Sanjay D. Kakade vs. HDFC Ventures Trustee Company Ltd.

NATIONAL COMPANY LAW APPELLATE TRIBUNAL,
PRINCIPAL BENCH, NEW DELHI

Company Appeal (AT) (Insolvency) No.481 of 2023
[Arising out of Order dated 29.03.2023 passed by the Adjudicating Authority

(National Company Law Tribunal), Mumbai Bench-IV in C.P. (IB) 747 MB-
IV/2022]
IN THE MATTER OF:
Sanjay D. Kakade
1205, Kakade Capital, Shirolepath,
Shivaji Nagar, Pune, 411005. ….Appellant
Vs.
1. HDFC Ventures Trustee Company Ltd.

(on behalf of HDFC Investment Trust),
HDFC House, HT Park Marg, 165-166,
Backbay Reclamation, Church Gate,
Mumbai, 400020.
2. Edward Mauritius Ltd.

Sanne House, Twenty Eight, Cyber City,
Ebene, Mauritius, 72201.
3. Kakade Estate Developers Pvt. Ltd.,

Through Interim Resolution Professional,
1205, Kakade Capital, Shirolepath,
Shivaji Nagar, Pune, 411005 ….Respondents
Present:
For Appellant: Mr. Abhinav Vasisht and Mr. Sanjiv Sen, Sr.
Advocates, Mr. Tanmaya Mehta, Ms. Rashmi Gogai,
Ms. Anjali Singh, Ms. Radha Gupta, Advocates.
For Respondents: Mr. Arun Kathpalia, Sr. Advocate, Mr. Abhijeet Sinha,
Mr. Aman Raj Gandhi, Ms. Nanki Gehrwal, Mr.
Parthsarthy Bose, Ms. Panchi Agarwal, Ms. Manasi
Joglekar, Mr. Aditya Shirolkar, Advocates for R-1&2.
Mr. Tishampati Sen, Ms. Riddhi Sancheti, Mr. Anurag
Anand, Mr. Himanshu Kaushal, Mr. Mukul Kulhari,
Advocates for R-3.
Mr. Krishnendu Datta, Sr. Advocate, Mr. Samar
Kachwaha, Ms. Shivangi Nanda, Mr. Anmol Agarwal,
Advocates for CoC.
Cont’d…/
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JUDGMENT
ASHOK BHUSHAN, J.
This Appeal by the Suspended Director of the Corporate Debtor has
been filed challenging the order dated 29.03.2023 passed by the Adjudicating
Authority (National Company Law Tribunal), Mumbai Bench-IV admitting
Section 7 application filed by the Respondent – HDFC Ventures Trustee
Company Ltd. Brief facts of the case necessary to be noticed for deciding the
Appeal are:
(i) A Share Subscription and Shareholders Agreement was entered on
14.05.2008 between the Promoters, the Appellant Sanjay D. Kakade
being one of them and IL&FS Trust Company Ltd. Promoters as
‘First Part’, IL&FS Trust Company Ltd. as ‘Second Part’, IIRF
Holdings XIV Limited as ‘Third Part’, Edward Mauritius Limited as
‘Fourth Part’, HDFC Ventures Trustee Company Limited as ‘Fifth
Part’ and Kakade Estate Developers Private Limited as ‘Sixth Part’.
The Kakade Estate Developers was referred to as ‘Company’ under
the Agreement. The Agreement contained various clauses dealing
with shareholding and Subscription Shares. Clause 16.4 provides
for ‘Put Option’. Clause 17 dealt with ‘Events of Default’. Clause 18
dealt with ‘Consequences of Events of Default’. Clause 19 dealt with
‘Consequences of Termination of Agreement vis-à-vis IL&FS
Investors’. Clause 21 deals with ‘Indemnity’. It also dealt with the

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rights of convertible preference shares. A sum of Rs.72,86,65,720/-
was subscribed towards equity shares (Rs.85,720/-) and
compulsorily convertible preference shares (Rs.72,85,80,000/-).
(ii) On 11.07.2008, a Supplementary Agreement was entered into
between the same persons under which additional sum of Rs.15
Crores was subscribed in respect of 15,000 preference shares.
(iii) The project could not be developed by the Promoters and they offered
the Investors with proposal to develop and to provide exit to the
Investors. The Binding Term Sheet was executed in the year 2015
between the Company, Promoters, IIRF Holdings XIV Ltd. and IL&FS
Trust Company Limited. Under the Term Sheet an exit was to be
provided to the Investors. The exit consideration was to carry an
IRR of 17% from March 10th, 2015.
(iv) On arising dispute between the parties, reference was made to the
Sole Arbitrator, Justice C. K. Thakkar (Retd.). Before the Arbitrator
a Consent Term by the parties was filed. On basis of which Consent
Terms arbitration proceedings were disposed of by Consent Award
dated 19.01.2021. As per Consent Term, a sum of
Rs.72,85,71,429/- was agreed to be paid to Respondent Nos. 1 and
2 on or before 25.08.2021 and a further sum of Rs.47,14,28,571/-
was agreed to be paid to the Respondent Nos. 1 and 2 on or before
expiry of 15 months from 25.11.2020. In terms of the Consent
Terms, failure to pay one of the tranches, would render the amount

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of Rs.120 Crores being payable along with interest at 15% per
annum calculated from 25.08.2021 till date of payment.
(v) The amount as contemplated under the Consent Award were not
paid. The Respondent Nos. 1 and 2 issued legal notices dated
27.08.2021, which legal notices were sent to the Company as well
as the Promoters. The legal notice stated that Company as well as
the Promoters are jointly and severally liable to pay the amount as
per the Consent Award.
(vi) On 16.06.2022, Section 7 application was filed by Respondent No.1
and 2 against the Corporate Debtor – Kakade Estate Developers
Private Limited claiming total default of Rs.133,75,89,041/- being
amount payable under the Consent Award amounting to Rs.120
Crores and interest accrued thereupon till 31.05.2022. Date of
default was 25.08.2021 as per the Part IV of the application, date
when the Corporate Debtor failed to pay first tranche of Award under
the Consent Award.
(vii) The Corporate Debtor filed a reply in Section 7 application. The
Corporate Debtor also filed an IA No. 2740 of 2022. Both the parties
were heard and by impugned order dated 29.03.2023 the
Adjudicating Authority has admitted Section 7 application and has
appointed Mr. Jayesh Natvarlal Sanghrajka as Interim Resolution
Professional. Aggrieved by the order this Appeal was filed.

