiring land in the Delhi NCR region, according to this term sheet the Financial Creditor agreed to provide interest free refundable amount of Rs. 30 Crores. The term sheet provided that in case the parties fail to identify any real estate projects within a period of One year from the date of this Term Sheet, Corporate Debtor shall be liable to refund the entire amount to the Financial Creditor within a period of 7 days after the expiry of such 1 year or within such extended period as may be decided by the parties mutually without any deduction or interest on such amount. Moreover the Financial Creditor shall also have the right to demand the repayment of the amount given by them to the Corporate Debtor in case they are of the view that this transaction cannot be concluded due to various unforeseen reasons. In accordance with such term sheet the Financial Creditor paid a sum of Rs. 29,70,00,000/- to the Corporate Debtor via multiple transactions.
Vide Demand Notice dated 18.11.2022 the Financial Creditor recalled the amount from the Corporate Debtor. Later, on 04.03.2023 the parties agreed to enter into an addendum to term sheet dated 16.03.2020. By way of this addendum it was acknowledged that the Financial Creditor had transferred a sum of Rs. 29,70,00,000/- and through this addendum both the Financial Creditor and Corporate Debtor agreed that the amount transferred to the Corporate Debtor shall be treated as loan and it shall be repaid on or before 3 months with interest at the rate 12% starting from the date of execution of addendum. Further if the said amount is not repaid with the time period agreed upon penal interest at the rate of 2% shall be levied till the actual realization of the amount.
Section 5(8) of the IBC reads as under:
“(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 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 nonrecourse basis;
(f)any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;
(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;”
Vide addendum the sum of Rs. 29,70,00,000/- was agreed to be treated as loan at the rate 12% which goes on to suggest the presence of element of time value of money.
The said addendum is duly signed by the authorized signatories of Financial Creditor and Corporate Debtor in presence of witnesses. Subsequent to the addendum demand notice dated 02.09.2023 was served to the Corporate Debtor raising a demand of Rs. 32,28,75,616/-
The Corporate Debtor in his reply has admitted that he is obliged to pay the amount to the Financial Creditor. The admission made by the Corporate Debtor is reproduced as under:
“It is submitted that as per the transaction between the parties the respondent was obliged to pay Rs. 29,70,00,000/- which is as per the addendum to the term sheet, however any payment of any penal interest at any exorbitant rate is denied and the same is outcome of exploitation of dominant position of the petitioner. The respondent has made all the attempts to pay the said amount”
The contention raised by the Corporate Debtor that the addendum is a one-sided agreement and Financial Creditor has used its dominant position to execute addendum is untenable as it is based on the fact that the amount in question was to be repaid on or before 3 months with interest at the rate 12% starting from the date of execution of addendum. Further if the said amount is not repaid with the time period agreed upon penal interest at the rate of 2% shall be levied till the actual realization of the amount. Addendum was executed on being mutually agreed by both of the parties. Addendum is duly signed by the authorized signatories of Financial Creditor and Corporate Debtor in presence of witnesses. Moreover the Corporate Debtor has not shown anything on record to suggest that he has either contested the demand notices dated 18.11.2022 and 02.09.2023 or replied to those demand notices.
The term “Default” is defined under sub-section (12) of Section 3 IBC which
reads as: “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 [paid] by the debtor or the corporate debtor, as the case may be;”
Hon’ble Supreme Court in the case of Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Limited etc. Civil Appeal No. 8512-8527 of 2019 has observed that “A “financial debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money; and it includes the money borrowed or raised or protected in any manner prescribed in sub clauses (a) to (i) of Section 5(8).”
A mere reading of the provision under Section 7 of the IBC shows that in order to initiate CIRP under Section 7, the Applicant is required to establish that there is a financial debt and that a default has been committed in respect of that financial debt. The Code requires the adjudicating authority to only ascertain and record satisfaction in a summary adjudication regarding the occurrence of default before admitting the application.
The Hon’ble NCLAT in the matter of Noil Christuraj v. SBI, 2024 SCC OnLine NCLAT 485 (Decided on April 18, 2024) held as under: -
Further, the Hon’ble Supreme Court in the case of M. Suresh Kumar Reddy v. Canara Bank, (2023) 8 SCC 387 it was held that once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the application under Section 7.
