M/s. Kohinoor Apparels Pvt Ltd & Ors. vs M/s. ATS Infrastructure Limited

The present application has been filed by the Financial Creditors in their individual capacities who had invested in the real estate project namely, "ATS Pristine", situated at Plot No. SC-1/A-1, Sector-150, Noida (hereinafter referred to as the "Project") being constructed by ATS Housing Private Limited (hereinafter referred to as "AHPL") i.e. the associate company of the Corporate Debtor.

The Financial Creditors had invested in the Project by way of a Financial Arrangement entered into between the parties on the assurances given by the Corporate Debtor that their respective units shall be bought back at a contractually agreed sale consideration on expiry of the prescribed time period. It is on the basis on these assurances that the Financial Creditors invested in the Project and thereby opted for a "buy-back" scheme. As a result, the total amount due to the Financial Creditors consists of the "buy-back" amount which was to be paid by the Corporate Debtor along with interest classifying it as "debt" under Section 3(11) of the Code. A copy of the tabulated sheet reflecting the details of the investment made by the Financial Creditors and units allotted by the Corporate Debtor is filed along with the application.

The Corporate Debtor along with AHPL had launched the Project with various representations and promises regarding the purchase of units rendering huge returns in terms of the "buy-back" scheme which was so being offered. The Corporate Debtor assured that in case the Financial Creditors invested in the Project and purchased units in the Project, the Corporate Debtor shall "Buy-Back" the same from the Financial Creditors within a stipulated time period which shall yield huge returns. Based on such representations made by the Corporate Debtor, the Financial Creditors invested in the Project in the year 2018 and booked 2 units each and 1 Villa, individually. Up to this point, the Financial Creditors continued to be overburdened by not only being departed from a significant amount of money that they had paid to the AHPL towards their unit but also by the mala fide conduct of the Corporate Debtor as well which had undertaken the sole responsibility to "buy-back" the units of the Financial Creditors at a contractually agreed consideration amount. Against this, the Corporate Debtor in connivance with AHPL has been enjoying the hard-earned money of the Financial Creditors under the Financial Arrangement entered into between them, as they have gone about collecting a significant total sale consideration of the units from the Financial Creditors without adhering to its own contractual obligations. It is hereby abundantly clear that the Corporate Debtor is not in sound financial health and is not in a position to "buy-back" the units of the Financial Creditors. In the above circumstances, it is apprehended that the hard-earned money of the Financial Creditors has been illegally diverted to other projects or utilised for other purposes. It is stated that the Financial Creditors have frequently followed up with the Corporate Debtor with regard to the Buy-Back of the Units but to no avail. The Corporate Debtor is entering into sham agreements with no intention to repay the amounts due to the Financial Creditors.

Till date, the Financial Creditors have collectively paid an enormous amount of Rs. 11,09,57,715/- (Rupees Eleven Crore Nine Lakh Fifty Seven Thousand Seven Hundred and Fifteen Only) to AHPL, that is an associate Company of the Corporate Debtor on the assurances given by the Corporate Debtor of buying back the units at a premium price but to the utter shock and surprise of the Financial Creditors, the PDCs issued by the Corporate Debtor when presented to the respective bank of the Financial Creditors got dishonoured and were returned unpaid by the bank vide return memo stating "Funds Insufficient" and "Account Blocked".

The Submissions of the Financial Creditor No.1 are as follows: M/s Kohinoor Apparels Pvt. Ltd.

Unit Bearing No. PH 1 in Tower 8 on the Top Floor, having a super area of 4200 + 768 sq. ft. terrace.

In the year 2018, the Managing Director of the Corporate Debtor, Mr. Getamber Anand, who is also a Director in AHPL induced the Financial Creditor No. 1 (hereinafter referred to as "FC-1") to invest in the Project being developed by AHPL. The FC-1 had made the said investment under a buy-back scheme whereby the Corporate Debtor was obligated to buy back the units booked by FC-1 at a premium price.