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2. When the Appeal was heard by this Tribunal on 29.04.223, the
following order was passed:
“O R D E R
19.04.2023: Learned counsel for the Appellant

submits that the Appellant is endeavouring to take
steps to abide by the consent terms dated 25.11.2020.
Learned counsel appearing for the CoC submits that no
Expression of Interest shall be issued till the next date.
As prayed, list this Appeal on 06.07.2023.”
3. Appeal was heard by this Tribunal on various occasions. On
09.08.2023 submission was advanced on behalf of the Appellant that the
Appellant for obtaining the finance from ‘Kotak Investment Advisory Limited’
has started due-diligence and Appellant shall be able to make the payment to
the Respondent. On 09.08.2023 following order was passed:
“ORDER
09.08.2023: Learned Counsel for the Appellant

submits that the Appellant for obtaining the finance
from ‘Kotak Investment Advisory Limited’ has started
due-diligence and is in the process of receiving term
sheet by which the Appellant shall be able to make the
payment to the Respondent.
2. Learned Counsel for the Respondents submits that

no offer has been received by the Appellant nor any
timeline for making the payment.

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3. Learned Counsel for the Appellant submits that he

shall make a written offer to the Respondents within
seven days from today.
4. In view of the aforesaid, we direct this Appeal to be

listed again on 29.08.2023. Liberty to mention to both
the parties.
The statement recorded in the earlier date shall

continue till the next date.”
4. Subsequently again on 29.08.2023, statement was made that the
Appellant has already in dialogue with two investors and term sheet has been
given by one investor. Last opportunity of four weeks was granted to the
Appellant to submit a proposal for settlement to the CoC. No settlement
between the parties can be brought on the record as submitted by learned
counsel for the Appellant. The Appeal was heard on 16.10.2023 and
thereafter and judgment was reserved on 09.11.2023 after hearing was
completed.
5. We have heard Shri Abhinav Vasisht, learned senior counsel and Shri
Sanjeev Sen, learned senior counsel for the Appellant, Shri Arun Kathpalia,
learned senior counsel and Shri Abhijeet Sinha, learned counsel for
Respondent Nos. 1 and 2, Shri Krishnendu Datta, learned senior counsel for
the Committee of Creditors and Shri Tishampati Sen, learned counsel for
Respondent No.3.
6. Learned counsel for the Appellant challenging the order submits that
the Respondent Nos. 1 and 2 who are 98.98% shareholders cannot be

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classified as Financial Creditors of the Corporate Debtor and claim of such
shareholders against transfer of their own share cannot be classified as
financial debt. It is submitted that Consent Award was passed by the
Arbitrator on Consent Terms signed between parties where the Corporate
Debtor was liable to pay an exit consideration to Respondent No.2. Consent
Decree ipso facto does not constitute financial debt. It is nature of the
underlying transaction which is determinative of the fact that whether debt is
a financial debt or not. There was no commercial borrowing for time value of
money involved in the transaction. The underlying transaction is that the
Respondent Investors will be paid money and in turn they will transfer shares
which they own of the Corporate Debtor, to the Promoters or their nominees.
The transaction is therefore one of consideration for exchange and
sale/purchase of shares. Such a transaction does not constitute a financial
debt under the IBC nor does it have a commercial effect of a borrowing not it
is disbursement for time value of money. A shareholder cannot wear the hat
of a financial creditor by buy back option or exit route for his own shares.
The Respondent Nos. 1 and 2, who hold 98.98% of the total equity and
preference share capital cannot be treated as Financial Creditors. They are
in fact liable to be treated as Promoters of the Corporate Debtor. The
Adjudicating Authority erred in construing the provisions of the Consent
Award to be a guarantee or indemnity by the Corporate Debtor. The guarantee
is not by the Corporate Debtor but only by the Promoters i.e. Respondent
Nos.2 to 5. The Corporate Debtor has assumed joint and several liability
under the Consent Decree but not as a Guarantor and further this liability

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assumed under the Consent Decree is ultimately for sale/purchase of assets,
and not for any commercial borrowing. The amount provided by Respondent
No. 1 and 2 was in the nature of an investment and did not have the effect of
a commercial borrowing. The Respondent No.1 and 2 under the Agreement
have right to receive dividend, right to appoint Directors, right to vote in the
matter, to nominate Directors of Respondent No.1 and 2 and certain other
rights but terms and condition of the Agreement and even the Consent Terms
do not make Respondent No.1 and 2 as Financial Creditors. It is submitted
that the Adjudicating Authority has returned contradictory finding. The
submission raised by the Corporate Debtor that Corporate Debtor has no
obligation to pay in terms of the Agreement has been accepted. When the
Adjudicating Authority found that no default has committed by the Corporate
Debtor, there was no occasion to admit Section 7 application. The Corporate
Debtor cannot be included in the expression ‘Promoter’.
7. Learned counsel appearing for the Respondent No.1 and 2 refuting the
submission of learned counsel for the Appellant submits that on account of
default to provide an exit under the ARSSHA and SSSHA, the Financial
Creditor became entitled to an internal rate of return (IRR) to the extent of
15% per annum, compounded annually. The Corporate Debtor has
undertaken to indemnify the Financial Creditors for liabilities arising from
breach of any undertaking, agreement or covenants and any failure by the
Corporate Debtor or the Promoters of the Corporate Debtor to perform their
obligations. The Corporate Debtor accepted and undertook liability to provide
an exit to the Financial Creditors by Consent Terms and Consent Award. In

