CL : Where petitioner entered into agreement with respondent company for purchase of a flat in residential project to be developed by it and an assured amount of return had been promised as interest in case property was not handed over to buyer within prescribed time period, 'payment of interest' would not acquire status of a 'financial debt' under section 2(h) so as to initiate insolvency resolution process against respondent

[2017] 82 taxmann.com 15 (NCLT - New Delhi)

NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI

Devesh Singh

v.

Mega Soft Infrastructure (P.) Ltd.

MS. INA MALHOTRA, JUDICIAL MEMBER AND S.K. MOHAPATRA, TECHNICAL MEMBER CO. APPLICATION NO. (IB) 70(ND)/2017 MAY 8, 2017

Section 2(h) of the Insolvency and Bankruptcy Code, 2016 - Debt - Meaning of - Petitioner entered into agreement with respondent company for purchase of flat in residential project to be developed by it - In terms of agreement, petitioner paid certain amount as advance - It was undisputed that respondent assured petitioner to pay interest on amount given as advance in case residential project was not completed within prescribed time period - Since respondent failed to complete project as per time schedule mentioned in agreement, it returned amount advanced by petitioner - However, due to failure of respondent to pay interest and penalty amount as specified in agreement, petitioner filed instant petition seeking approval of Tribunal to trigger off insolvency resolution process against respondent - Whether since return of principal amount was not disputed, liability towards any interest/assured returns on proposed property in terms of agreement would not fall within purview of 'financial debt' as defined under Code for initiating insolvency resolution process - Held, yes [Paras 5 and 6]

Rahul Shukla, Adv. for the Petitioner. Abhishek Mahta, CA and Ms. Manisha Gola, Co. Secretary for the Respondent.

ORDER

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1. Vide the present petition prayer has been made to trigger off Insolvency Resolution Process against the Respondents under the Insolvency and Bankruptcy Code 2016, (hereinafter referred to as Code).

2. As per averments, the petitioner claims to be a financial creditor, claiming a financial debt of Rs. 30,69,000/- from the Corporate Debtor. The basis of the claim emanates from an initial transaction between petitioner/financial creditor with one M/s Maruti Realtors Pvt. Ltd. for purchase of 300 sq. yard plot in a residential project to be developed at Bagpat. The consideration paid by the financial creditor was Rs. 10,50,000/- and the terms of their agreement dated 25.08.2006, provided a scheme for buyback. Since M/s Maruti Realtors failed to develop and deliver the proposed property within the stipulated period of 24 months, the petitioner agreed to co-opt for an IT commercial complex being developed by the Corporate Debtor in lieu of the consideration given to M/s Maruti Realtors, having the same Director on its Board. Upon taking on the obligation of the Maruti Realtors, the Corporate Debtor agreed to develop and allocate 400 sq. ft. on the 3rd Floor of a commercial project proposed to be developed under the name and style of "The Grid". A fresh agreement was executed on 8.10.2008 reflecting the financial creditor's contribution as Rs. 11 lakhs. It was also agreed that the Corporate Debtor would pay assured returns of Rs. 21,437/- per month till 20th August, 2011, which thereafter would stand increased to Rs. 42,875/- (Pre-TDS). Increase of 15% every subsequent year till 2014 was also agreed upon. As per the said agreement dated 8.10.2008, the Corporate Debtor undertook to compensate/pay a penalty of Rs. 42 lakhs in the event of the project not being completed.

3. The Financial Creditor submits that as the Corporate Debtor failed to deliver, he invoked the claim under their agreement. The dispute for recovery of Rs. 42 lakhs as compensation /penalty, culminated in an agreement dated 26.06.2014 for a total settlement of Rs. 30,69,000/-. It is also submitted that pursuant to this agreement a charge was formally registered with the office of the ROC. It was also undertaken that w.e.f. 1.06.2014, interest @ 12.5% would be payable on the aforesaid amount which shall stand enhanced to 15% in case of any default.

