S. Chandriah Vs Sunil Kumar Agarwal (NCLAT)
Held that a ‘Financial Debt’ is a debt alongwith interest which is disbursed against the consideration for the time value of money. Earnest money doesn’t satisfy the essential condition of financial debt and accordingly categorized as other creditor.
Facts-
The Appellant sent a letter dated 14.09.2018 to the Corporate Debtor (M/s. Digjam Limited) setting out his offer to purchase surplus land available at the Mills premises of the Corporate Debtor at Jamnagar (Gujarat). Thereafter, the Appellant made payment of Earnest Money by RTGS/NEFT to the Corporate Debtor between 26.09.2018 to 08.04.2019 of Rs. 7 Crores.
In the meantime, an Application u/s 9 of the Insolvency and Bankruptcy Code, 2016 was filed by one M/s. Oman Inc. against the Corporate Debtor M/s. Digjam Limited for “Operational Debt” of Rs. 21,74,626/-. The Adjudicating Authority admitted the Application under Section 9 of the Code and initiated “Corporate Insolvency Resolution Process” (CIRP in short) against the Corporate Debtor.
Hence, the Appellant filed his claim under Form-F (claim by Creditor other than Financial and Operational Creditor). Thereafter, the Appellant, filed his claim under Form-C as a Financial Creditor.
The Erstwhile Resolution Professional sent an email stating that Appellant had remitted funds to Digjam Limited as interest free advance to be adjusted against sale consideration for proposed sale of land which shall not fall under “Financial Debt”.
Conclusion-
Tribunal in the case of Sach Marketing Pvt. Ltd. Vs. Resolution Professional of Mount Shivalik Industries Ltd. held that a ‘Financial Debt’ is a debt alongwith interest which is disbursed against the consideration for the time value of money.
Held that essential condition for accepting the debt to be a financial debt is absent and hence we are of the view that Adjudicating Authority has not committed any error in rejecting the claim of the Appellant as Financial Creditor. The claim of the Appellant of Earnest Money of Rs. 7 Crores has been admitted by the Resolution Professional as under the category of other creditors.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
1. These two Appeals filed by the same Appellant have been heard together and are being decided by this common Judgement. Company Appeal (AT) Ins. No. 22 of 2022 has been filed by the Appellant challenging the Judgement and Order dated 07.02.2022 passed by the National Company Law Tribunal, Ahmedabad Bench, Ahmedabad (the Adjudicating Authority) rejecting the I.A. No. 658 of 2019 filed by the Appellant. By this I.A., Appellant prayed that his claim be admitted as a “Financial Debt” and he be declared to be “Member of Committee of Creditors”. I.A. No. 658 of 2019 has been dismissed by the Impugned Judgement. Aggrieved by the Order, this Appeal has been filed. Company Appeal (AT) Ins. No. 21 of 2022 has been filed against the Order dated 27th May, 2020 passed by the National Company Law Tribunal, Ahmedabad Bench, Ahmedabad (the Adjudicating Authority) allowing the Application filed by the Resolution Professional (RP in short) for approval of the Resolution Plan. By the Order dated 27.05.2020, Resolution Plan was approved. Aggrieved by the Order dated 27.05.2020, this Appeal has been filed by the Appellant.
2. Brief facts of the case and sequence of the events for deciding these Appeals are:
i. The Appellant sent a letter dated 14.09.2018 to the Corporate Debtor (M/s. Digjam Limited) setting out his offer to purchase surplus land available at the Mills premises of the Corporate Debtor at Jamnagar (Gujarat).
ii. Subsequent to the sending letter dated 14.09.2018, the Appellant made payment of Earnest Money by RTGS/NEFT to the Corporate Debtor between 26.09.2018 to 08.04.2019 of Rs. 7 Crores.
iii. In the meantime, an Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “The Code”) was filed by one M/s. Oman Inc. against the Corporate Debtor M/s. Digjam Limited for “Operational Debt” of Rs. 21,74,626/-. Vide Order dated 26th April, 2019, the Adjudicating Authority admitted the Application under Section 9 of the Code and initiated “Corporate Insolvency Resolution Process” (CIRP in short) against the Corporate Debtor.
iv. On 22.05.2019, the Appellant filed his claim under Form-F (claim by Creditor other than Financial and Operational Creditor). Thereafter, the Appellant on 02nd July, 2019, filed his claim under Form-C as a Financial Creditor.
v. The Erstwhile Resolution Professional sent an email stating that Appellant had remitted funds to Digjam Limited as interest free advance to be adjusted against sale consideration for proposed sale of land which shall not fall under “Financial Debt”.
vi. I.A. No. 658 of 2019 was filed by the Appellant seeking direction to Resolution Professional to adjudicate the claim of the Appellant revise the list of the Committee of Creditors (CoC in short) and to admit him as a “Member of CoC”. The IRP filed a Reply to I.A. No. 658 of 2019. The Adjudicating Authority vide Order dated 07th February, 2020 dismissed the I.A. No. 658 of 2019 filed by the Appellant. Aggrieved by the Order dated 07.02.2020, the Appeal No. 22 of 2022 has been filed. In the CoC Meeting held on 11.02.2020, the Resolution Plan submitted by M/s. Finquest Financial Solutions Pvt. Ltd. was approved by the CoC. The Resolution Professional filed an I.A. No. 144 of 2020 for approval of the Resolution Plan and vide Order dated 27th May, 2020, the Adjudicating Authority approved the Resolution Plan by allowing I.A. No. 144 of 2020. The Appellant filed an I.A. No. 195 of 2021 dated 04.03.2021 before the Adjudicating Authority praying for quashing the entire ‘CIRP’ which Application was dismissed vide Order dated 21st June, 2021. Appellant challenged the Order dated 21st June, 2021 before this Appellate Tribunal which Appeal was also dismissed on 29th July, 2021. The Appeal No. 21 of 2021 has been filed by the Appellant challenging the Order dated 27th May, 2020.