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the Consent Terms, the Corporate Debtor and the Promoters are collectively
defined as ‘Promoter Respondents’. The Corporate Debtor unconditionally
undertook to pay Rs.120 Crore in the manner agreed under the Consent
Terms. The Corporate Debtor under Consent Terms undertook to repay as
primary obligor in addition to being a Surety. The Corporate Debtor failed to
honour the terms of the Consent Award and the Financial Creditor issued
legal notices dated 27.08.2021 to the Corporate Debtor calling for repayment
of the amount under the Consent Award. The Corporate Debtor admitted and
acknowledged its liability but sought time to fulfil its obligations vide email
dated 27.08.2021 and 06.09.2021. On failure of the Corporate Debtor to
comply with its obligations, the Financial Creditor has filed Section 7
application. The Adjudicating Authority has considered the agreement and
notices which impose an obligation on the Promoters of the Corporate Debtor
to provide an exit route to the Financial Creditors, which obligation has the
commercial effect of a borrowing as per Section 5(8)(f) of the IBC as the
Corporate Debtor raised funds under the transaction for its project, repayable
upon a specified tenure. The Corporate Debtor did not honour its promise of
repayment in spite of several opportunities. The Expression of Interest has
been issued on 02.11.2023. It is submitted that definition of Section 5(8)(f) is
of wide import. The transactions subsumed under the provision were those
having profit as their main aim. The transaction fulfills the test of ‘commercial
effect of a borrowing’ under Section 5(8)(f) of the IBC. The Corporate Debtor
had provided indemnity under the ARSSHA to the Financial Creditors against
the breaches of the Promotes. The Corporate Debtor has unequivocally

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accepted liability to repay the Financial Creditors under the Consent Award.
The Corporate Debtor had accepted its liability in the present appeal when it
sought time to approach the Financial Creditor for repayment as per the
Consent Terms. The judgment relied by the Appellant during the submission
are distinguishable and has no applicability.
8. We have considered the submissions of learned Counsel for the parties
and have perused the records.
9. From the submissions advanced by learned Counsel for the parties and
materials on record, following issues arise for consideration in this Appeal:
(I) Whether by investment made by the Financial Creditor in the
Corporate Debtor by means of Share Subscription-cum-
Shareholders Agreements, Binding Term Sheet as well as
Consent Terms dated 25.11.2020, resulting into Consent Award
dated 19.01.2021 there was any financial debt in default,
entitling the Financial Creditor to file any Application under
Section 7 of the IBC?
(II) Whether the Adjudicating Authority erred in admitting Section 7
Application filed by the Financial Creditor?
10. Both issues being interconnected, same are being taken together for
consideration.
11. The transaction between the parties and the sequence of events are not
in dispute. Investment was made in the Corporate Debtor by means of Share

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subscription and Shareholders Agreement, between the Financial Creditor,
Promoters of the Corporate Debtor and the Corporate Debtor - Kakade Estate
Developer Private Limited. The Company has been engaged in construction of
commercial/ residential buildings/ setting up of residential township project
on the land in village Bhugaon, District Pune. The Share Subscription and
Shareholders Agreement dated 14.05.2008 was entered into by the Financial
Creditor and the Company, where Financial Creditor agreed to subscribe
shares in accordance with the terms and conditions of the Original
Agreement. An Amended and Restated Share Subscription and Shareholders
Agreement (“Amended Agreement”) was entered between the Promoters,
Financial Creditor, Company and the Corporate Debtor on 14.05.2008. The
Financial Creditor, by virtue of Clause 2 of the Agreement, agreed to pay a
sum of Rs.72,86,65,720/-. For shares, under Clause 14, there was certain
encumbrance to sell or transfer the shares. The Financial Creditor had pre-
emption right in their favour in event of any of the Promoters of the Corporate
Debtor desires to transfer his shares. Clause-16 of the Agreement provided
for ‘Exit Mechanism’ to the Investors. Put Option was also contained in
Clause 16.4. As per Clause-16.4, Promoters were under unconditional
obligation to buy shares on an as if converted basis at the Fair Market Value
as determined under Clause 19.9. Clause 16.4, is as follows:
“16.4 Put Option

(a) In the event the Promoters and the Company are
unable to provide an exit to the IL&FS Investors and/
or the HIREF Investors and/ or their Affiliates before
March 31, 2015 in any manner as specified in

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Clauses 16.1 to 16.2 above, without prejudice to any

other rights or remedies available to the IL&FS
Investors and/or the BIREF Investors, the IL&FS
Investors and/or the HIREF Investors shall have the
option to require the Promoters to buy their Shares
and the Promoters shall be under an unconditional
obligation to buy such Shares on an as if converted
basis at the Fair Market Value as determined under
clause 19.9 below. For this purpose the IL&FS
Investors and/or the HIREF Investors and/or their
Affiliates shall serve to the Promoters as put option
notice (“Put Option Notice”), and the Promoters shall
be obliged to perform their respective obligation as
aforesaid, within 60 days from the date of receipt of
the Put Option Notice.
(b) If the Promoters fail to comply with their obligations

to buy Shares held by the IL&FS Investors and/or the
HIREF Investors and/or their Affiliates, then each of
the IL&FS Investors and/or the HIREF Investors shall
forthwith (i) takeover the control and the management
of the Company and may consider partial sale of
division or assets of the Company and may consider
partial sale of division or assets of the Company to
recover the IL&FS Investors Capital Investment and
HIREF Investors Capital Investment at the Fair
Market Value under this Agreement, and (ii) have lien
over the Shares held by the Promoters and their
Affiliates. The Promoters hereby irrevocably and by
way of security for its obligation contemplated herein
appoints one nominee Director of the IL&FS Investors
and one nominee Director of the HIREF Investors as
their constituted attorney to execute and deliver any

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documentation and do any act or thing required in

connection with creation of lien on the Shares held by
the Promoters.”
12. Clause-17 dealt with ‘Events of Default’ and Clause-18 ‘Consequences
of Event of Default’. Clause-19 provided for ‘Consequences of Termination of
this Agreement Vis-à-vis IL&FS Investors’. Paragraph 19.1 (a) and 19.6(a),
which are relevant are as follows:
“19.1 Upon the exercise by the IL&FS Investors, of their

right to terminate this Agreement pursuant Clause
18, the Non-defaulting Shareholders shall, without
prejudice to any other rights they may have under
this Agreement or otherwise, have the right, at their
sole discretion to either:
(a) Require the Defaulting Shareholders Group to
purchase from the Non-defaulting Shareholders
all the Shares held by the Non-defaulting
Shareholders at a price that provides the Non-
defaulting Shareholders an Internal rate of return
of 15% per annum compounded annually, or the
Fair Market Value, whichever is higher, subject to
applicable laws. Provided if the Non-defaulting
HIREF Shareholders have also exercised their
right under Clause 19.6(a), the Defaulting
Shareholders Group shall purchase all the Shares
held by the Non-defaulting Shareholders and Non-
defaulting HIREF Shareholders; and
*** *** ***

