NCLAT (19.04.2021) In Pradeep Kumar Sekar Vs. Solar Semiconductor Energy Systems (India) Private Limited & Anr. [Company Appeal (AT)(CH)(Ins) No. 02/2021] held that;
the fact that the Second Respondent/Financial Creditor had invested a sum of Rs.1,07,76,815.35 paise under the ‘Lease Agreement’ dated 03.04.2017, in and by which a repayment schedule was mentioned as lease rental for a period of 36 months and at the end of the lease, the ‘Asset’ will be purchased by the First Respondent/Corporate Debtor at a value of Rs.21,65,190/- which was received by the Second Respondent/Financial Creditor as Security Deposit comes to an inevitable and inescapable conclusion that the disbursal of amounts to the manufacturer ‘Interio Architecture’ comes within the requirement of ‘time value for money
it is to be pointed out by this ‘Tribunal’ that the ‘Lease Agreement’ dated 03.04.2017 entered into between the Second Respondent/Financial Creditor and the First Respondent/Corporate Debtor clearly envisages that the ‘Lessor’ (Second Respondent) had offered to provide ‘Lease Finance Assistance’ to the ‘Lessee’ (First Respondent/Corporate Debtor) in respect of Furniture and Fixture (‘Asset’)
especially in the teeth of ‘Lease Agreement dated 03.04.2017’ that the (‘Lessor’/Second Respondent) had offered to provide ‘Lease Finance Assistance’ to the ‘Lessee’/First Respondent, this Tribunal without any haziness holds that the ‘Lease’ in the instant case, is a ‘Financial Lease’ and comes to an irresistible conclusion that there is ‘Financial Debt’ as per section 5(8) of the Code, 2016
Excerpts of the order;
# 2. The ‘Adjudicating Authority’ (National Company Law Tribunal, Hyderabad Bench) while passing the impugned order on 19.03.2020 at paragraph 16 had observed the following:
“In the present case, this Adjudicating Authority is satisfied with the submissions put forth by the Petitioner/Financial Creditor regarding existence of ‘financial debt’ and occurrence of ‘default’. Further, the Financial Creditor has fulfilled all the requirements as contemplated under IB Code in the present Company Petition and has also proposed the name of IRP after obtaining his written consent in Form-2” and consequently admitted the petition by ordering the commencement of ‘CIRP Process etc’.,
# 43. In the Application filed by the Second Respondent/Financial Creditor (under Form-1) to initiate ‘CIRP’ (under Section 7 of the Code r/w Rule 4 of the Insolvency & Bankruptcy Application to Adjudicating Authority) Rules, 2016 in Part-IV - Particulars of Financial Debt’ in Serial No.1, it was mentioned that the total amount of debt granted was Rs.1,07,76,815/- and it was mentioned as (i) Rs.64,95,569/- on 5th April 2017, (ii) Rs.42,81,245/- on 28th November 2017. Apart from this, the Second Respondent/Financial Creditor had mentioned that the First Respondent/Corporate Debtor entered into a ‘Lease Agreement’ with the Applicant Company to avail financial assistance of Rs.1,07,76,815/- (Rupees One Crore Seven Lakh Seventy Six Thousand Eight Hundred and Fifteen only) to carry out interior work on 3rd April 2017.
# 44. The Second Respondent /Financial Creditor had claimed a default sum of Rs.1,16,98,242.60/-(Rupees One Crore Sixteen Lakhs Ninety Eight Thousand Two Hundred and Forty Two and Paise Sixty only) and that the said amount was not paid by the ‘Corporate Debtor’(First Respondent) as per the running statement of accounts maintained by the Second Respondent/Applicant Company in the name of First Respondent/Corporate Debtor.
# 45. The stand of the ‘Appellant’ is that there is no indication in the ‘Lease Agreement’ dated 03.04.2017 that the said agreement is deemed as a ‘Financial or Capital Lease’ and that the Second Respondent/Financial Creditor had not pleaded the factual issue as to whether or not the ‘Lease Agreement’ is a ‘Finance or Capital Lease’ under ‘Indian Accounting Standards’.
# 46. It comes to be known that the Second Respondent/Financial Creditor had disbursed a sum of Rs.64,95,569/- on 5.4.2017 and Rs.42,8,245/- on 28.11.2017 to the First Respondent/Corporate Debtor’s architects ‘M/s Interio and Architecture, Bangalore’. According to the Second Respondent, the First Respondent/Corporate Debtor was irregular in repaying the monthly ‘Rentals’ from February 2018 and totally stopped making the payments and further that the First Respondent/Corporate Debtor had admitted its liability in response to the requests made for the payment made by the Second Respondent. In short, the First Respondent/Corporate Debtor, time and again, had admitted its liability and requested for more time.
