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Judgment
Heard Learned Counsel for the Appellant as well as Learned Counsel for the Respondent.
This Appeal has been filed against the order dated 01.09.2022 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi-IV, by which Section 7 Application filed by the Appellant has been rejected holding that debt which was claimed by the Appellant to be payable by the Respondent is not a financial debt.
There was a contractual arrangement between the Appellant and the Respondent No.1 for providing premises for which LoI was issued on 31.07.2015. Certain parts of the LoI paras 1 to 7 are as follows:-
“LETTER OF INTENT
This Letter of Intent (“LOI”) is made at Gurgaon on this 31st day of July 2015
1.
Intending Lessor
Affordable Infrastructure and Housing Projects Private Limited having its office at Suite No. 227, Second Floor, Square One,
Saket, New Delhi 110017.
2.
Intending Lessee
Spicejet Limited having its office at 319, Udyog Vihar, Phase-IV, Guragaon- 122016
3.
Super Area
PLOT NO. 249 G, Phase 4 Udyog Vihar, Gurgaon. The demised premises is the entire building comprising 3 basements + Ground + 3 Floors.
4.
Rental per month (Fully furnished)
LUMSUM Value of INR 48 lacs per month including INR 8 lac towards maintenance charges.
5.
Condition of hanover of premises
The demised premises shall be offered on a fully furnished condition with the annexed layout on basement 1 Ground and all 3 floors above ground as per lessee specification and as per the design of lessee architect.
6.
Lease and Rent Commencement
Lease shall commence from the date of execution of the Lease Deed (“Lease Commencement date”). Re commencement is from the 31st day of the date of the lessor offering a fully fitted out possession to the lessee. In case of delay in offering fully fitted possession of premises beyond 180 days from the finalization of BOQ and working order the Lessor shall be liable to pay damages at the rate of INR 75,000 for each day of delay. Should the possession of the premises is not offered within 210 days from the finalization of BOQ and working order, the Lessee shall have the sole discretion of terminating the lease agreement and the lessor shall immediately refund to the Lessee all rent and maintenance charges paid by the Lessee for such premises.
7.
Interest Free Security Deposit (IFSD)
Equivalent to 6 (Six) months’ rental of which part deposit equivalent to 3 (Three) months’ rent is payable within seven (7) days of signing this ‘Letter of Intent’ and post clearance of legal due diligence by the Lessee (hereinafter referred to as Earnest Money) and the remaining deposit equivalent to 3 (Three) months’ rent shall be payable upon execution of the Lease deed.
The Appellant, after the LoI, paid an amount of Rs.1.2 Crore to the Respondent. No lease could be executed between the parties in pursuance of the LoI. The Appellant issued Section 8 Notice to the Respondent and filed an Application under Section 9 of the IBC which Application was considered and rejected by the Adjudicating Authority on 21.05.2019. Against which order,
Company Appeal (AT) (Ins.) No. 746 of 2019 was filed by the Appellant in this Tribunal which Company Appeal was dismissed as withdrawn by order dated 18.02.2020. Subsequent to the said order, I.A. No. 1135 of 2020 was filed by the Appellant seeking liberty to approach the Adjudicating Authority in terms of the ingredients of Section 7 of the Code as Financial Creditor. The said Application was heard and decided by this Tribunal on 03.11.2020. Last two paragraphs of the order of this Tribunal are relevant, which are as follows:-
“At this juncture, this Tribunal, after going through the withdrawal order dated 18.02.2020 passed in the instant Appeal is of the considered view that Applicant/ Appellant was permitted to withdraw the present Company Appeal (AT) (Insolvency) No. 746 of 2019 and the same was dismissed as withdrawn but without costs. However, the liberty prayed for by the Applicant/ Appellant to approach the Hon'ble Adjudicating Authority under Section 7 of IBC was not granted by this Tribunal vide its order dated 18.02.2020 passed in the main Company Appeal. To clear the mist in the subject matter in issue, this Tribunal, on the basis of Equity, Fair play, Good Conscience and in the interest of justice passes an order by pointing out that the dismissal order of main Company Appeal (AT) (Ins.) No. 746 of 2019 dated 18.02.2020 'as withdrawn' will not in any way preclude the Applicant/ Appellant to approach Competent Authority/ Adjudicating Authority in seeking redressal of its grievances, by filing necessary application, of course, in accordance with Law and in manner known to Law if it so desires/ advised.
Before parting with the case, this Tribunal makes it abundantly clear that it is open to the respective parties to raise all factual and legal pleas before the 'Competent Authority'/ 'Adjudicating Authority' when the necessary 'Application seeking appropriate relief is filed by the concerned party and further that said 'Authority' shall determine the said 'Application' on merits, of course, after providing due opportunities to the contesting parties to air their the views, by adhering to the 'Principles of Natural Justice’.
With the aforesaid observations/ the Interlocutory Application stands disposed off. No costs.”
Subsequent to the order of this Tribunal, an Application was filed by the Appellant under Section 7 which has been rejected by the impugned order holding that the amount of Rs. 1.2 Crore, on the foundation for which the Application has been filed is not a financial debt. Challenging the said order, this Appeal has been filed.