19.6 The Non-defaulting HIREF Shareholders shall,
without prejudice to any other rights they may have

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under this Agreement or otherwise, have the right, at

their sole discretion to either:
(a) require the Defaulting Shareholders Group to
purchase from the Non-defaulting HIREF
Shareholders all the Shares held by the Non-
defaulting HIREF Shareholders at a price that
provides the Non-defaulting HIREF
Shareholders an Internal Rate of Return of 15%
per annum compounded annually, or the Fair
Market Value, whichever is higher, subject
applicable laws. Provided if the Non-
defaulting Shareholders have also exercised
their similar right under Clause 19.1(a), the
Defaulting Shareholders Group shall purchase
either all the Shares held by the Non-defaulting
HIREF Shareholders and the Non-defaulting
Shareholders; and”
13. Clause-21 provided for ‘Indemnity’, which was given by the Company
and the Promoters to indemnify the IL&FS Investors and the HIREF Investors.
The Agreement contained other details of terms and conditions.
14. The Supplementary Share Subscription-Cum-Shareholders Agreement
was again entered on 12.07.2008, which clearly mentioned that the Company
requires further funding to the extent of Rs.50 Crores in order to carry out
objectives of the Business Plan. It is useful to extract following relevant
portion of the Agreement:
“WHEREAS:
The parties hereto have signed the revised and restated
Shareholders and share subscription agreement dated 14th

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May 2008 and accordingly subscribed to the shares of

Kakade Estate Developers Private Limited in the agreed
proportions as per Schedule 7 of the said Agreement. The
company now requires further funding to the extent of
Rs.Fifty crores in order to carry out the objectives of the
Business Plan i.e. approval of township, and actual
execution of the township as per the designs prepared by
the Company architects”
15. The Binding Term Sheet was also entered subsequently in 2015 between
the Financial Creditor, i.e. Investors, Promoters and the Company (Corporate
Debtor). The Binding Term Sheet provided for an Exit Proposal to the
Investors. It further provided that Exit Consideration shall carry an IRR of
17%. Clause-3 of the Binding Term Sheet is as follows:
“III Exit Proposal

The promoters led by Sanjay Kakade have approached
IL&FS and HIREF to facilitate an exit with the following
proposal
(i) IL&FS Investment in KEDPL is valued at Rs.1829.52
MN (IL&FS Exit Consideration)
(ii) HIREF’s investment in KEDPL is valued at
Rs.1,568.16 (HIREF Exit Consideration)
(iii) IL&FS Exit Consideration and HIREF Exit
Consideration cumulatively is referred to as Exit
Consideration
(iv) Exit Consideration shall be net of all taxes
(v) The Promoters have agreed to purchase or cause the
Company to purchase the IL&FS and HIREF
investments in the Company at IL&FS Exit
Consideration and HIREF Exit Consideration in the

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Company. The above Exit Consideration shall carry

an IRR of 17% (Carrying Cost) from March 10th, 2015.
(vi) The payment shall be made in the following manner
Due Date for Payment of Consideration to Cumulative
Exit Consideration be Received in Consideration to
Cash (In Million be Received in
Rupees) Cash (In Million
Rupees)
On April 30th, 2015 or 400 400
sanction of project debt
whichever is earlier
By November 2015 400 800
By June, 2016 1,000 1,800
By March 2017 1,550 3,350
By June, 2017 Remaining Exit Exit
Consideration Consideration
including including
Carrying Cost Carrying Cost
(vii) KP-SK LLP (defined herein below) to undertake the

obligation of facilitating an exit to IL&FS and HIREF
if the Promoters and/ or the Company fail to provide
exit as contemplated herein.
(viii) Exit Consideration paid to IL&FS and HIREF to be in
proportion to their respective Exit Consideration.”
16. It was further provided in the Clause that any breach under the Binding
Term Sheet shall be considered a breach by the Promoters, the Company and
KP-SK and any breach under the Term Sheet shall be considered as breach
under the SSHA and IL&FS SSHA.
17. The Promoters and the Company having not been able to comply with
the Terms of Share Subscription and Shareholders Agreement and Binding
Term Sheet, dispute between the parties was referred to Arbitrator appointed
by the Bombay High Court. Before the Arbitrator a Consent Term was entered

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between the parties on 25.11.2020. On the basis of which Consent Terms a
Consent Award was passed by Arbitrator on 19.01.2021. The Consent Terms
noticed in detail the investments made under different Agreements by the
Investors. Both, the Company and Promoters, consented to pay an aggregate
amount of Rs.260 crores to the Claimant and HIREF Investors, which
Agreement provided the manner of payment. Clause-9 of the Consent Terms
is as follows:
“9. Exit to the Claimants and HIREF Investors from

the Respondent No.1 Company:
(i) Respondent Nos. 1 to 5 (“Promoter Respondents”)

shall pay an aggregate amount of
Rs.260,00,00,000/- (Rupees Two Hundred Sixty
Crores only) to the Claimants and HIREF Investors as
detailed out in the Second Schedule hereunder,
without any deduction, set off or adjustment of any
nature whatsoever (“Decretal Amount”). The time
shall always be of the essence.
(ii) The first tranche of the Decretal Amount, being an
amount of Rs.1,57,85,71,429/- (Rupees One
Hundred Fifty Seven Crores Eighty Five Lakhs
Seventy One Thousands Four Hundred Twenty Nine
only) (“First Tranche Amount”) shall be paid by
Promoter Respondents and/or any of its affiliates/
nominees to the Claimants and HIREF Investors on
or before expiry of 9 months from the date of
execution of these Consent Terms, time being of
essence (“First Tranche Due Date”) and the second
tranche of the Decretal Amount, being an amount of
Rs.1,02,14,28,571/- (Rupees One Hundred Two

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Crores Fourteen Lakh Twenty Eight Thousand Five

