Case Brief Suntec Realty Limited vs. Goodwill Theatres Private Limited

Abhishek Bhushan Singh

Suntec Realty Limited vs. Goodwill Theatres Private Limited

CITATION: C.P. (I.B.) 3990/MB/2019

DATE: 07.01.2021

BENCH: NATIONAL COMPANY LAW TRIBUNAL COURT, MUMBAI BENCH

CORAM: Hon'ble Smt. Suchitra Kanuparthi, Member (Judicial) Hon'ble Shri. Chandra Bhan Singh, Member (Technical)

NCLT, in this case, held that the advance paid by a real-estate developer to a property owner for a re-development project qualifies as operational debt under the Insolvency & Bankruptcy Code, 2016 (IBC 2016).

BRIEF FACTS OF THE CASE:

The Petitioner, Sunteck Realty Limited, has filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code) against the Corporate Debtor, Goodwill Theatres Private Limited, alleging that the Corporate Debtor has defaulted in making payments totaling Rs. 3,12,39,529/-, plus interest at a rate of 24 percent per annum by invoking the provisions of Section 9 of the Code.

The Petitioner was approached by the Corporate Debtor, who asked the Petitioner's help with the renovation of the property. Both parties signed the Term Sheet dated 02.08.2018, appointing and engaging the Petitioner as a Project Manager to perform services regarding the property as specified therein. The terms and conditions of the term sheet required the Petitioner to pay an advance of Rs. 2.51 crores towards the aforementioned activities. The exit option also stated that if the parties failed to execute the Development Management Agreement, the Term Sheet would be automatically terminated, subject to the Corporate Debtor repaying the advance amount plus interest at a rate of 15 percent per annum within 60 days of the termination of the Term Sheet, and at a rate of 24 percent per annum after 60 days. A bank statement dated 03.08.2018 showing the transfer of funds to the Corporate Debtor has been attached by the Petitioner.

CONTENTIONS MADE BY PETITIONER:

The Petitioners contended that the Term Sheet was executed between the parties on August 2, 2018, as expressed in the Term Sheet. The Project Manager, the Petitioner, was to offer types of assistance identified with the task, including, however, not restricted to getting sorted out project accounts and setback subsidizing. The Petitioner was to be paid a benefit portion of 15 to 20% of the undertaking's absolute receivables. The Petitioner paid Rs. 2.51 crores according to Clause 13 of the Term Sheet, and the Corporate Debtor was obligated to repay the amount in addition to money at 15% p.a. within 60 days and at 24% p.a. after 60 days because of the end of the terms. Clause 13, 15, and 17 of the Term Sheet, as well as correspondence through the trail send between the parties and their advice, were referred to by the Petitioner. The Deed of Cancellation, as circled by the Corporate Debtor, shows that the Corporate Debtor concedes responsibility for payment of funds owed.

CONTENTIONS MADE BY CORPORATE DEBTOR:

The Corporate Debtor stated that the Petitioner is not an Operational Creditor under Section 5(20) of the Code and the amount guaranteed is anything but an operational debt. It is conceded truth that the Petitioner has not given any goods and services under Term Sheet regardless of being committed to doing so the amount asserted in this manner can't be qualified to be an Operational Debt. The Term Sheet is in the idea of a Joint Development Agreement, where the Petitioner and the Corporate Debtor would share the receivables from the said Project and isn't qualified for a fixed fee. The Corporate Debtor further claimed that the Term Sheet is in the idea of finished up agreement properly endorsed between the gatherings and non-execution of Development Management Agreement doesn't execute the exhibition of the commitments embraced by the parties under the Term Sheet. The parties have not consented to the shared arrangement of the Term Sheet as claimed by the Petitioner. There is a prior and bonafide debate between the parties, and the Corporate Debtor has endured the loss and injury by the Petitioner's breach. The draft Deed of Cancellation doesn't measure affirmation of the funds paid to the Petitioner. The Petitioner contended that the token money is the advance money paid toward services and has to be rejected.

