LICHFL Trustee Company Private Limited vs M/s. JBM Homes Private Limited

Per: R. SUCHARITHA, MEMBER (JUDICIAL)

Under Adjudication is an Application that has been filed by M/s. LICHFL Trustee Company Private Limited (hereinafter referred to as 'Financial Creditor') under Section 7 of the Insolvency & Bankruptcy Code 2016 (in short, 'I&B Code, 2016') r/w Rule 4 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 against M/s. JBM Homes Private Limited (hereinafter referred to as 'Corporate Debtor') to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor, declare moratorium and appoint Interim Resolution Professional.

Part-I of the Application sets out about the Financial Creditor from which, it is evident that the Financial Creditor is a Trustee of LICHFL Urban Development Fund, a contributory trust formed as a Scheme of trust known as "LICHFL Fund". Part-II of the Application gives all the particulars of the Corporate Debtor from which it is evident that the Corporate Debtor is a Private Limited Company with CIN:U74999TN2015PTC098813 was incorporated on 13.01.2015 and the Registered Office of the Corporate Debtor as per the Application is stated to be situated at JBM Enclave, No.47 Bazar Road, Pallavaram, Chennai - 600 043. As per Part III of the application, the Financial Creditor has proposed the name of one Mr. Tharuvai Ramachandran Ravichandran, as the Interim Resolution Professional, who has also filed his consent in Form – 2.

From Part-IV of the Application, it is seen that a sum of Rs.68,64,47,800/- (Rupees Sixty Eight Crore Sixty Four Lakh Forty Seven Thousand Eight Hundred only) is being claimed by the Financial Creditor as the Financial debt. The date of default is mentioned as 27.09.2018. Part – V of the Application discloses the details of the documents which have been filed by the Financial Creditor in order to prove the 'Financial debt', which are as follows;

The Learned Counsel for the Financial Creditor submitted that the Financial Creditor along with the Corporate Debtor and its promoters had entered into a Share Subscription cum Debenture Subscription and Shareholders Agreement (hereinafter referred to as "Agreement") on 23.03.2015. As per the recitals found in the said Agreement dated 23.03.2015, it is seen that the Corporate Debtor is engaged in the business of developing and constructing real estate projects and the Corporate Debtor is in the process of developing and constructing residential projects together with infrastructure in Chennai. Further, it is stated in the said Agreement that the following persons are the Promoters and shareholders of the Corporate Debtor viz. (1) Mr. B. Kamlesh Kumar, (2) Mr. B. Nirmal Kumar, (3) Mr. B. Anand Kumar, and (4) Mrs. N. Rekha.

Further, it is stated in the said Agreement that the Corporate Debtor proposes to develop 3 residential projects on the land total admeasuring about 8.26 acre in Vandalur, Pammal and Anakaputhur and the project land comprises of;

Further, it is stated in the said Agreement dated 23.03.2015 that the Corporate Debtor and the promoters have represented to the Financial Creditor that he Corporate Debtor is in need of funds for the purpose of Infrastructure development of the above mentioned projects and have therefore approached the Financial Creditor with a request to invest in the Corporate Debtor by subscribing to Equity Shares, Optionally Convertible Preference Shares and Optionally Fully Convertible Debenture (OFCDs) of the Corporate Debtor.

After due discussions and representations, the Financial Creditor has agreed to invest in the Company in the following three tranches;

It is seen from the documents filed along with the Application that the parties here to have entered into a First Supplementary Agreement on 24.03.2018 and it is stated in the said Agreement dated 24.03.2018 that the Corporate Debtor have vide their letter dated 21.03.2018 represented to the Financial Creditor that due to decline in velocity of sales in the Vandalur Project coupled with dely in initiation of Pammal Project and Anakaputhur Project, the cash flow of the Corporate Debtor have been adversely affected due to which the Corporate Debtor is unable to provide an exit to the Financial Creditor. Hence the Corporate Debtor and its promoters have requested the Financial Creditor to extend the tenure of its investment in the Corporate Debtor Company and that the Financial Creditor has agreed to extend the tenure of its investment in the Corporate Debtor by six months.