Hundred Seventy One only) (“Second Tranche
Amount”) shall be paid by Promoter Respondents
and/or any of its affiliates/ nominees to the
Claimants and HIREF Investors on or before expiry of
15 months, time being of essence from the date of
execution of these Consent Terms (“Second Tranche
Due Date”). The proportion in which the First Tranche
Amount and the Second Tranche Amount shall be
paid to the Claimants and HIREF Investors
respectively is set out in Second Schedule.
(iii) Further, immediately upon receipt of each tranche of
the Decretal Amount, the Claimants and HIREF
Investors shall transfer such number of securities of
Respondent No.1 held by the Claimants respectively
(“Investor Securities”) as set out in Second Schedule
to the Promoter Respondents and/ or their nominees/
affiliates as directed by the Promoter Respondents.”
18. Clause 9(viii) also contained a guarantee on behalf of the Promoters for
purpose of the obligation to Respondent Nos.1 to 5 under the Consent Terms.
Respondent No.1 in the Consent Terms was the Company (Corporate Debtor).
The Consent Terms further provided the payment of interest, in event the
payment is not paid within time. The Consent Terms contained a stipulation
that Company and the Promoters jointly and severally liable to pay the
Decretal Amount. Clause-9 (ix), (x) and (xi), which are relevant are as follows:
“(ix) In the event (a) the First Tranche Amount is not paid
in full (along with accrued interest, if any) on or before
the First Tranche Due Date and as provided herein,

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subject to the proviso below, and/or (b) there is

breach of any of the terms, other obligations,
covenants, undertakings and/or representations
made/ given by the Promoter Respondents under
these Consent Terms (“Other Bench”), the entire
Decretal Amount shall become immediately due and
payable, an event of default shall be deemed to have
occurred, and the Claimants and HIREF Investors
shall in sch case be entitled to exercise all rights and
remedies available to them under law or in contract
to enforce their rights under these Consent Terms
and Respondent Nos.1 to 5 and/or their affiliates/
nominees, shall be jointly and/or severally liable to
pay the Decretal Amount along with an interest of
15% per annum, calculated from the First Tranche
Due Date or the date on which any other breach of
this Consent Order occurs (as applicable) till the date
of payment thereof (“First Tranche Default Interest”)
to the Claimants and HIREF Investors respectively
and the Claimants and HIREF Investors shall be
entitled to exercise all rights and remedies available
to them under law or in contract to enforce their rights
under these Consent Terms, including but not limited
to execution of the present Consent Terms / Award
against the Respondent Nos.1 to 5, jointly and/or
severally, against any of their assets. This is without
prejudice to other rights of the Claimants and HIREF
Investors, whether under contract, law or otherwise.
Provided that, if 50% of the First Tranche Amount
(along with accrued interest if any) is paid on or
before the First Tranche Due Date and there has been
no Other Breach, then Claimants and the HIREF

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Investors shall in writing give a grace period of 90

(ninety) days from the First Tranche Due Date (“First
Tranche Grace Period”) to the Promoter Respondents
to comply with their obligation to jointly and severally
pay the remaining 50% of the First Tranche Amount
along with the First Tranche Default Interest on the
remaining 50% of First Tranche Amount till the
payment thereof during the First Tranche Grace
Period in the event the Promoter Respondents fail to
pay the remaining 50% of the First Tranche Amount
along with First Tranche Default Interest to the
Claimants and the HIREF Investors on before expiry
of the First Tranche Grace Period or there is an Other
Breach, as the case may be, the reminder of the
Decretal Amount (“Balance Decretal Amount”) shall
become immediately due and payable and an event
of default shall be deemed to have occurred, and the
Claimants and HIREF Investors shall in such case be
entitled to exercise all rights and remedies available
to them under law or in contract to enforce their rights
under these Consent Terms and Respondent Nos.1 to
5 and/or their affiliates/ nominees, shall be, jointly
and/ or severally liable to pay the Balance Decretal
Amount along with an interest 15% per annum,
calculated from the date on which Grace Period
expires or the date on which any Other Breach occurs
(as applicable) till the date of payment thereof
(“Balance Decretal Amount Default Interest”), to the
Claimants and HIREF Investors respectively and the
Claimants and HIREF Investors shall be entitled to
exercise all rights and remedies available to them
under law or in contract to enforce their rights under

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these Consent Terms, including but not limited to

execution of the present Consent Terms/ award
against the Respondent Nos.1 to 5, jointly and/ or
severally, against any of their assets. This is without
(x) In the event the Second Tranche amount (along with
accrued interest if any) is not paid in full on or before
the Second Tranche Due Date or there is breach of
any of other terms, obligations, covenants,
undertakings and/or representations made/ given
by the Respondents under these Consent Terms, the
Second Tranche Amount shall become immediately
due and payable, an event of default shall be
deemed to have arisen and the Claimants and HIREF
Investors shall in such case be entitled to exercise all
rights and remedies available to them under law or
in contract to enforce their rights under these Consent
Terms and Respondent Nos.1 to 5 and/or their
affiliates/ nominees, shall be jointly and/or severally
liable to pay, the Second Tranche Amount along with
an interest of 15% per annum, calculated from the
Second Tranche Due Date or the date on which any
other breach of this Consent Order occurs (as
applicable) till the date of payment thereof (“Second
Tranche Default Interest”) to the Claimants and
HIREF Investors respectively and the Claimants and
HIREF Investors shall in such case be entitled to
exercise all rights and remedies available to them
under law or in contact to enforce their rights under
these Consent Terms, including but not limited to
execution of the present Consent Terms/ Award

-22-
against the Respondent Nos.1 to 5, jointly and/ or

severally, against any of their asset. This is without
(xi) It is clarified that notwithstanding the provision for
payment of First Tranche Default Interest or any part
thereof, as the case may be, and/or Second Tranche
Default Interest, the time shall always be of the
essence and shall be treated to be so. It is further
clarified that if there is a default in payment of the
First Tranche Amount, the First Tranche Default
Interest, the Second Tranche Amount or the Second
Tranche Default Interest, the Claimants and the
HIREF Investors shall not be entitled to demand
payment of a sum higher than the Default Interest
and the Decretal Amount from Respondent 1 to 5 for
such default.”
19. A Demand Notice dated 27.08.2021 was issued by the Financial
Creditor to the Corporate Debtor and Promoters, demanding the payment of
amount due under the Consent Award. No payments having been made by
the Corporate Debtor, an Application under Section 7 was filed by the
Financial Creditors. The Part-IV Item No.1 is as follows:
Particulars of Financial Debt

1. Total amount (i) Under the Amended and Restated Share
of debt
Subscription Cum Shareholders Agreement
granted
date(s) of dated 14th May 2008 executed between (i)
disbursement
the Financial Creditors; (ii) IIRF Holdings
XIV Limited; (iii) IL &FS Trust Company
Limited; (iv) the Corporate Debtor (v) Mr.