# 47. In this connection, this ‘Tribunal pertinently points out that the Second Respondent/Financial Creditor had issued a ‘Demand Notice’ dated 27.07.2018 addressed to the First Respondent/Corporate Debtor’ and its ‘Managing Director’ stating among other things that the Second Respondent had provided ‘Lease Financial Assistance’ of Rupees One Crore Seventy Seven Lakhs Six Thousand Eight Hundred and Fifteen, in aggregate to the First Respondent/Corporate Debtor in respect of Furniture and Fixture (‘Assets’) as detailed in the ‘Lease Agreement’ dated 3.4.2017 and further that as per Clause 2.3(b) of the said ‘Lease Agreement’, they were supposed to pay the stipulated lease rentals regularly and punctually without any abatements and deductions except (statutory deduction). But they have grossly neglected to pay the gross rentals during the ‘Lease Tenure’, thereby causing an event of default under the said ‘Lease Agreement’.
# 48. Besides the above, the ‘Demand Notice’ dated 27.7.2018 of the Second Respondent addressed to the First Respondent and Another proceeds to mention that the post dated cheques against the lease rentals (PDC’s) and Security Cheque issued by them to the Second Respondent towards discharging of their liability to repay the lease amount/total acquisition cost taken from the Second Respondent (as contained in the said agreement) was also dishonoured for want of insufficient funds in their Bank Account and as such miserably failed to honour the commitment under the said agreements. Moreover, in spite of the Second Respondent’s repeated requests and ‘Demand Notice’ dated 26.6.2018, the promises made through their emails addressed to the Second Respondent/Financial Creditor, for clearing the dues they had failed to discharge their liabilities under the said agreement and had violated the terms of the agreement.
# 49. In short, in the Demand Notice dated 27.7.2018 issued by the Second Respondent addressed to the First Respondent/Corporate Debtor and Another, it was mentioned that the default was committed by the First Respondent/Corporate Debtor repeatedly and as per terms of the agreement, a sum of Rs.9,481,209/- being the total due was legally due and payable by it to the Second Respondent as on date of the notice dated 27.7.2018. Therefore, the Second Respondent/Financial Creditor without prejudice to its rights under law had called by the First Respondent/Corporate Debtor and Another to pay a sum of Rs.94,81,209/- only within 14 days from the receipt of the ‘Demand Notice’ by any one of them or both of them, failing which the First Respondent/Corporate Debtor and Another were informed that the Second Respondent/financial Creditor would be constrained to proceed against them as per Law, including, but not limited to initiate ‘Insolvency Proceedings’ under the Insolvency & Bankruptcy Code against the First Respondent/Corporate Debtor.
# 50. For the Demand Notice of the Second Respondent/Financial Creditor, the First Respondent/Corporate Debtor through an Advocate on 10.8.2018 had stated that it had not issued ‘Post Dated Cheques’ against the lease rentals and security cheques to the Second Respondent and that the Second Respondent had collected blank cheques, but those cheques were given by the First Respondent/Corporate Debtor not towards discharging of any liability to repay the lease amount or liability from it. In short, an averment was made in the First Respondent/Corporate Debtor’s Lawyer Notice dated 10.8.2018 to the effect that the First Respondent/Corporate Debtor, had not executed/issued any cheques to the Second Respondent for the purposes of repayments of the lease amount. Notwithstanding the above, the reply notice of the First Respondent/Corporate Debtor’s Advocate dated 10.8.2018, it was mentioned that the First Respondent/Corporate Debtor had not executed any agreement at any point of time for any amount as claimed by the Second Respondent. Further, the Second Respondent had not released the emptier amount and hence the claim made in the notice of the Second Respondent/Financial Creditor is totally against Law and therefore the payment of alleged amount does not arise etc.
# 51. It appears that on 28.11.2017, the First Respondent/Corporate Debtor, had confirmed that it would buy back the asset at Rs.2165190 plus taxes after the lease period.
# 52. Although, a plea is taken on behalf of the ‘Appellant’ that in the instant case, the ‘disbursal’ is against the supply of the ‘Assets’ and against the usage of the ‘Assets’ (Furniture & Fixture) and not against the ‘time value for money’ and that the primary ingredients of Section 5(8) of the Code are not satisfied, this ‘Tribunal’ bearing in mind the meaning of ‘Time Value’ that it is ‘the price associated with length of time that an investor must wait until investment matures or related income is earned’ (vide Black’s Law Dictionary) and also considered the fact that the Second Respondent/Financial Creditor had invested a sum of Rs.1,07,76,815.35 paise under the ‘Lease Agreement’ dated 03.04.2017, in and by which a repayment schedule was mentioned as lease rental for a period of 36 months and at the end of the lease, the ‘Asset’ will be purchased by the First Respondent/Corporate Debtor at a value of Rs.21,65,190/- which was received by the Second Respondent/Financial Creditor as Security Deposit comes to an inevitable and inescapable conclusion that the disbursal of amounts to the manufacturer ‘Interio Architecture’ comes within the requirement of ‘time value for money’ and the contra plea projected on the side of the ‘Appellant’ is not acceded to, by this Tribunal.
