The court established that an additional amount classified as Financial Debt, due to explicit interest provisions, constituted a valid debt under the Insolvency and Bankruptcy Code.

JUDGMENT

ASHOK BHUSHAN, J.

This appeal by a suspended Director of the Corporate Debtor (Energy Properties Pvt. Ltd.) has been filed against an order dated 20.03.2024 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Court – I), by which order, Section 7 application filed by the Respondent – Avani Towers Pvt. Ltd. has been admitted. Aggrieved by the admission of the Section 7 application, this appeal has been filed.

2. Brief facts of the case necessary to be noticed for deciding the appeal are:

i. The Corporate Debtor is an owner of land measuring 10.19 acres, situated at Ramrajtala, district Howrah. In the year 2008 the Corporate Debtor purchased the assets from sale conducted by UCO Bank under SARFAESI Act 2002.

ii. On 16.06.2008, the Corporate Debtor entered into a Development Agreement with Avani Towers Pvt. Ltd.

iii. According to the Clause 8.1 of the Development Agreement, Avani Towers Pvt. Ltd. was required to provide the refundable Security Deposit of Rs.12 Crores with option to add an extra Rs.3 Crores. The initial deposit of Rs.12 Crores would not accrue interest while any additional deposit up to maximum Rs. 3 Crores (increase to Rs.3.5 Crores mutually by the conduct between the parties) bear the interest at the rate of 18% compounded and payable quarterly.

iv. The repayment of refundable Security Deposit was also provided for in Part II of Third Schedule of Development Agreement. Subsequent to the Development Agreement, Corporate Debtor executed two separate Memorandum of Agreement dated 02.03.2010 and 24.06.2010 handing over the possession of subject to the Avani Towers Pvt. Ltd.

v. As per the Development Agreement, development could not be carried.Avani Towers Pvt. Ltd. filed a Section 7 application in September 2019 being C.P. (IB) 1711/2019, alleging a Financial Debt of 10,90,72,565/- .

vi. The date of default was mentioned in the application as 01.10.2010.

vii. In the application under Section 7, it was claimed that Corporate Debtor was obliged to pay quarterly interest on amount of Rs. 3.5 Crores in which payment the Corporate Debtor defaulted.

viii. The Corporate Debtor has acknowledged the receipt of additional amount of Rs.3.5 Crores and admitted the same as unsecured loan in which the interest would be paid quarterly.

ix. The Corporate Debtor also confirmed the accounts.

x. Letter was written by the Corporate Debtor on 31.03.2014 to the effect that Project has not taken off for more than five and half years of signing Development Agreement, the Corporate Debtor is not in position to make provision for interest for the time being an amount of Rs. 3.5 Crores.

xi. Corporate Debtor deducted TDS @ of 18% compounded interest from 2010-11 to 2013–14.

xii. Application filed under Section 7 was resisted by the Corporate Debtor.

Corporate Debtor pleaded that there is no Financial Debt on the basis of which Section 7 application would be filed. Additional amount advance of Rs. 3.5 Crores was to form part of Security Deposit. Development has not taken place. The refund of Security Deposit cannot take place.

xiii. Financial Creditor is the Related Party of the Corporate Debtor. It is Shareholder holding 40% of the Equity Share Capital of the Corporate Debtor.

xiv. Adjudicating Authority heard both the parties and by impugned order dated 20.03.2024 admitted Section 7 application.

xv. Adjudicating Authority held the `debt’ as a Financial Debt. It was also held that the application was not `barred by Limitation’.

3. Aggrieved by the order impugned, this appeal has been filed.

4. We have heard Sh. Ratanko Banerji and Sh. Krishnendu Datta Sr. Advocates for the Appellant. Sh. Abhijeet Sinha, Sr. Advocate and Mr.Shaunak Mitra has appeared for the Respondent.

5. Learned Counsel for the Appellant challengin