FC-1 was allotted the aforementioned unit in the Project being developed by AHPL vide two Allotment Letters dated 01.09.2018, against an investment of Rs. 1,50,00,000/-(Rupees One Crore Fifty Lakh Only) paid by FC-1 to AHPL. A copy of the Allotment Letters dated 01.09.2018 issued by AHPL to FC-1 is filed along with the application.

At the time of execution of the Agreement, the Corporate Debtor had also executed a Memorandums of Understanding with respect to the Buy-Back assurance with the Financial Creditor dated 01.09.2018 respectively (hereinafter referred to as the "MOUs") qua the Buy Back of the units. It is pertinent to mention here that the MOUs were signed by Mr. Getamber Anand in the capacity of the authorised representative of both AHPL and the Corporate Debtor. A copy of one of the MOUs dated 01.09.2018 is filed along with the application.

As per clause 3 of the recital of the MOUs, the Corporate Debtor had admittedly agreed to buy-back the unit at a fixed sale consideration of Rs.1,92,88,000/-. As per Clause 3.1 of the MOUs, the Corporate Debtor unambiguously took the liability to purchase the units upon expiry of 36 (thirty-six) months from the date of execution of the MOUs. Therefore, in pursuance of liability, the Corporate Debtor undertook to issue a post-dated cheque of Rs. 1,62,88,000/- (Rupees One Crore Sixty Two Lakh and Eighty Eight Thousand Only) with TDS as Rs. 1,62,880/- (Rupees One Lakh Sixty Two Thousand Eight Hundred and Eighty Only) and 8 Post dated Cheques for Rs. 3,75,000/- (Rupees Three lakh and Seventy Five Thousand Only) drawn on Kotak Mahindra Bank, Sector 18, Noida duly signed by the Chairman and Managing Director of the Corporate Debtor, Mr. Getamber Anand.

Vide letter dated 01.03.2021, the Corporate Debtor extended the 'Holding Period' as defined in the MOU dated 01.09.2018 till 31.10.2021 and issued 9(nine) new post dated cheques, including 8 for Rs. 63,000/- (Rupees Sixty Three Thousand Only) and 1 Post Dated Cheque dated 31.10.2021 for Rs. 1,85,32,800/- (Rupees One Crore Eighty Five Lakh Thirty Two Thousand and Eight Hundred Only) in addition to TDS for Rs. 1,87,200/- (Rupees One Lakh Eighty Seven Thousand and Two Hundred Only) drawn on Kotak Mahindra Bank, Sector 18, Noida. These were issued for a total amount of Rs. 1,90,36,800/- (Rupees One Crore Ninety Lakh Thirty Six Thousand and Eight Hundred Only) and in lieu of the same transaction was asked to hand over the cheque dated 30.09.2020 for Rs. 1,62,88,000/- (Rupees One Crore, Sixty Two lakh and Eighty Eight Thousand Only) back to the Corporate Debtor. A copy of the letter dated 01.03.2021 issued by the Corporate Debtor to FC-1 is filed along with the application.

Vide letter dated 10.03.2022, the Corporate Debtor again sought an Extension of the "Holding Period' up to 30.06.2022 and in lieu of the same, agreed to pay the Financial Creditor 1, an amount of Rs. 2,07,07,335/- (Rupees Two Crore Seven Lakh Seven Thousand Three Hundred and Thirty Five Only). Pursuant to which, they issued a fresh cheque dated 30.06.2022 for Rs. 2,07,07,335/- (Rupees Two Crore Seven lakh Seven Thousand Three Hundred and Thirty Five Only) and agreed to pay TDS at Rs. 2,09,165/- (Rupees Two lakh Nine Thousand One Hundred and Sixty Five Only). Further, he was asked to hand over the cheque dated 31.10.2021 for rupees 1,85,32,800/- (Rupees One Crore Eighty Five Lakh Thirty Two Thousand and Eight Hundred Only). A copy of the letter dated 10.03.2022 issued to FC- 1 is filed along with the application.

