NCLAT (10.11.2020) in Arenja Enterprises Private Limited Vs Edward Keventer (Successors) Private Limited [Company Appeal (AT) (Insolvency) No. 528 of 2020] held that;-
Pursuant to the consent decree and as per Settlement Agreement allotment to the Financial Creditor was in lieu of claim of Financial Creditor against Corporate Debtor for utilization of Rs.2 Crore beyond the due date. Therefore, the allotment was made as monetary compensation for interest-free utilization of Rs.2 Crore for five years beyond the due date, i.e. 28th February 1990.
Therefore, Appellant's Application as a Financial Creditor is not maintainable, and no amount has been paid by the Appellant to the Respondent. There is no financial debt in favour of the Appellant. It is pertinent to mention that Appellant's pleading is that the amounts have been paid by the Appellant to the Respondent and the consent decree itself is the debt for which Section 7 Application has been filed.
Thus it cannot be said that there is any default by the Respondent under the Code, as the time for performance has not arrived yet and therefore in terms of various decisions of Hon’ble Supreme Court it is clear that even if the consent decree is a ‘debt’, even then there is no Default by the Respondent in terms of the Code.
Excerpts of the order;
# 1. This Appeal emanates from the Order dated 16th January 2020 passed by the Adjudicating Authority/National Company Law Tribunal, New Delhi in CP (IB) No.775 (ND)/2019, under Section 7 of the Insolvency and Bankruptcy Code, 2016 (from now on referred to as "I&B Code"). The parties are represented by their original status in the Company Petition for the sake of convenience.
# 6. The Applicant contends that by virtue of decree passed by the Civil Court on 10th April 1996, and in consideration of services provided by Financial Creditor and its associates 34,000 sq. ft. of a built-up residential area with the proportionate super area in 48, Keventer, Sardar Patel Marg, New Delhi were admittedly sold to Financial Creditor and its associates by the Corporate Debtor and the said transaction has the effect of borrowing by the terms of I&B Code, 2016.
# 7. The Corporate Debtor admitted the fact pertaining to the consent decree passed by the Hon'ble High Court on 10th April 1996. It is further contended that the Financial Creditor alongwith its associates, had filed Execution Application No.77 of 2008 before the District Court which was rejected, thereafter challenged before the Hon'ble High Court of Delhi.
# 8. The Corporate Debtor contends that the 'debt' as alleged by the Financial Creditor is not a 'financial debt' as defined under sub Clause (8) of Section 5 I&B Code, 2016. Because no sum has been raised from an allottee under the Real Estate Project. The Financial Creditor and its associates have not paid any money towards the allotment of built-up area. Given the terms of settlement Financial Creditor and its associates entitled to 34000 sq. ft. residential covered/built-up, alongwith proportionate super area, and in case of delay in getting the sanction of plans, the penalty in the shape of additional built-up area in favour of Financial Creditor and its associates was to be allotted. In other words, nothing is paid in terms of money to the Financial Creditor and its associates in the light of the ‘consent decree and settlement terms’. The Corporate Debtor has not raised any money from the Financial Creditor in terms of the explanation provided to sub-clause (8) of Section 5 of I&B Code, 2016.
# 10. Financial Creditor contends that the allotment as per settlement agreement to the Financial Creditor was in lieu of claim of Financial Creditor against the Corporate Debtor for utilization of Rs.2 Crores beyond the due date. The allotment was therefore made in lieu of monetary compensation for interest-free utilization of Rs.2 Crores for five years beyond the due date of 28th February 1990.
# 11. The Appellant Financial Creditor further contends that debt Rs.2 Crores was not given as a loan nor as equity payment for the purchase of flats. It had the commercial effect of borrowing from 28th February 1990 till 1995.
# 16. The Corporate Debtor further contends that debt, as alleged by the Appellant, is not a ‘financial debt’ as defined under Clause (8)(f) of Section 5 of the Code, as no sums were raised from/paid by the Appellant. The Corporate Debtor further contended that original amount of debt on 10th April 1996 was 34000 sq. ft. built-up residential area and an additional amount of 5100 sq. ft. was added to the debt on 10th April 2002 on account of penalty for delay in sanction of plans, as per Clause (J) of the Consent Decree. It is argued that the financial debt can only be money raised and paid and not for any other claims.