Thereafter, it is seen that the parties hereto have entered into a Second Supplemental Agreement dated 24.07.2018 and it is stated in the said Agreement that as on 24.07.2018, the Financial Creditor has invested in aggregate a sum of Rs.11,00,00,000/- in two tranches and as per the conditions subsequent to the second closing, the Corporate Debtor was required to inter alia (a) execute and register Joint Development Agreement and Power of Attorney in relation to the Anakaputhur Project 2 land within 45 days of Second closing; and (ii) obtain all statutory approvals required to commence construction and commence the construction, launch and sales of Pammal Project. However, the Corporate Debtor had purchased 2.68 acres of Anakaputhur 2 land. For the balance portion of 2.95 acres of Anakaputhur Project 2 land, execution and registration of Joint Development Agreement and Power of Attorney is yet to be completed. Further, it is stated in the said Agreement dated 24.07.2018 that the Corporate Debtor and its promoters are in discussion with the Financial Creditor in relation to the delay in receipt of the statutory approvals for the Pammal Project and the delay in execution of the Joint Development Agreement and Power of Attorney for Anakaputhur Project 2 land and hence the third closing has not occurred. Thus, in partial modification of the same, the Financial Creditor has agreed to invest Rs.4,40,00,000/- out of the agreed Third Tranche of the Optionally Fully Convertible Debentures Amount of Rs.11,00,00,000/- as the third tranche invest and on receipt of certain approvals to invest the remaining Rs.6,60,00,000/- as the fourth tranche investment.

The Corporate Debtor has filed Counter and the Learned Counsel for the Corporate Debtor prima facie contended that the present Applicant deserves to be dismissed in limine, since the material facts have not been pleaded in the Application. Further, it was contended that there is no pleading in relation to the nature of transaction, the amounts already paid, the amount due and the date of default for arriving at the said date and nothing has been furnished by the Financial Creditor.

The Learned Counsel for the Corporate Debtor submitted that the relationship between the Financial Creditor and the Corporate Debtor is in the nature of a Joint developer in a real estate project, which is evidenced by the fact that the Financial Creditor herein is a shareholder in the Corporate Debtor and has been holding equity shares constituting 19.95% of the shares of the Corporate Debtor, as per Clause 3.5 of the Agreement dated 23.03.2015. Further, the Learned Counsel for the Corporate Debtor in support of his contention, has pressed into service, the decision of the Hon'ble NCLAT in the matter of Vipul Ltd. –Vs– Solitaire Buildmart Pvt. Ltd.; Company Appeal (AT)(Ins) No. 550 of 2020, wherein it has been held that the joint venture partners, being in the nature of shareholders in the Corporate Debtor in a real estate project, cannot sue another as Financial Creditor under Section 7 of IBC, 2016. Reliance was also placed upon the judgment of this Tribunal in the matter of Ashok Sachdev –Vs– Call Express, wherein Bench – I of this Tribunal has held that the shareholder of the Corporate Debtor, being in the nature of a partner of the business, who is entitled to share in the profits cannot file an application under Section 7 of IBC, 2016.

The Learned Counsel for the Corporate Debtor further submitted that the instant Application is barred by limitation as per the Judgment of the Supreme Court in the matter of B.K. Educational Services Pvt. Ltd. –Vs– Paras Gupta & Associates, AIR 2018 SC 5601; Vashedo R. Bhojwani –Vs– Abhyudaya Co-operative Bank Ltd., (2019) 9 SCC 158; Gaurav Hargovindbhai Dave –Vs– Asset Reconstruction Company (India) Ltd., (2019) 10 SCC 572; Jignesh Shah and Anr. –Vs– Union of India, 2019 SCC Online 1254; since as per Section 7 of IBC, 2016, the period of limitation for filing an Application is 3 years from the date on which the cause of action first arose and in the present case where there are reciprocal obligations, the date on which the contractual obligation is breached by a party is deemed to be the date on which cause of action arose.

