The primary intention of the arrangement, as clarified in the MoU, influenced the court's decision in determining the ownership of the property and the repayment of the loan amount.

Headnote:
Insolvency and Bankruptcy Code - Liquidation Process - Sale Agreement
Fact of the Case:

The Applicants sought relief in the Liquidation process of a Corporate Debtor, claiming ownership of a property and requesting the return of original documents from the Corporate Debtor. The dispute arose from an arrangement in 2012, where the Corporate Debtor claimed an absolute sale of the property, while the Applicants contested that it was intended as a loan arrangement.
Finding of the Court:

The court found that the primary intention of the arrangement was to grant a loan to the Applicants, as indicated in the Memorandum of Understanding (MoU). The Applicants had repaid a significant amount, and the court directed the Liquidator to verify the receipts and determine the total amount receivable from the Applicants. The Liquidator was also directed to keep the property outside the Liquidation Estate until repayment.
Issues: Interpretation of the arrangement between the Applicants and the Corporate Debtor, ownership of the property, and repayment of the loan amount.
Ratio Decidendi: The MoU clarified the intention of the arrangement, indicating that the primary intention was to grant a loan to the Applicants. The court directed the Liquidator to verify the receipts and determine the total amount receivable from the Applicants.
Final Decision: IA No. 903/2023 was allowed, and the Liquidator was directed to keep the property of the Applicants outside the Liquidation Estate until repayment.

ORDER

Per: Prabhat Kumar, Member (Technical)

1. This Application bearing IA No. 903/2023 is filed by Shaikh Mahboob Subani and Firoz Shaikh Subani (“Applicant”) in the Liquidation process of K.K. Welding Limited (“Corporate Debtor”) under the provisions of the Insolvency and Bankruptcy Code, 2016 (“Code”) seeking the following reliefs :

a) Direct the Liquidator to keep the said property of the Applicants as described in Para No. 1 outside the Liquidation Estate created by the Liquidator in respect of the Corporate Debtor.

b) Return the original documents of the said property lying in the possession of the Respondent/Corporate Debtor.

Brief Facts

2. Applicant No. 1 is the Proprietor of M/s Wed Enterprises and is in the construction business. Applicant No. 1 is the father of Applicant No. 2. Applicant No. 1 built the Ground Floor and First Floor in the building Flora Avenue being constructed on the non-agricultural land bearing CTS No. 1313(part), Plot No. 371/E-2, Scheme No. II, Taluka Kurla, Registration Sub-District Mumbai Suburban, Registration District Chembur ("the said property"). Applicant No. 1 agreed to sell Flat No. 001 on the Ground Floor and Flat No. 101 on the First Floor to Applicant No. 2 for a consideration of Rs. 60,00,000/- (Rs. Sixty Lakhs Only) by way of an Agreement for Sale dated 29.12.2008, thereby making the Applicants co-owners of the said property.

3. Applicant No. 1 approached the Corporate Debtor seeking financial assistance of Rs. 3,00,00,000/- (Rupees Three Crores Only) for paying off some creditors including Bell Finvest (India) Ltd. from whom financial facilities had been availed by the Applicants. The Corporate Debtor, not being a corporate entity with a valid license from RBI for lending money, still granted loan facility of Rs. 3,00,00,000/- (Rupees Three Crores Only) at the rate of 4% interest per month subject to execution of the following documents with respect to the said property:

a) Agreement for Sale b) Deed of Equitable Mortgage c) Memorandum of Understanding (“MoU”)

Submissions made by the Ld. Counsel on behalf of the Applicant

4. Applicant No. 1 submits that the Corporate Debtor asked Applicant No.1 to create two parallel documents one for Mortgage and one Agreement for Sale so that as and when the entire facility is repaid by Applicant No.1, the Corporate Debtor would cancel the Agreement for Sale and also the Mortgage and Loan Documents and the said property would go back to the Applicant No.1 and 2. For the purpose of creating a security, Applicant No. 1 executed an Agreement for Sale dated 26.04.2012 for sale of the said property in favour of the Corporate Debtor for a consideration of Rs. 4,65,00,000/- (Rupees Four Crores and Sixty Lakhs Only) and the same was signed by both the parties. However, Applicant No. 1 returned the amount of Rs. 1,65,00,000/- (Rupees One Crore and Sixty Five Lakhs Only) back to the Corporate Debtor on the very same date, for which the Corporate Debtor also issued a receipt to the Applicant. It is pertinent to mention here that the Corporate Debtor has made a declaration on the said receipt that the amount of Rs. 1,65,00,000/- (Rupees One Crore and Sixty Five Lakhs Only) received by him is exclusive of the interest of 4% as agreed upon between the parties. Therefore, the Sale Agreement, even if cancelled, will have a consideration which is equivalent to the loan amount i.e. Rs. 3,00,00,000/- (Rs. Three Crore only) and since the entire consideration i.e. Rs. 4.65 crores was not provided under the Agreement for Sale, it will never be absolute.

5. It is settled law that an Agreement becomes effected only when both the parties perform their respective promises/actions as defined under the Agreement, However, in the present case, even if it is to be assumed for the sake of arguments that the Agreement in question was a Sale deed, even then only a part and not the complete consideration flowed from the Corporate Debtor to the Applicant under the Agreement, as described

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