# 18. The question that arises for consideration is as follows:
a) Whether 'debt' as alleged by the Appellant/Applicant is a financial debt as defined under Clause (8)(f) of Section 5 of the I&B Code, 2016?
b) Whether Corporate Debtor committed 'default' by not allotting 39100 sq. ft. built-up area of land, in terms of Section 3(12) of the I&B Code, 2016?
# 20. The explanation attached to Section 5(8)(f) of the Code provides that any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of borrowing. Explanation (ii) to Section 5(8)(f) provides that expressions' allottee' and 'real estate' project shall have the meanings respectively assigned to them in Real Estate (Regulation & Development) Act, 2016.
# 21. In this case, the Appellant is not an allottee under a ‘real estate project’. In fact, the alleged allotment of 34000 sq. ft. of land with an additional 5100 sq. ft. land is on account of ‘Consent Decree’ passed by the Hon'ble High Court of Delhi dated 10th April 1996. Pursuant to the consent decree and as per Settlement Agreement allotment to the Financial Creditor was in lieu of claim of Financial Creditor against Corporate Debtor for utilization of Rs.2 Crore beyond the due date. Therefore, the allotment was made as monetary compensation for interest-free utilization of Rs.2 Crore for five years beyond the due date, i.e. 28th February 1990.
# 24. Under Section 5(8)(f) of I&B Code, any amount raised from ‘allottee’ under a real estate project shall be deemed to be an amount having the 'commercial effect of borrowing' and thus, would be covered under the definition of 'Financial Creditor' as defined under Section 5(7) of the Code. It is thus, clear that the Appellant can claim a Financial debt as an 'allottee' only when the amount raised from it as an 'allottee' is used for a real estate project. In the facts and circumstances, the Appellant is neither an 'allottee' nor has any amount 'being raised' or 'raised' from it, that may be construed as to have the effect of borrowing.
# 25. Therefore, Appellant's Application as a Financial Creditor is not maintainable, and no amount has been paid by the Appellant to the Respondent. There is no financial debt in favour of the Appellant. It is pertinent to mention that Appellant's pleading is that the amounts have been paid by the Appellant to the Respondent and the consent decree itself is the debt for which Section 7 Application has been filed.
# 31. In this case as per terms of MoU dated 20th November 1989 the amount of Rs. 2 Crores was to be refunded to Financial Creditor latest by 28th February 1990. The Corporate Debtor did not reinstate the MoU dated 22nd June 1989, hence it became void. But the amount of Rs.2 Crore was not refunded by the Corporate Debtor till 28th February 1990 as per the terms of MoU. Therefore, the Financial Creditor filed a suit before Delhi High Court in 1992 and on the direction of the Hon'ble High Court the Corporate Debtor returned principal amount, i.e. Rs two crores to the Financial Creditor in January 1995 and to compensate interest-free security of Rs two crores for five years,given the terms of the settlement, the Applicant and Corporate Debtor entered into an agreement dated 10th April 1996, whereby the Applicant/Appellant was allotted 34000 sq. ft. area of built-up area. It was also agreed upon that in case the project is delayed; the Applicant would get an additional 5100 sq. ft area of built-up area. The 'debt' as alleged by the Financial Creditor is not a 'financial debt' as defined under sub Clause (8) of Section 5 I&B Code, 2016, because no sum has been raised from an allottee under the Real Estate Project. The Financial Creditor and its associates have not paid any money towards the allotment of built-up area. Given the terms of settlement Financial Creditor and its associates entitled to 34000 sq. ft. In other words, nothing is paid in terms of money to the Financial Creditor and its associates in the light of the ‘consent decree and settlement terms’. The Corporate Debtor has not raised any money from the Financial Creditor in terms of the explanation provided to sub-clause (8) of Section 5 of I&B Code, 2016. Thus, it is clear that the alleged debt is not a ‘financial debt’ in terms of Sec 5(8)of the Code.
# 33. …………. Thus it cannot be said that there is any default by the Respondent under the Code, as the time for performance has not arrived yet and therefore in terms of various decisions of Hon’ble Supreme Court it is clear that even if the consent decree is a ‘debt’, even then there is no Default by the Respondent in terms of the Code.
# 34. Therefore, we are of the considered opinion that there is no reason for interference with the impugned order passed by the Adjudicating Authority. Hence Appeal is dismissed. No order as to costs.
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