3. We have heard Shree Krishnendu Datta, Learned Sr. Counsel with Shree Ravi Raghunath, Learned Counsel for the Appellant. Mr. Pratik Thakkar has appeared for Resolution Professional and Mr. Atul Sharma, Advocate for CoC and Mr. Rohan Agrawal and Ms. Meghna Rao, Advocates appeared for R-3.
4. Learned Counsel for the Appellant submits that the Adjudicating Authority committed error in passing Order dated 07.02.2020 rejecting the claim of the Appellant as a Financial Creditor. He submitted that Appellant had paid sum of Rs. 7 Crores as earnest money to the Corporate Debtor with regard to which receipt was issued by the Corporate Debtor and payment has not been disputed by the Corporate Debtor. The Resolution Professional has admitted the payment of earnest money by the Appellant to the Corporate Debtor but has wrongly classified the Appellant as other Creditor. Learned Counsel for the Appellant referring to the Annual Reports of the Corporate Debtor for the Financial Year 2018-19 and 2019-20 submits that earnest money has been classified as “other Financial Liability” hence the Appellant’s claim deserved to be admitted as a “Financial Debt”. Learned Counsel for the Appellant submits that Resolution Professional failed to produce the Annual Reports before the Adjudicating Authority which reports have now been brought on record in this Appeal.
5. In support of Company Appeal (AT) Ins. No. 21 of 2022, Learned Counsel for the Appellant submits that the Resolution Plan has been approved without earmarking any amount to the Appellant whereas the claim of the Appellant of Rs. 7 Crores was admitted as other creditors. The CoC by approving the plan has not taken into account the interest of all the stakeholders. No amount having been earmarked to the Appellant whose claim was admitted as other creditors the plan is not in accordance with the provisions of Section 30(2)(e) and Section 30(2)(f) of the Code. The Resolution Plan does not at all states how it has dealt with the interest of all the stakeholders as per Regulation 38(1-A) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons), Regulations, 2016 (CIRP Regulations in short). The Resolution Plan envisages Nil payment to other creditors. The decision of the CoC must reflect that it has taken into account in maximising the value of the assets of the Corporate Debtor and the fact that it has adequately balanced the interest of all the stakeholders. While the Financial Creditors and Operational Creditors have been made paid huge payment, the Other creditors like Appellant who is also stakeholder is being paid Nil amount.
6. Learned Counsel appearing for the Respondents refuting the submissions of the Learned Counsel for the Appellant submits that the claim of the Appellant was rightly admitted in the category of other creditors. The Appellant was not a Financial Creditor. There was no contract between the Appellant and the Corporate Debtor for sale of any land. The Appellant of his own has made payment of the earnest money to the Corporate Debtor without there being any acceptance of the offer of the appellant. There was no contract with the Corporate Debtor hence the earnest money advanced by the Appellant cannot be treated to be a ‘Financial Debt’. The Adjudicating Authority in its Order dated 07th February, 2020 has held that there was no contract between the parties for sale of any land. Essential conditions for holding a debt to be Financial Debt within the meaning of Section 5(8) of the Code are not present in the present case hence the Adjudicating Authority has not committed any error in not accepting the claim of the Appellant as a Financial Creditor.
7. There is no error in the decision of the CoC approving the Resolution Plan. The Appellant as other creditor was not entitled for any payment of any amount as per the provisions of the Code. Hence the Resolution Plan cannot be faulted. Appellant’s I.A. No. 195 of 2021 where he had made a prayer to quash the CIRP was rejected by the Adjudicating Authority against which Company Appeal (AT) Ins. No. 522 of 2021 filed by the Appellant was also dismissed on 29th July, 2021. Appellant cannot be allowed to reagitate the same issue.
8. We have considered the submissions of Learned Counsel for the parties and have perused the record.
9. The first issue to be answered in this Appeal is as to whether the payment of earnest money of Rs. 7 Crores by the Appellant to the Corporate Debtor between the period from 26.09.2018 to 08.04.2019 is a financial debt within the meaning of Section 5(8) of the Code?
10. We need to first notice the nature of transaction, the details of the facts and sequence of the events which can throw light on the nature of transaction, if any, between the Appellant and the Corporate Debtor. The Appellant has claimed the payment of amount to Corporate Debtor as an earnest money for purpose of purchase of surplus land belonging to the mills of the Corporate Debtor. The payment of earnest money began after letter dated 14.09.2018 was sent by the Appellant to the Corporate Debtor. The Copy of the Letter dated 14.09.2018 has been brought on record which is to the following effect:
“
14-09-2018
Digjam Limited
Aerodrome Road
Jamnagar 361006
Gujarat
Kind Attn: Jatin Jain
Company Secretary
Dear Sir,
This has reference to our discussions we had with you regarding proposal sale of surplus land available at your mills premises in Jamnagar (Gujarat).
In connection with the above, we submit herewith our offer as under:-