-23-
Sanjay Dattatray Kakade; (vi) Mrs. Usha

Sanjay Kakade; (vii) Kharadi Properties
Private Limited; (viii) Kakade Retailing
Private Limited ("ARSSHA"), the Financial
Creditors gave a sum of Rs. 72,86,65,720/-
(Rupees Seventy Two Crores Eighty Six
Lakhs Sixty Five Thousand Seven Hundred
and Twenty only) to the Corporate Debtor,
for the implementation of the real estate
development project at Village Bhugaon,
District Pune, based on the representations,
covenants, terms and conditions as stated
therein. A copy of the said ARSSHA is
annexed hereto and marked as Exhibit “B”;
(ii) Under the Supplementary Subscription

Cum Shareholders Share Agreement of 11th
July 2008 executed between (i) the
Financial Creditors; (ii) IIRF Holdings XIV
Limited; (iii) IL &FS Trust Company Limited;
(vi) the Corporate Debtor (v) Mr. Sanjay
Dattatray Kakade; (vi) Mrs. Usha Sanjay
Kakade; (vii) Kharadi Properties Private
Limited; (viii) Kakade Retailing Private
Limited. ("Supplementary SSHA"), the
Financial Creditors gave a further sum of
Rs. 15,00,00,000/- (Rupees Fifteen Crores
only) to the Corporate Debtor, for the
implementation of the real estate
development project at Village Bhugaon,
District Pune, based on the representations,
covenants, terms and conditions as stated
therein. A copy of the Supplementary SSHA
is annexed hereto and marked as Exhibit
"C".

-24-
The manner in which the amounts were given by

the Financial Creditors as mentioned in the
aforesaid documents is set out in Exhibit “D”
hereto.
(iii) Given that there was a “Default” under the
ARSSHA and Supplementary SSHA and the
Corporate Debtor, Mr. Sanjay Dattatray
Kakade, Mrs. Usha Sanjay Kakade,
Kharadi Properties Private Limited and
Kakade Retailing Private Limited had failed
in their obligation to develop the Project and
provide an exit to the Financial Creditors, a
binding term sheet was executed in 2015
("Term Sheet"). The Corporate Debtor, Mr.
Sanjay Dattatray Kakade, Mrs. Usha
Sanjay Kakade, and Kharadi Properties
Private Limited and Kakade Retailing
Private Limited once again failed to provide
an exit under the Term Sheet. The Term
Sheet Contemplated an exit consideration of
Rs. 156,81,60,000/- (Rupee One Hundred
and Fifty Six Crores and Eighty One Lakhs
Sixty Thousand only) which carried an IRR
of 17% from 10th March 2015 which would
increase to 21% in case of a default. A copy
of the Term Sheet is annexed hereto and
marked as Exhibit "E".
The Corporate Debtor had committed several

"Defaults" under the ARSSHA and Supplementary
SSHA and the Term Sheet. In particular, the
Corporate Debtor failed to provide the exit to the
Financial Creditors in terms of the ARSSHA read

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with the Supplementary SSHA Agreement on or

before 31st March 2014.
As per Clause 16.4(a) read with Clause 19.6(a) of

the ARSSHA, the Corporate Debtor inter- alia
became liable to pay to the Financial Creditors the
amount given under ARSSSHA together with an
internal rate of return (IRR) of 15% p.a.
compounded annually (or the Fair Market Value,
whichever is higher, subject to applicable laws).
Thus, the minimum payment due under the
ARSSSHA was the amount given plus 15% p.a.
compounded annually (IRR). As a direct
consequence of the said Default under the
aforesaid Agreements and the Term Sheet, the
Corporate Debtor became liable to pay to the
Financial Creditors a sum representing the
principal amount, i.e. Rs. 87,86,65,720/- (Rupees
Eighty Seven Crores Eighty Six Lakh Sixty Five
Thousand Seven Hundred and Twenty only), along
with an amount, computed at 15% Internal Rate of
Return (IRR) compounded annually, or the Fair
Market Value, whichever was higher, subject to
applicable laws, as per Clause 16.4(a) read with
19.6(a) of the ARSSSHA (“Obligation”). Upon the
fulfilment of the said "Obligations", the borrowing
transaction under the said Agreements as also the
instruments issued thereunder would come to an
end.
Consequent to the failure of the Corporate Debtor

to fulfill the said Obligation under the said
Agreements, the Financial Creditors invoked the
remedies under Clause 16.4(a) read with 19.6(a)
of the ARSSSHA inter-alia against the Corporate

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Debtor vide their Legal Notice dated 1st August

2019 and the resultant disputes were referred to
arbitration before the Learned Sole Arbitrator,
Justice CK Thakker (Retd.), Former Chief Justice of
the Hon’ble Supreme Court of India.
In the said arbitral proceedings, the parties arrived

at a settlement, signed consent terms dated 25th
November 2020 (“Consent Terms”) and the consent
award dated 19th January 2021 (“Consent
Award”) came to be passed in terms of the Consent
Terms.
By and under Consent Award passed in terms of

the Consent Terms executed between the parties
hereto on 25th November 2020 passed in the
Arbitration proceedings before the Learned Sole
Arbitrator Justice CK Thakker (Retd.), Former
Chief Justice of the Hon’ble Supreme Court of
India, a total sum of Rs. 72,85,71,429/- (Rupees
Seventy Two Crores Eighty Five Lakhs Seventy
One Thousand Four Hundred and Twenty Nine
only) ("First Tranche Amount") was agreed to be
paid inter-alia by the Corporate Debtor to the
Financial Creditors on or before the expiry of 9
months from the execution of the aforesaid
Consent Terms and further, a sum of Rs.
47,14,28,571/- (Rupees Forty Seven Crores
Fourteen Lakhs Twenty Eight Thousand Five
Hundred and Seventy One only) ("Second Tranche
Amount") was agreed to be paid inter-alia by the
Corporate Debtor to the Financial Creditors on or
before the expiry of 15 months from the execution
of the aforesaid Consent Terms. The First Tranche
Amount and Second Tranche Amount are

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hereinafter collectively referred to as "the Amount".