Further, the Learned Counsel for the Corporate Debtor submitted that a perusal of the default clause as contained in Clause 21 of the Agreement dated 23.03.2015 would show that any material breach in the terms and conditions would deem to be an event of default and that clause 3.15(vi) manifests that all approvals should have been obtained within 60 days of the first closing and it was submitted that since the said approvals were not obtained within the said date, the default has occurred on 25.05.2015 and hence the cause of action for the Financial Creditor arose on 25.05.2015 and the same lapses on 25.05.2018, however the instant Application was signed on 31.07.2020 and hence, it is barred by limitation. Thus, it was contended that by the Learned Counsel for the Corporate Debtor that the present Application is liable to be dismissed.

The Financial Creditor has filed rejoinder and the Learned Counsel for the Financial Creditor in reply to the contentions raised by the Corporate Debtor has submitted that it is not right on the part of the Corporate Debtor to state that there is no pleading in the Application in relation to the nature of transaction, the amounts already paid, the amount due and the date of default, since Part – IV of the Application clearly identifies the date of disbursement i.e. investments in debentures, principal amount and the redemption amount as per the Agreement dated 23.03.2015 and also the calculations made thereunder are attached as Annexure I(3) to the Application. Hence, it was submitted that the allegations made by the Learned Counsel for the Corporate Debtor in this regard are required to be brushed aside.

The Learned Counsel for the Financial Creditor submitted, the fact that the Financial Creditor being a shareholder does not have any bearing on the liability of the Corporate Debtor to redeem the debentures, since the documents enclosed along with the Application clearly indicate the obligations of the Corporate Debtor to redeem the debentures at an agreed guarantee returns and the said fact clearly evidences the subsistence of a ‘financial debt’. Further, it was submitted that the present Application has been filed solely in the capacity of the debenture holder of the Corporate Debtor and the Applicant is merely a financier for the projects which was made through several routes of investments such as preference shares, debentures and equity shares. Also it was submitted by the Learned Counsel for the Financial Creditor that apart from financing the development of the real estate projects of the Corporate Debtor, the Financial Creditor did not provide any services in relation thereto or share any of the obligation of the Corporate Debtor.

The Learned Counsel for the Financial Creditor submitted that the judgments relied on by the Corporate Debtor do not have any bearing on the present case and that the facts of the present case are not the same.

In relation to the aspect of limitation, the Learned Counsel for the Financial Creditor submitted that the non – exercise of its right to call upon the Corporate Debtor to cure the default in obtaining necessary approvals for the project will not disentitle the Financial Creditor from proceeding against the Corporate Debtor, for the financial defaults committed by it. Also it was submitted that the debentures in respect of which the present application has been filed were subscribed by the Financial Creditors on 27.03.2015, 31.03.2015 and 26.07.2018 and the tenure of investment for the debentures were originally 36 months from the first tranche investment, which was to expire on 26.03.2018, which was subsequently extended till 26.09.2018. Thus, it was submitted that the starting point of limitation for claiming the amount is 27.09.2018 and the Application is filed before this Tribunal on 07.08.2020 and hence it is not barred by limitation. Further, reliance was also placed on the Statutory Audit of the Corporate Debtor for the year ended 31.03.2017, wherein under the heading Long Term borrowings, the debenture to the tune of Rs.13,99,01,800/- is admitted and it has been stated that the debenture carries interest at the rate of 22% and repayable in 4 years from 27.03.2015 and hence it was submitted that the present Application is filed well within the period of limitation.