# 53. In so far as the contention of the ‘Appellant’ that the Second Respondent/Financial Creditor had not pleaded in the Section 7 of the Application that the ‘Lease Agreement’ dated 03.04.2017, is a ‘Financial Lease Agreement’ satisfying the requirements of Section 5(8)(d) of the ‘Insolvency & Bankruptcy Code’, it is to be pointed out by this ‘Tribunal’ that the ‘Lease Agreement’ dated 03.04.2017 entered into between the Second Respondent/Financial Creditor and the First Respondent/Corporate Debtor clearly envisages that the ‘Lessor’ (Second Respondent) had offered to provide ‘Lease Finance Assistance’ to the ‘Lessee’ (First Respondent/Corporate Debtor) in respect of Furniture and Fixture (‘Asset’) and which the ‘Lessee’ (First Respondent/Corporate Debtor) was desirous to take for its business purposes on lease basis from the ‘Lessor’ (Second Respondent) on the basis of offer made. And also that, in Part IV of the Application ‘ Particulars of Financial Debt’ it is mentioned that the Corporate Debtor had entered in to a “Lease Agreement’ with the applicant company to avail financial assistance of Rs. 1, 07, 76, 815/- to carry out interior work on 03.04.2017 and further that, the amount of default was mentioned as Rs. 1, 16, 98, 242. 60 which was not paid by the Corporate Debtor, as per the computation and statement of accounts annexed along with the application. Therefore, it cannot be said that the Second Respondent/ Financial Creditor had not pleaded in the application about the ‘Financial Lease’ in the strictest sense of the term. Suffice it for this Tribunal to point out that requisite averments as required to the application under section 7 of the Code were furnished by the Second Respondent/Financial Creditor. Hence, the contra contention advanced on behalf of the Appellant is not accepted by this Tribunal.
# 54. It is to be pointed out that in the Rejoinder of the Appellant (filed to the Reply of the Second Respondent/Financial Creditor/Applicant) in paragraph 5 (1), it is mentioned that ‘there is neither a Financial Service provided by the Second Respondent as per section 2(16) of the I B Code, nor a ‘Financial Product’ as per section 2(15) of the I B Code, 2016, but an ordinary lease of furniture and fixtures to the First Respondent Company that are fully owned by the Second Respondent, therefore, the Second Respondent is not a ‘Financial Service Provider’ under section 2(17) of the I B Code, 2016.
# 55. Section 3(14) (a to d) of the Code defines “Financial Institution’.(including a financial institution as defined in section 45 -I of the Reserve Bank of India Act, 1934 (2 of 1934). Section 50 of the I & B Code, 2016 provides a carve out to a ‘Financial Service Provider’ for its credit facility to be regarded as ‘extortionate’. Likewise, section 167 of the I & B Code, 2016 provides that any debt extended by a person regulated for the provision of ‘Financial Services’ shall not be considered as an ‘extortionate credit transaction’.
# 56. As matter of fact, the definition of Corporate Person in section 2(7) of the I & B Code, 2016 excludes any ‘Financial Service Provider’.
# 57. It is not out of place for this Tribunal to make a relevant mention that the procedure envisaged under section 8 of the Code, 2016 differs from the procedure applicable to the “Financial Creditors’ as ‘Operational Debts’ like the trade debts, salary or wage claims etc tend to be small amounts as compared to ‘Financial Debts’.
# 58. Be that as it may, in the light of the detailed qualitative and quantitative discussions mentioned supra, and keeping in mind the contentions advanced on either side, especially in the teeth of ‘Lease Agreement dated 03.04.2017’ that the (‘Lessor’/Second Respondent) had offered to provide ‘Lease Finance Assistance’ to the ‘Lessee’/First Respondent, this Tribunal without any haziness holds that the ‘Lease’ in the instant case, is a ‘Financial Lease’ and comes to an irresistible conclusion that there is ‘Financial Debt’ as per section 5(8) of the Code, 2016 and the default being committed by the First Respondent/Corporate Debtor in terms of the ingredients of section 3(12) of the Code, 2016. Further, that the ‘debt’ in question as per section 3(11) of the Code, 2016 cannot be termed as an ‘Operational Debt’ as per section 5(21) of the Code, 2016. Also that, it cannot be forgotten that the Second Respondent/Financial Creditor had not issued the demand notice in such form and manner as prescribed by the I & B Code. Looking at from any angle, the impugned order of the Adjudicating Authority dated 19.03.2020 (National Company Law Tribunal, Hyderabad Bench) in admitting the section 7 application of I & B Code, 2016 (filed by the Second Respondent/Financial Creditor) is free from any legal flaws. Resultantly the Appeal fails.
RESULT:
In fine, the instant Comp App (AT) (CH) (Ins) No. 2/2021 is dismissed, but without costs. I A No. 06/2021 & 07/2021 are closed.
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