It is imperative to state now that the said cheque dated 30.06.2022 for Rs. 2,07,07,335/- (Rupees Two Crore Seven Lakh Seven Thousand Three Hundred and Thirty Five Only) was dishonoured upon presentation and was returned with the remark "Account Blocked" vide return memo dated 09.09.2022 Thus, the Principal Amount of the said amount along with interest stands due and payable by the Corporate Debtor to the Financial Creditor towards the "buy-back" of the unit bearing no. PH1. A copy of the said return memo along with the dishonoured cheque has been filed along with the application.

The Submissions of the Financial Creditor No.2 are as follows: Mr. Vipul Gupta

Unit bearing No. 3 PH2 on the top Floor, in Tower-3, having super area of 4200+920 sq. ft. terrace.

The Financial Creditor No. 2 (hereinafter referred to as "FC-2") was allotted the aforementioned unit in the Project being developed by AHPL vide Allotment Letter dated 14.05.2018, against an investment of Rs. 99,00,000/- (Ninety Nine Lakh Only) paid by FC- 2 to AHPL with a buy-back scheme in place wherein the Corporate Debtor had agreed to buy the said unit at a premium price. A copy of the Allotment Letter dated 14.05.2018 issued by AHPL to FC-2 is filed along with the application.

At the time of execution of the Agreement, the Corporate Debtor had also executed a Memorandum of Understanding with respect to the Buy-Back assurance with the Financial Creditor dated 14.05.2018 respectively (hereinafter referred to as the "MOU") qua the Buy Back of the units. It is pertinent to note that this particular transaction was merely cloaked under the sham of transfer of funds as the basis for the MOUs and Allotment letters, they were executed on the same day and funds were mainly taken from the Financial Creditors and the same money, promised to be returned at a later date by the associate organisations. A copy of one of the Memorandum of Understanding dated 14.05.2018 executed between the Financial Creditor, the Corporate Debtor and AHPL are filed along with the application.

The present application has been filed by the Financial Creditors on account of the default committed by the Corporate Debtor to pay the "buy-back" amount towards the units of the Financial Creditor on expiry of the prescribed period as per the MOUs and extension letters executed thereafter. As per Clause 3 of the recital of the MOUs, the Corporate Debtor had admittedly agreed to buy-back the unit at a fixed sale consideration of Rs. 2,61,03,000/- (Rupees Two Crore Sixty One Lakh and Three Thousand Only).

It is crucial to state that as per Clause 3.1 of the MOUs, the Corporate Debtor unambiguously took the liability to purchase the units upon the expiry of 36 (thirty-six) months from the date of execution of the MOUs. Therefore, in pursuance of liability, the Corporate Debtor undertook to issue a post dated cheque for Rs. 2,58,41,970/- (Rupees Two Crore Fifty Eight Lakh Forty One Thousand Nine Hundred and Seventy Only) drawn on Kotak Mahindra Bank, Sector 18, Noida duly signed by the Chairman and Managing Director of the Corporate Debtor, Mr. Getamber Anand.

Vide letter dated 14.08.2020, the Corporate Debtor extended the 'Holding Period' as defined in the MOU dated 14.05.2018 till 11.08.2021 and issued a new post dated cheque for Rs. 2,90,72,340/- (Rupees Two Crore Ninety Lakh Seventy Two Thousand Three Hundred and Forty Only) and agreed to also pay TDS at Rs. 2,93,660/- (Two lakh Ninety Three Thousand Six Hundred and Sixty Only). A copy of the letter dated 14.08.2020 is filed along with the application.

It is pertinent to mention that while encashing the cheque dated 11.08.2021 for Rs. 2,90,72,340/- (Rupees Two Crore Ninety Lakh Seventy Two Thousand Three Hundred and Forty Only), it got dishonoured upon presentation and was returned vide Return memo dated 08.11.2021 stating the reason to be "Funds Insufficient". The return memo for the said dishonoured cheque is filed along with the application.