Relying on this agreement and on the basis of certain cheques received in furtherance thereof, the petitioner claims himself to be a financial creditor. To substantiate the allegations of assured returns, he has filed his Form 26AS of the Income Tax to show that in acknowledgment of the outstanding liability towards payment of the interest, the Corporate Debtor had been deducting the TDS and depositing the same under Section 194A (interest other than securities). The post-dated cheques given in discharge of the interest liability towards the assured returns were dishonoured upon presentation for which a legal notice under Section 138 of the Negotiable Instrument Act was served not only on the Corporate Debtor and its Directors but also on M/s Maruti Realtors, the initial entity to have entered into the transactions.

4. It is also submitted that in terms of the agreement, the dispute with respect to the recovery of the outstanding liability was referred to the named arbitrator. It is the financial creditor's submission that the Corporate Debtor refused to submit to the jurisdiction of the arbitrator, categorically denying any agreement for arbitration. It is submitted that as no arbitration proceedings are pending, the petitioner as financial creditor is entitled to initiate the insolvency proceedings.

5. The Respondent on being served with the notice of the present proceedings appeared and has contested the claim. Ld. Counsel has submitted that as against the initial payment of Rs. 10.5 lakhs, they have already remitted a sum of Rs. 22,77,429/- i.e. excess payment of Rs. 12,27,429/- over the principal amount. It is also stated that a FIR has been registered with the PS, Gautam Budh Nagar against the petitioner herein making allegations that inspite of having received their initial amount the petitioner and his family are threatening to misuse the blank cheques given by way of security.

Given the facts of the case, this Bench is not satisfied that the case of the petitioner falls squarely within the definition of a "financial debt". The initial transaction was for purchase of a proposed project by M/s Maruti Realtors. The obligation of M/s Maruti Realtors was taken over by the Corporate Debtor herein. The Corporate Debtor agreed to pay assured returns till delivery of the project. Agreements after agreements were superseded giving rise to novation of contracts. The last contractual obligation arose from agreement dated 26.06.2014 wherein it was agreed to settle the dispute in the sum of Rs. 30,69,000/-, which included not only the booking amount paid by the petitioner, but also included compensation and charges for commitment, services rendered, appreciation etc. The case of the petitioner was one for purchase of any immovable property to be developed and for which assured returns were undertaken to be given. The Principal Bench, in the matter of Nikhil Mehta & Sons and others Vs. M/s AMR Infrastructures Ltd. has already elucidated that the liability towards assured returns in matters of booking commercial flats would not fall within the definition of a financial debt which essentially means a debt disbursed against consideration for the value of money, or money borrowed against payment of interest, while the concept of Assured Returns typically requires full payment towards the property to be developed, and perhaps leased out for the owner by the developer on rentals, but pending that stage, the developer pays a Return on the property from day one. As pending completion it cannot be termed as Rent, the return is given and taxed under the Head "Interest".

The petitioner's claim herein is more encumbered and complex than a plain and simple claim against assured returns. The present transaction is based on multiple contractual novated agreements. The initial foundation was with one entity, the liability of which was taken over by another. The payment was made towards development and delivery of a property changed for another. The agreement relied upon contained the provision for appointment of a named arbitrator which though invoked, did not materialize. Further, dispute with respect to the liability has been raised and as the return of the principal amount is not disputed, the liability towards any interest/assured returns on the proposed property in terms of the agreements, essentially towards for purchase of a piece of property, would not fall within the purview of the financial debt as defined under the Code for initiating Insolvency Resolution Process. Merely because an assured amount of return has been promised, which is termed as interest under Section 194A of the I.T. Act, for the period till the property is developed and handed over, it would not acquire the status of a financial debt as it is not money loaned to be recovered with interest.

6. In view of the facts of the case, this Bench is of the opinion that the aforesaid transaction between the parties would not fall within the definition of a "financial debt" so as to invoke Insolvency Resolution Process against the Corporate Debtor.

7. The right of the petitioner shall not be prejudiced on account of the observations made in the order, and it would be open to him to seek redressal of his grievance before an appropriate forum.

8. Petition Rejected. No order as to costs.