In terms of the Consent Award, upon commission
of any default in the payment of the First Tranche
Amount, the entirety of "the Amount" (as defined
above) fell due immediately. The rights and
entitlements of the Financial Creditors under the
ARSSSHA and Supplementary SSHA continued to
subsist and the ARSSSHA and Supplementary
SSHA continued to be valid, subsisting and
binding with full force and effect under the
Consent terms. Copies of the Consent Award and
the Consent Terms are attached hereto and
marked as Exhibit “F” and Exhibit “G”
respectively.
The Corporate Debtor, having failed to pay the

First Tranche Amount, the entire amount of
Rs.120,00,00,000/- (Rupees One Hundred and
Twenty Crores only) along with interest at the rate
of 15% p.a. thereon (till payment) under the
Consent Award has become due and payable.
Thus, total amount of Financial Debt is
Rs.133,75,89,041/- (Rupees One Hundred Thirty
three Crore Seventy Five Lakh Eight Nine
Thousand and Forty One Only) (computed as on
31st May 2022).
(ii)
20. In Part-IV, the amount claimed to be in default and the date on which
the default occurred were also explained, which are as follows:
1. Total amount The Corporate Debtor has committed various

claimed to be
events of default under the ARSSSHA and
in default and
the date on Supplementary SSHA (“Definitive Agreements”)
which the

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default and the said Consent Award executed between the

occurred
Financial Creditors and the Corporate Debtor.
(Attach the
workings for
computation The event of default under the said Consent Award
of amount
was committed on 25th August 2021, when inter-
and days of
default in alia the Corporate Debtor failed to pay the amount
tabular form)
of the First Tranche Amount of Rs. 72,85,71,429/-
(Rupees Seventy Two Crores Eighty Five Lakh
Seventy One Thousand Four Hundred and Twenty
Nine). Since the said event of default remained
uncured at the end of the Corporate Debtor, the
Financial Creditors, in accordance with the
Consent Award, vide notices dated 27th August
2021 called upon, inter alia, the Corporate Debtor
to pay the entire amount due under the Consent
Award, i.e. the sum of Rs.120,00,00,000 (Rupees
One Hundred and Twenty Crores) along with 15%
interest thereon calculated from 25th August 2021
to the date of payment thereof to the Financial
Creditors. However, the Corporate Debtor has
failed to pay the aforesaid sum and accordingly a
payment default has occurred on 25th August 2021
and the entire amount due and payable under the
Consent Award has become due and payable
forthwith.
The total amount in default to the Financial
Creditors by the Corporate Debtor as on 31st May
2022 is Rs.133,75,89,041 (Rupees One Hundred
Thirty Three Crore Seventy Five Lakh Eight Nine
Thousand and Forty One only).
The computation is annexed hereto and marked as
Exhibit “H”.
Copy of the ‘Event of Default’ notices issued by the
Financial Creditors dated 27th August, 2021 are
annexed hereto as Exhibit “I” and “J”.

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21. In Part-V, the details of particulars of financial debt with documents,
records and evidence of default was elaborated. Under Item No.5, which deals
with Financial Contract, following were stated:
5. The latest and complete copy of the financial contract reflecting

all amendments and waivers to date (Attach a Copy)
(i) ARSSHA (Exhibit “B”)
(ii) Supplementary SSHA (Exhibit “C”)
(iii) Term Sheet (Exhibit “E”)
(iv) Consent Award (Exhibit “F”)
(v) Consent Terms (Exhibit “G”)
22. We having noticed the relevant Clauses of Share Subscription-cum-
Shareholders Agreement and Consent Terms, now we come to the issue as to
whether the amount invested by the Financial Creditors can be said to be
‘financial debt’ or not?
23. Section 5, sub-section (8) of the Code defined ‘financial debt’ in following
words:
“(8) “financial debt” means a debt alongwith interest, if any,

which is disbursed against the consideration for the time
value of money and includes–
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any
acceptance credit facility or its dematerialised equivalent;
(c) any amount raised pursuant to any note purchase
facility or the issue of bonds, notes, debentures, loan stock
or any similar instrument;

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(d) the amount of any liability in respect of any lease

or hire purchase contract which is deemed as a finance or
capital lease under the Indian Accounting Standards or
such other accounting standards as may be prescribed;
(e) receivables sold or discounted other than any
receivables sold on non-recourse basis;
(f) any amount raised under any other transaction,
including any forward sale or purchase agreement, having
the commercial effect of a borrowing;
Explanation. -For the purposes of this sub-clause,-
(i) any amount raised from an allottee under a real
estate project shall be deemed to be an amount
having the commercial effect of a borrowing; and
(ii) the expressions, “allottee” and “real estate
project” shall have the meanings respectively
assigned to them in clauses (d) and (zn) of section 2
of the Real Estate (Regulation and Development) Act,
2016 (16 of 2016);
(g) any derivative transaction entered into in
connection with protection against or benefit from
fluctuation in any rate or price and for calculating the value
of any derivative transaction, only the market value of such
transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a
guarantee, indemnity, bond, documentary letter of credit or
any other instrument issued by a bank or financial
institution;
(i) the amount of any liability in respect of any of the
guarantee or indemnity for any of the items referred to in
sub-clause (a) to (h) of this clause;”

-31-
28. The Hon’ble Supreme Court in (2019) 8 SCC 416 – Pioneer Urban
Land and Infrastructure Limited and Anr. vs. Union of India and Ors.
had occasion to consider the concept of ‘financial debt’ and the meaning of the
‘financial debt’ as contained in the IBC. Hon’ble Supreme Court had occasion
to consider sub-clause (f). We may reproduce paragraphs 72 to 77 of the
judgment, which are as follows:
“72. Shri Krishnan Venugopal took us to ACT Borrower's