Further, to buy more time and to escape the liability arising out of a dishonoured cheque, vide letter dated 20.12.2021, the Corporate Debtor additionally extended the Holding Period' as defined in MOU dated 14.05.2018 up to 22.08.2022 and in order to give effect to the further extension of time, issued a new post dated cheque in favour of FC-2 for a total sum of Rs. 3,34,24,380/- (Rupees Three Crore Thirty Four Lakh Twenty Four Thousand Three Hundred and Eighty Only) drawn on Kotak Mahindra Bank, Sector 18, Noida. Additionally, the Developer AHPL, agreed to also allot additional units bearing No. 10262, with area 1800 sq ft in another project "ATS Dolce" as additional security to honour the aforementioned transaction and agreed further to not sell this particular unit until the completion of the transactions and was issued an Allotment Letter dated 11.10.2021 in lieu of the same security/collateral agreement.

Further, the Financial Creditor was asked to return the erstwhile post dated cheque for Rs. 2,90,72,340/- (Rupees Two Crore Ninety Lakh Seventy Two Thousand Three Hundred and Forty Only) to the Corporate Debtor. A copy of the extension letter dated 20.12.2021 and the allotment letter dated 11.10.2021 are filed along with the application.

It is imperative to state now that the said cheque dated 22.08.2022 for Rs. 3,34,24,380/- (Rupees Three Crore Thirty Four Lakh Twenty Four Thousand Three Hundred and Eighty Only) drawn on Kotak Mahindra Bank, Sector 18, Noida was dishonoured upon presentation and was returned with the remark "Account Frozen" vide return memo dated 20.09.2022. Thus, the Principal Amount of the said amount along with interest stands due and payable by the Corporate Debtor to the Financial Creditor towards the "buy-back" of the unit bearing no. PH3. A copy of the said return memo along with the dishonoured cheque are filed along with the application.

The Submissions of the Financial Creditor No.3 are as follows: Mr. Vipul Nagpal

Unit/ Residential Villa Bearing No. RH 07, having super area of 8500 sq. ft plus 1032 sq. ft Lawn Area

The Financial Creditor No. 3 (hereinafter referred to as "FC-3") was allotted the aforementioned unit in the Projects being developed by AHPL vide Allotment Letter dated 16.04.2018, against an investment of Rs. 1,25,00,000/- (Rupees One Crore and Twenty Five Lakh Only) paid by FC-3 to AHPL. A copy of the said Allotment Letter dated 16.04.2018 issued by AHPL to FC-3 is filed along with the application.

At the time of execution of the Agreement, the Corporate Debtor had also executed a Memorandum of Understanding with respect to the Buy-Back assurance with the Financial Creditor dated 16.04.2018 respectively qua the Buy Back of the units. The terms of each MOU were identical to the other one with minor variations such as the difference of details of the units allotted to the Financial Creditors and the details of the post-dated cheque so issued by the Corporate Debtor with respect to the "buy-back" assurance given by the Corporate Debtor. It is pertinent to mention here that the MOUs were signed by Mr. Getamber Anand in the capacity of the authorised representative of both AHPL and the Corporate Debtor. It is also pertinent to note that this particular transaction was merely cloaked under the sham of transfer of funds as the basis for the MOUs and Allotment letters, they were executed on the same day and funds were mainly taken from the Financial Creditors and the same money, promised to be returned at a later date by the associate organisations. A copy of one of the Memorandum of Understanding dated 16.04.2018 executed between the Financial Creditor, the Corporate Debtor and AHPL are filed along with the application.

The present application has been filed by the Financial Creditor on account of the default committed by the Corporate Debtor to pay the "buy-back" amount towards the units of the Financial Creditor on expiry of the prescribed period as per the MOUs. As per Clause 2 of the recital of the MOUs, the Corporate Debtor had admittedly agreed to buy-back the unit at a fixed sale consideration of Rs. 5,01,55,000/- (Rupees Five Crore One Lakh and Fifty Five Thousand Only).