Heard the submissions made by the Learned Counsel for both the parties. From the averments made in the pleadings and also from the submissions made by Learned Counsel for both the parties, it becomes imperative for this Tribunal to frame the following issues;

In so far as the issue No. (i) is concerned, it is to be noted that the main contention of the Learned Counsel for the Corporate Debtor is that the relationship between the Financial Creditor and the Corporate Debtor is in the nature of a Joint developer in a real estate project, and that the Financial Creditor herein is a shareholder in the Corporate Debtor and has been holding equity shares constituting 19.95% of the shares of the Corporate Debtor, as per Clause 3.5 of the Agreement dated 23.03.2015. Further, as per the decision of the Hon'ble NCLAT in the matter of Vipul Ltd. (supra) a joint venture partners, being in the nature of shareholders in the Corporate Debtor in a real estate project, cannot sue another as Financial Creditor under Section 7 of IBC, 2016. Further, the judgment of this Tribunal in the matter of Ashok Sachdev (supra), has held that the shareholder of the Corporate Debtor, being in the nature of a partner of the business, who is entitled to share in the profits cannot file an application under Section 7 of IBC, 2016.

In order to address the said contention it is necessary to refer to the Judgment rendered in the matter of Vipul Ltd. (supra). In the said case, as per the terms of the Master Development Agreement, the Financial Creditor is required to pay certain amount towards its share in the project. However as to the facts of the case on hand the Financial Creditor is a debenture holder and has a right to redeem the debenture.

As per the definition of the expression 'financial debt' in sub-section 8 of Section 5 of IBC, 2016 which is as follows:-

Thus, it is seen from the above definition that any amount raised pursuant to the debentures would partake the character of a 'financial debt'. Just because the Financial Creditor is also equity shareholder in respect of the Corporate Debtor would not debar the Financial Creditor from initiating the Corporate Insolvency Resolution Process against the Corporate Debtor. In this context, it significant to refer to the decision of the Hon'ble NCLAT in the matter of India Power Corporation Limited -Vs- Meenakshi Energy Limited and Others in Company Appeal (AT)(Ins) No. 1220 of 2020 has held that eventhough a financial creditor became a shareholder of the Corporate Debtor, the same will not bar the financial creditor cum shareholder to file an application to initiate CIRP against the corporate debtor so long as a financial debt is owed.

Also the Hon'ble Supreme Court in the matter of Pioneer Urban Land and Infrastructure Ltd. Vs. Union of India; (2019) 8 SCC 416 by referring to several earlier judgments including Innoventive Industries Ltd. Vs. ICICI Bank Ltd; (2018) 1 SCC 407 and Swiss Ribbons Pvt. Ltd. And Anr. Vs. Union of India and Others; (2019) 4 SCC 17 held that even individuals who were 'debenture holders' and fixed deposit holders could also be financial creditors who could initiate the Corporate Insolvency Resolution Process.

Thus, the contentions raised by the Learned Counsel for the Corporate Debtor by referring to the decision of the Hon'ble NCLAT is very much discernable to the facts of the present case and hence, this Tribunal holds that the claim of the Application qualifies to be a 'financial debt' and the Applicant can be treated as 'financial creditor' in respect of the Corporate Debtor.

In so far as the issue of limitation is concerned, it was the contention of the Learned Counsel for the Corporate Debtor that as per default clause in Clause 21 of the Agreement dated 23.03.2015, any material breach in the terms and conditions would deem to be an event of default and that clause 3.15(vi) manifest that all approvals should have been obtained within 60 days of the first closing and the said approvals were not obtained within the said date and hence the default has occurred on 25.05.2015, therefore, the cause of action for the Financial Creditor arose on 25.05.2015 and the same lapses on 25.05.2018.

In order to address the said issue, it is necessary to set out the facts correctly. It is seen that the parties have entered into a First Supplementary Agreement on 24.03.2018 and it is stated in the said Agreement that due to decline in velocity of sales in the Vandalur Project coupled with dely in initiation of Pammal Project and Anakaputhur Project, the cash flow of the Corporate Debtor have been adversely affected due to which the Corporate Debtor is unable to provide an exit to the Financial Creditor.