In the instant case the Applicant has demonstrated that the amount in question was disbursed against time value of money and the Corporate Debtor has also admitted the default and therefore the requirements of Section 7 are fully satisfied. We are satisfied that the present application is complete in all respects and the applicant Financial Creditor is entitled to claim its outstanding financial debt from the Corporate Debtor and that there has been default in payment of the Financial Debt which is duly admitted by the Corporate Debtor.
In light of the above facts and circumstances, it is ordered as follows:
The Application bearing IB-256(ND)/2024 filed by the Applicants under Section 7 of the Code read with Rule 4 of the Adjudicating Authority Rules for initiating CIRP against the Respondent is admitted.
We also declare a moratorium in terms of Section 14 of the Code. The necessary consequences of imposing the moratorium flow from the provisions of Section 14(1)(a), (b), (c) and (d) of the Code. Thus, the following prohibitions are imposed:
“(a)The institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
(b)Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein;
(c)Any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
(d)The recovery of any property by an owner or lessor, where such property is occupied by or in the possession of the Corporate Debtor.
[Explanation -For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;]”
It is made clear that the provisions of moratorium shall not apply to transactions which might be notified by the Central Government or the supply of the essential goods or services to the Corporate Debtor as may be specified, are not to be terminated or suspended or interrupted during the moratorium period. In addition, as per the Insolvency and Bankruptcy Code (Amendment) Act, 2018 which has come into force w.e.f. 06.06.2018, the provisions of moratorium shall not apply to the surety in a contract of guarantee to the Corporate Debtor in terms of Section 14(3)(b) of the Code.
The Applicants have proposed the name of Mr. Pawan Kumar Goyal as the Interim Resolution Professional (“IRP”) having address: 304D R Chambers 12/56 Gupta Road, Karol Bagh, New Delhi. His Email id is ca.pawangoyal@gmail.com. His registration number is IBBI/IPA-001/IP-P00875/2017/11473. The Applicants filed a copy of the Consent Issued by Mr. Pawan Kumar Goyal in Form 2, Written Communication by proposed IRP, as per the requirement of Rule 9(l) of the Adjudicating Authority Rules along with the Certificate of Registration and Authorization for Assignment in Form B. Accordingly, Mr. Pawan Kumar Goyal is appointed as IRP.
In pursuance of Section 13(2) of the Code, we direct the IRP, as the case may be to make a public announcement immediately with regard to the admission of this application under Section 7 of the Code. The expression immediately means within three days as clarified by Explanation to Regulation 6(1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
During the CIRP period, the management of the Corporate Debtor shall vest in the IRP/RP, in terms of Section 17 of the IBC. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP within one week from the date of receipt of this order, in default of which coercive steps will follow. There shall be no future opportunity given in this regard.
The IRP is expected to take full charge of the Corporate Debtor’s assets, and documents without any delay whatsoever. He is also free to take police assistance and this Court hereby directs the Police Authorities to render all assistance as may be required by the IRP in this regard.
The IRP or the RP, as the case may be shall submit to this Adjudicating Authority periodical report with regard to the progress of the CIRP in respect of the Corporate Debtor.
The Financial Creditors shall deposit a sum of Rs 2,00,000/- (Rupees Two Lakh Only) with the IRP to meet the expense to perform the functions assigned to him in accordance with Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016. The needful shall be done within one week from the date of receipt of this order by the Financial Creditors. The amount however be subject to adjustment by the Committee of Creditors, as accounted for by IRP and shall be paid back to the Financial Creditors.
In terms of Section 7(7) of the Code, the Registry is hereby directed to communicate a copy of the order to the Financial Creditors, the Corporate Debtor, the IRP and the Registrar of Companies, NCT of Delhi and Haryana, by Speed Post and by email, at the earliest but not later than seven days from today.
The Registrar of Companies shall update his website by updating the status of the Corporate Debtor and specific mention regarding admission of this petition must be notified.
The Registry is further directed to send a copy of this order to the Insolvency and Bankruptcy Board of India (“IBBI”) for their record.
A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.