It is crucial to state that as per Clause 7.1 of the MOU, the Corporate Debtor unambiguously took the liability and envisaged completing the transaction by 16.07.2020. Therefore, in pursuance of liability, the Corporate Debtor undertook to issue 10 (Ten) post-dated cheques for a total amount of Rs. 5,01,55,000/- (Rupees Five Crore One Lakh and Fifty Five Thousand Only) including 9 (Nine) post-dated cheques for Rs. 9,00,000/- (Rupees Nine Lakh Only) and 1(One) post-dated cheque for Rs. 4,20,55,000/- (Rupees Four Crore Twenty Lakh and Fifty Five Thousand Only) drawn on Kotak Mahindra Bank, Sector 18, Noida duly signed by the Chairman and Managing Director of the Corporate Debtor, Mr. Getamber Anand.

Vide an extension letter dated 16.12.2021, the Corporate Debtor extended the 'Holding Period' as defined in the MOU till 31.08.2022 and issued 2(Two) new post dated cheques for a total sum of Rs. 5,68,26,000/- (Rupees Five Crore Sixty Eight Lakh and Twenty Six Thousand Only) and undertook to deposit Rs. 5,74,000/- (Rupees Five Lakh and Seventy Four Thousand Only) as TDS. Additionally, the FC-3 was asked to hand over the erstwhile post dated cheque for Rs. 4,20,55,000/-(Rupees Four Crore Twenty Lakh and Fifty Five Thousand Only) to the Addressee Company No. 1 which was duly complied with. A copy of the letter dated 16.12.2021 is filed along with the application.

It is imperative to state now that the said cheque dated 31.08.2022 for Rs. 1,51,91,550/- (Rupees One Crore Fifty One Lakh Ninety One Thousand Five Hundred and Fifty Only) and Ch. No. 032784 dated 31.08.2022 for Rs. 4,16,34,450/- (Rupees Four Crore Sixteen Lakh Thirty Four Thousand Four Hundred and Fifty Only), drawn on Kotak Mahindra Bank, Noida was dishonored upon presentation and was returned with the remark "Account Blocked" vide Return Memo dated 30.09.2022.

The Principal Amount of the said amount along with interest stands due and payable by the Corporate Debtor to the Financial Creditor towards the "buy-back" of the unit bearing no. PH1. A copy of the said return memo along with the dishonoured cheques is filed along with the application.

It is also submitted that not only has the Corporate Debtor failed to pay the amounts due to the Financial Creditors but is also running around in circles by sending extension letters and adding on to the agony of the Financial Creditors who invested their monies into the said Project. It is further submitted that the Corporate Debtor is in gross and utter violation of the terms contained in the MOU and the subsequent extension letters sent thereafter by not fulfilling their owed payment obligations.

It is hereby crucial to mention that the total amount due and payable by the Corporate Debtor to the Financial Creditors is inclusive of compound interest @25% per annum to be compounded monthly calculated from the date of dishonour of each of the post-dated cheques till the date such amount is actually received. The compound interest is being backed by Clause 6.3(c) of the MOUs whereby it has been clearly stated that the Corporate Debtor, in the event of default due to dishonour of cheques, shall pay an additional sale consideration amount @25% per annum which shall be compounded monthly from the date of dishonour of the cheques till the date such amount is actually received by the Financial Creditors.

It is vehemently denied that the Answering Respondent is liable to pay Rs. 11,42,34,3111- to the alleged Financial Creditors in terms of the Memorandum of Understandings dated 01.09.2018, 14.05.2018, and 16.04.2018 ("MOUs") executed between the alleged Financial Creditor, Answering Respondents and M/s. ATS Housing Private Limited ("AHPL") therefore, the question of any default of the alleged debt having been committed by the Answering Respondent does not arise for consideration.