Further, the parties hereto have entered into a Second Supplemental Agreement dated 24.07.2018 and it is stated in the said Agreement that the Corporate Debtor and its promoters are in discussion with the Financial Creditor in relation to the delay in receipt of the statutory approvals for the Pammal Project and the delay in execution of the Joint Development Agreement and Power of Attorney for Anakaputhur Project 2 land and hence the third closing has not occurred. Hence, in partial modification of the same, the Financial Creditor has agreed to invest Rs.4,40,00,000/- out of the agreed Third Tranche of Optionally Fully Convertible Debentures Amount of Rs.11,00,00,000/- as the third tranche invest and on receipt of certain approvals invest the remaining Rs.6,60,00,000/- as the fourth tranche investment.

Thus, from the facts which are borne on record, as narrated above, would show that the 'debt' is not barred by limitation and the submissions made by the Learned Counsel for the Corporate Debtor that the cause of action for the Financial Creditor arose on 25.05.2015 and the same lapses on 25.05.2018, is factually incorrect, since by virtue of the Second supplemental agreement, the Financial Creditor has invested Rs.4,40,00,000/- Optionally Fully Convertible Debentures. Hence, in all respects the 'debt' as claimed by the Financial Creditor is well within the period of limitation.

Further, from the Annexure – B to the Independent Auditor Report for the Financial year ended 31.03.2019, it is stated as follows;

The figures as reflected in the above tables are the excerpts from the Annual Accounts and Statutory Auditors Report duly approved in the Annual General Meeting concerned. Further, it is also seen from the typed set filed along with the rejoinder, that the Corporate Debtor has given an offer for One Time Settlement to the Financial Creditor on 18.02.2021 and the said letter is captured hereunder;

The above referred two documents would show that the Corporate Debtor has committed 'default' in the repayment of the debentures issued by the Financial Creditor for a sum of Rs.18.40 Crore. Also, the date on which the above two documents are referred would further show that the Application filed by the Financial Creditor is not barred by limitation. Under the said circumstances, this Tribunal is left with no other option than to proceed with the present case and initiate the Corporate Insolvency Resolution Process in relation to the Corporate Debtor.

Thus taking into consideration the facts and circumstances of the case as well as the position of Law, we are of the view that this Application as filed by the Applicant – Financial Creditor is required to be admitted under Section 7 (5) of the IBC, 2016

The Financial Creditor has proposed the name of one Mr. THARUVAI RAMACHANDRAN RAVICHANDRAN having Registration Number [IBBI/IPA-002/IP-N00241/2017-2018/10692] (email id:- [email protected]) as Interim Resolution Professional (IRP) and a written communication in the format prescribed under Form 2 of the Insolvency and Bankruptcy Board of India (Application to Adjudicating Authority) Rules, 2016 has been filed by the proposed IRP who is appointed as the IRP to take forward the process of Corporate insolvency Resolution of the Corporate Debtor. The IRP appointed shall take in this regard such other and further steps as are required under the Statute, more specifically in terms of Section 15,17,18 of the Code and file his report within 20 days before this Bench. The powers of the Board of Directors of the Corporate Debtor shall stand superseded as a consequence of the initiation of the CIRP in relation to the Corporate Debtor in terms of the provisions of IBC, 2016.

As a consequence of the Application being admitted in terms of Section 7 of the Code, moratorium as envisaged under provisions of Section 14(1) and as extracted hereunder shall follow in relation to the Corporate Debtor;

However, during the pendency of the moratorium period in terms of Section 14(2) (2A) and 14(3) as extracted hereunder:

The duration of the period of moratorium shall be as provided in Section 14(4) of the Code and for ready reference reproduced as follows:

Based on the above terms, the Petition stands admitted in terms of Section 7 of the Code and the Moratorium shall come into effect as of this date. A copy of the order shall be communicated to the Petitioner as well as to the Respondent above named by the Registry. In addition, a copy of the order shall also be forwarded to IBBI for its records. Further, the IRP above named be also furnished with copy of this order forthwith by the Registry, who will also communicate the initiation of the CIRP in relation to the Corporate Debtor to the Registrar of Companies concerned.