Learned Counsel for the Appellant challenging the order contends that the amount advanced is a financial debt which was in the nature of advance for a project which was to be carried out by the Respondent. It is submitted that the said amount was not interest free security deposit and it is a commercial borrowing, hence, it is covered by financial debt within the meaning of Section 5(8)(f) of the Code. Learned Counsel for the Appellant has also relied on the judgment of the Hon’ble Supreme Court in “Orator Marketing Pvt. Ltd. vs. Samtex Desinz Pvt. Ltd.- 2021 SCC OnLine SC 513” as well as judgment of the Hon’ble Supreme Court in “Pioneer Urban Land and Infrastructure Limited and Anr. vs. Union of India and Ors.-(2019) 8 SCC 416”.
Learned Counsel appearing for the Respondent refuting the submissions of the Counsel for the Appellant contends that the advance of Rs.1.2 Crore is not a financial debt and the Adjudicating Authority has rightly rejected the Application. It is submitted that the said amount was advanced by the Appellant as per clause 7 of the LOI which was equal to three months’ rental which was to be paid within seven days. It is submitted that out of Rs.48 Lakhs, Rs.8 Lakhs was maintenance charge, hence, three months’ rent at the rate of Rs.40 Lakhs comes to Rs. 1.2 Crores which was the amount paid by the Appellant. It is submitted that the Appellant has not made any request for refund of the amount as per Clause of the LOI and Respondent has incurred expenditure for arranging premises for the Appellant.
We have considered the submissions of the Counsel for the Appellant and perused the record.
Section 5(8)(f) of the Code which deals with the ‘financial debt’ reads as follows:-
“5. Definitions.-……….(8) a debt alongwith interest, if against the consideration for and includes— “financial debt” means any, which is disbursed the time value of money
xxx xxx xxx
(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing….”
When we look into the Letter of Intent which has been relied by the Counsel for the Appellant, Clause 1 to 7, it is clear that the agreement which was sought to be entered between the parties was for premises for the use of the Appellant and the LoI contemplated execution of the lease deed on the rent basis. The amount of Rs.1.2 Crore was advance by the Appellant in pursuance of the LoI which is clear from Clause 7 of the LoI.
Coming to the judgment of the Hon’ble Supreme Court in “Orator Marketing Pvt. Ltd.” (supra) on which reliance has been placed by learned Counsel for the Appellant. In para 22, following has been laid down:-
“22. The NCLT and NCLAT have overlooked the words “if any” which could not have been intended to be otiose. ‘Financial debt’ means outstanding principal due in respect of a loan and would also include interest thereon, if any interest were payable thereon. If there is no interest payable on the loan, only the outstanding principal would qualify as a financial debt. Both NCLAT and NCLT have failed to notice clause(f) of Section 5(8), in terms whereof ‘financial debt’ includes any amount raised under any other transaction, having the commercial effect of borrowing.”
There can be no quarrel to the preposition laid down by the Hon’ble Supreme Court in the aforesaid judgment. The use of the word ‘if any’ clearly makes that it is not essential for all financial debt to be with interest. However, the essential condition which is required to be fulfilled for a debt to be a financial debt is “disbursement for time value of money” which has to be fulfilled for all transactions referred to in clauses (a) to (f) in sub-section (8) of Section 5 of the Code.
Learned Counsel for the Appellant has next relied on the judgment of “Pioneer Urban Land and Infrastructure Limited” (supra). In paragraph 75 of which judgment, following has been laid down:-
“75. And now to the precise language of Section 5(8)(f). First and foremost, the sub-clause does appear to be a residuary provision which is “catch all” in nature. This is clear from the words “any amount” and “any other transaction” which means that amounts that are “raised” under “transactions” not covered by any of the other clauses, would amount to a financial debt if they had the commercial effect of a borrowing. The expression “transaction” is defined by Section 3(33) of the Code as follows:
(33) “transaction” includes an agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor;
As correctly argued by the learned Additional Solicitor General, the expression “any other transaction” would include an arrangement in writing for the transfer of funds to the corporate debtor and would thus clearly include the kind of financing arrangement by allottees to real estate developers when they pay instalments at various stages of construction, so that they themselves then fund the project either partially or completely.”
In paragraph 75, the Hon’ble Supreme Court was considering the commercial effect of a borrowing. The essential condition which is wanted in the facts of the present case was disbursement for time value of money. Judgment of “Pioneer Urban Land and Infrastructure Limited” (supra) does not help the Appellant in the facts of the present case to contend that the disbursement was towards time value of money.
We, thus, are satisfied that the amount advance of Rs.1.2 Crore cannot be held to be financial debt and no error has been committed by the Adjudicating Authority in rejecting the Section 7 Application.
Learned Counsel for the Appellant lastly contended that since earlier Application claiming to be operational debt has been rejected which order has become final after withdrawal of Appeal, hence, the Appellant cannot be remediless to pursue his debt.
We are of the view that, the Appellant in view of the facts as noticed above, cannot invoke the provisions of the IBC but it is always open for the Appellant to take recourse of the law and remedy as available in law for his debt, if any.
Learned Counsel for the Appellant has contended that in any view of the matter even if it is not an operational and financial debt, it is a debt, hence, he has all right to recover the amount. As observed above, the remedy of the Appellant is to take recourse of the law which can be availed by the Appellant.
With these observations, we dismiss the Appeal.