OBSERVATIONS:

The binding Term Sheet dated August 2, 2018, is a simple understanding between the parties that captures the basic commercial terms and contends a specific clause that the parties would endeavor to execute the Development Management Agreement and that the binding Term Sheet would be automatically terminated if the Development Management Agreement was not executed within the stipulated time. The legally enforceable Term Sheet so shows that the Petitioner agreed to supply the service to their Corporate Debtor, but that it did not materialize and was consequently terminated/canceled. The execution of the Development Management Agreement would have qualified the Petitioner to claim the Development Management Agreement fees, which is an Operational Debt, but since the Development Management Agreement was not executed, the termination of the binding term sheet thus triggers the liability of refund of money as agreed under Clause 13 of the Term Sheet. The token amount was agreed was transferred by the Petitioner to the Corporate Debtor upon execution of the Term Sheet, and therefore, as such upon the termination of the Term Sheet, the token amount is to be repaid as agreed under Clause 13 and can be construed as the part of the Operational Debt and part services rendered to the Corporate Debtor by mutual obligations set out in the Term Sheet.

Therefore, the binding Term Sheet dated August 2, 2018, stipulates the obligation of the Petitioner to pay the money to the Corporate Debtor at the time of execution of the Term Sheet, and hence, the liability of refund of such monies paid is well defined in the case of termination of the Term Sheet. Therefore, the Corporate Debtor is liable to refund the token amount to the Petitioner, which is part of the services provided to the Corporate Debtor.

FINAL ORDER:

The Honourable Tribunal held that the Petition filed by the Operational Creditor is on proper Form 5, as prescribed under the Adjudicating Authority Rules, and is complete.

The Operational Creditor has submitted a Petition for Initiation of CIRP in prescribed Form 5 as per the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 under sub-section (2) of Section 9 of the I&B Code, 2016. It is also established that the Corporate Debtor has operational debt that exceeds the threshold level, as well as that it has defaulted. As a result, the Petition for Initiation of Corporate Insolvency Resolution Process Against Corporate Debtor submitted under Section 9 of the Insolvency and Bankruptcy Code, 2016, is admissible.

The honorable Tribunal also stated that Suntec Realty Limited had filed a petition under Section 9 of the I&B Code, 2016 against Goodwill Theatres Private Limited to initiate a corporate insolvency resolution procedure and ordered a moratorium under Section 14 of the I&B Code, with the following instructions:

1. This Bench prohibits the institution of suits or continuation of pending suits or proceedings against the corporate Debtor including the execution of any judgment, decree, or order in any court of law, Tribunal, arbitration panel, or other authority; transferring, encumbering, alienating, or disposing of by the corporate Debtor any of its assets or any legal right or beneficial interest therein; any action to foreclose, recover or enforce any security interest created by the corporate Debtor in respect of its property including any activity under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; the recovery of any property by an owner or lessor where such property is occupied by or in possession of the corporate Debtor;

2. The supply of essential goods or services to the corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period;

3. The provisions of sub-section (1) of Section 14 of I&B Code shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator;

4. The order of Moratorium shall affect the date of this order till the completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under sub-section (1) of Section 31 of I&B Code or passes an order for the liquidation of the corporate Debtor under Section 33 of I&B Code, as the case may be;

5. The public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of I&B Code;

6. This Bench, at this moment, appoints Mr. Ravi Prakash Ganti, a registered Insolvency Resolution Professional having Registration Number [IBBI/IPA-002/IP-N00102/2017- 18/10245], having email address: gantirp@gmail.com as Interim Resolution Professional to carry out the functions as mentioned under I&B Code. The fee payable to IRP/RP shall comply with the IBBI Regulations/Circulars/Directions issued in this regard.

7. Having admitted the Petition/Application, the provisions of Moratorium as prescribed under Section 14 of the Code shall be operative henceforth with effect from the date of appointment of IRP shall be applicable by prohibiting institution of any Suit before a Court of Law, transferring/encumbering any of the assets of the Debtor, etc. However, the supply of essential goods or services to the "Corporate Debtor" shall not be terminated during the Moratorium period. It shall be effective till completion of the Insolvency Resolution Process or until the approval of the Resolution Plan prescribed under Section 31 of the Code.

8. That as prescribed under Section 13 of the Code on the declaration of Moratorium, the next step of Public Announcement of the Initiation of Corporate Insolvency Resolution Process shall be carried out by the IRP immediately on the appointment, as per the provisions of the Code.

9. The appointed IRP shall also comply with the other provisions of the Code, including Section 15 and Section 18 of the Code. Further, the IRP is hereby directed to inform the progress of the Resolution Plan to this Bench and submit a compliance report within 30 days of the appointment. Liberty is granted to intimate even at an early date if need be.