It is submitted that even though it is denied that the sum of Rs. 11,42,34,311/- is a financial debt, however, the payment of the said alleged sum was, in any event, subject to the alleged Financial Creditors duly complying with the terms and conditions enshrined under the aforesaid MOUs. However, since the alleged Financial Creditors failed to perform its obligations under the subjected MOUs, the Answering Respondent is under no obligation to purchase the residential villa bearing No. PH1, 3PH2, and RH07 ("Unit") in one of its Projects namely, 'ATS Pristine' situated at Plot No. SC-l/A-l, situated in Sector 150, Noida, Uttar Pradesh ("Project") from the alleged Financial Creditors by paying the alleged amount of Rs. 11,09,57,715/-.

The alleged Financial Creditors, in the present Application, have incorrectly submitted and misled this Adjudicating Authority into believing that the alleged sum of Rs. 11,09,57,715/- has arisen out of a single transaction. In this regard, it submitted that the said alleged sum has arisen out of three different and independent MOUs read along with Allotment Letters dated 01.09.2018, 14.05.2018, and 16.04.2018 ("Allotment Letters") respectively.

In the present case, upon bare reading of the terms and conditions of the MOUs, it is evident that firstly the alleged Financial Creditors are merely a seller of the Units to the Answering Respondent, and as a sequitur, the Answering Respondent is merely a buyer and that the sums of Rs. 11,09,57,7151- along with interest of Rs. 32,76,596/- accrued thereon classified as financial debt is only sale consideration, which was also payable by the Answering Respondent to the alleged Financial Creditors subject to compliance of the terms of the MOUs and the Allotment Letters. This line of argument is even bolstered by the usage of the words 'Sale Consideration' as the consideration for the sale of Units in the MOUs.

It is submitted that the Allotment Letter is merely a Sale Agreement and the sum of Rs. 3,72,75,000/- is the amount paid by the alleged Financial Creditors to the AHPL towards the sale of the Unit, as mentioned in the Allotment Letters. The said sum was not disbursed against the time value of money.

It is trite law that for a transaction to qualify as a financial debt under the Code, it must have the element of profit or factoring discount, to give it an effect of borrowing. In terms of Explanation 1 of Section 5(8) of the Code, an amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of borrowing. In this regard, even if for the sake of argument, the alleged Financial Creditors are considered as an 'allottee' for the purpose of Section 5(8) of the Code, the alleged Financial Creditor has neither placed on record nor alleged so as to substantiate that the alleged debt of Rs. 11,09,57,715/- and interest of Rs. 32,76,596/- accrued thereon was remitted by the alleged Financial Creditors to the Answering Respondent. It is also denied that there is any admitted debt due to the alleged Financial Creditors either under the MOUs or otherwise. On the contrary, the alleged Financial Creditors have failed to act in accordance with the MOUs and is evidently seeking to sidestep their defaults by wrongly alleging criminal offenses and other defaults against the Answering Respondent.

The cheques which have been alleged to have been dishonored were not issued towards the alleged liability that has been referred in the purported Application and was issued in good faith and not for the purpose as stated by the alleged Financial Creditors. In any event, there is no debt or liability due against Answering Respondent as alleged by the alleged Financial Creditors which is evident from the facts as detailed hereunder as well.

In furtherance to the preceding paragraph, it is submitted that the Answering Respondent is not undergoing any financial crunch as alleged by the alleged Financial Creditors in the purported Application and is financially stable and solvent to continue carrying on its business operations. It is submitted that Answering Respondent is a renowned real estate project developer with extensive experience in the area of real estate, no purpose shall be achieved if the present application is admitted and the existing management of the Answering Respondent is replaced. In fact, in case the present application is admitted not only would the same prejudice the Answering Respondent but will also hinder and prejudice the interest of several homebuyers who have invested their hard-earned money in the project of the Answering Respondent.

Whether the Applicant falls in the category of Financial Creditor as per Section 5(7) of the Code or not?

Whether the amount claimed by the applicant as per Part IV of the Application of a sum of Rs. 11,42,34,311/- [(Rupees Eleven Crore Forty Two Lakh Thirty Four Thousand Three Hundred and Eleven Only) Rs.11,09,57,715/- of Principal amount along with Rs.32,76,596/- of Interest amount] is a financial debt under Section 5(8)(f) of the Code or not?