Mr. Surendra Kanaiyalal Shah vs M/s. Magicon Impex Pvt. Ltd.

ORDER

“2.

That the Corporate Debtor had appointed the Financial Creditor as "Consignment and Freight Agent” and for that purpose the parties had executed an Agreement dated 25.03.2019 which is produced at Exhibit-C along with the Petition.

3.

It is pertinent to note that by virtue of the aforesaid Agreement dated 25.02.2019, the Petitioner had paid and the Respondent had accepted an interest-bearing Deposit Rs.70,00,000/- (Rupee Seventy Lakhs Only). The Petitioner has produced the copies of his Bank Statement for the relevant period (Exhibit-D) showing the corresponding entries which demonstrate that the amount was transferred from the Petitioner to the Respondent. The Petitioner has also produced the copy of the ledger at Exhibit-F which reflects the relevant entries.

4.

The Petitioner most respectfully submits that the term “Financial Debt” as envisaged under Sec. 5(8) of the Code. In particular Section 5(8)(f) reads as follows: Section 5(8)(f) “financial debt” means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes ----

(a)… … ….

(b)… … ….

(c)… … ….

(d)… … ….

(e)

Any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing, … … …

5.

Thus it is very clear from the Section itself that the term “financial debt” is not restricted only to the “loan” in strict sense but in its broader connotation, it includes all kinds of transactions wherein the money is raised by a party against consideration for the time value of money. Thus what is required under the law is that there has to be “debt” and it must satisfy the criteria of “time value of money”. In the present case, it is undisputed fact that the Corporate Debtor had accepted a refundable Deposit of Rs. 70 Lakhs from the Petitioner and has agreed to pay interest thereon.

6.

It is most respectfully submitted that an interest bearing refundable deposit squarely falls within the purview of “financial debt” in view of the clear mandate of Section 5(8)(f) as well as in light of the judicial pronouncements”.

“37.……….. the term ‘deposit’ includes any receipt of money by a company either as deposit or loan or in any other form by it…….”

“42.………. the ‘Corporate Debtor’ had accepted money from the Appellant against the payment of interest and bearing in mind the payment of interest on the amounts borrowed by the Respondent Company is nothing but a consideration for the time value of money and in as much as the ‘interest’ is the compensation paid by the borrower to the lender for using the lender’s money over a period of time, this Tribunal comes to an inevitable and inescapable conclusion that the Appellant’s status is that of a ‘Financial Creditor’ as per Section 5(7) read with Section 5(8) of the Code and that there is a default in payment of the accepted amounts by the Respondent/CD and in short, the Respondent / Corporate Debtor comes within the purview of the definition of ‘Financial Debt’……”

(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 dematerialised equivalent;

(c)

any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

(d)

the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;

(e)

receivables sold or discounted other than any receivables sold on non-recourse basis;

(f)

any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;

[Explanation. -For the purposes of this sub-clause, -

(i)

any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and

(ii)

the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]

(g)

any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;

(h)

any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;

(i)

the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clause (a) to (h) of this clause;