Guide to the LMA's Investment Grade Agreements by
Slaughter and May (5th Edn., 2017). In this book “financial
indebtedness” is defined thus:
“Definition of Financial Indebtedness (Investment
Grade Agreements)
“Financial indebtedness” means any indebtedness
for or in respect of:
(a) moneys borrowed;
(b) any amount raised by acceptance under any
acceptance credit facility or dematerialised
equivalent;
(c) any amount raised pursuant to any note purchase
facility or the issue of bonds, notes, debentures, loan
stock or any similar instrument;
(d) the amount of any liability in respect of any lease
or hire purchase contract which would, in accordance
with GAAP, be treated as a balance sheet liability
[(other than any liability in respect of a lease or hire
purchase contract which would, in accordance with
GAAP in force [prior to 1-1-2019]/[prior to []]/[] have
been treated as an operating lease)];

-32-
(e) receivables sold or discounted (other than any

receivables to the extent they are sold on a non-
recourse basis);
(f) any amount raised under any other transaction
(including any forward sale or purchase agreement)
of a type not referred to in any other paragraph of
this definition having the commercial effect of a
borrowing;
(g) any derivative transaction entered into in
connection with protection against or benefit from
fluctuation in any rate or price [and, when calculating
the value of any derivative transaction, only the
marked to market value (or, if any actual amount is
due as a result of the termination or close-out of that
derivative transaction, that amount) shall be taken
into account];
(h) any counter-indemnity obligation in respect of a
guarantee, indemnity, bond, standby or
documentary letter of credit or any other instrument
issued by a bank or financial institution; and
(i) the amount of any liability in respect of any
guarantee or indemnity for any of the items referred
to in Paras (a) to (h) above.”
73. When compared with Section 5(8), it is clear that

Section 5(8) seems to owe its genesis to the definition of
“financial indebtedness” that is contained for the purposes
of investment grade agreements. Shri Venugopal argued
that even insofar as derivative transactions are concerned,
it is clear that money alone is given against consideration
for time value of money and a transaction which is a pure
sale agreement between “borrowers” and “lender” cannot
possibly be said to fit within any of the categories

-33-
mentioned in Section 5(8). He relied strongly on the passage

in Slaughter and May's book which is extracted
hereinbelow:
“Any amount raised having the “commercial effect of
a borrowing”
A wide range of transactions can be caught by Para
(f), including for example forward purchases and
sales of currency and repo agreements. Conditional
and credit sale arrangements could also be covered
here as could certain redeemable shares.
The precise scope of this limb can be uncertain.
Ideally, from the borrower's perspective, if there are
additional categories of debt which should be
included in “financial indebtedness”, these should be
described specifically and this catch-all paragraph,
deleted. A few strong borrowers do achieve that
position. Most, however are required to accept the
“catch all” and will therefore need to consider which
of their liabilities might be caught by it, and whether
specific exclusions might be required.”
74. What is clear from what Shri Venugopal has read to us

is that a wide range of transactions are subsumed by para
(f) and that the precise scope of para (f) is uncertain.
Equally, para (f) seems to be a “catch all” provision which
is really residuary in nature, and which would subsume
within it transactions which do not, in fact, fall under any
of the other sub-clauses of Section 5(8).
75. And now to the precise language of Section 5(8)(f). First

and foremost, the sub-clause does appear to be a residuary
provision which is “catch all” in nature. This is clear from
the words “any amount” and “any other transaction” which

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means that amounts that are “raised” under “transactions”

not covered by any of the other clauses, would amount to a
financial debt if they had the commercial effect of a
borrowing. The expression “transaction” is defined by
Section 3(33) of the Code as follows:
3. (33) “transaction” includes an agreement
or arrangement in writing for the transfer of assets,
or funds, goods or services, from or to the corporate
debtor;
As correctly argued by the learned Additional
Solicitor General, the expression “any other
transaction” would include an arrangement in
writing for the transfer of funds to the corporate
debtor and would thus clearly include the kind of
financing arrangement by allottees to real estate
developers when they pay instalments at various
stages of construction, so that they themselves then
fund the project either partially or completely.
76. Sub-clause (f) Section 5(8) thus read would subsume

within it amounts raised under transactions which are not
necessarily loan transactions, so long as they have the
commercial effect of a borrowing. We were referred
to Collins English Dictionary & Thesaurus (2nd Edn.,
2000) for the meaning of the expression “borrow” and the
meaning of the expression “commercial”. They are set out
hereinbelow:
“borrow.—vb 1. to obtain or receive (something,
such as money) on loan for temporary use, intending
to give it, or something equivalent back to the lender.
2. to adopt (ideas, words, etc.) from another source;
appropriate. 3. Not standard. to lend. 4. (intr) Golf. To

-35-
putt the ball uphill of the direct path to the hole : make
sure you borrow enough.”
* * *
“commercial.—adj. 1. of or engaged in
commerce. 2. sponsored or paid for by an advertiser
: commercial television. 3. having profit as the main
aim : commercial music. 4. (of chemicals, etc.)
unrefined and produced in bulk for use in industry.
5. a commercially sponsored advertisement on radio
or television.”
77. A perusal of these definitions would show that even

though the petitioners may be right in stating that a
“borrowing” is a loan of money for temporary use, they are
not necessarily right in stating that the transaction must
culminate in money being given back to the lender. The
expression “borrow” is wide enough to include an advance
given by the homebuyers to a real estate developer for
“temporary use” i.e. for use in the construction project so
long as it is intended by the agreement to give “something
equivalent” to money back to the homebuyers. The
“something equivalent” in these matters is obviously the
flat/apartment. Also of importance is the expression
“commercial effect”. “Commercial” would generally involve
transactions having profit as their main aim. Piecing the
threads together, therefore, so long as an amount is
“raised” under a real estate agreement, which is done with
profit as the main aim, such amount would be subsumed
within Section 5(8)(f) as the sale agreement between
developer and home buyer would have the “commercial
effect” of a borrowing, in that, money is paid in advance for
temporary use so that a flat/apartment is given back to the
lender. Both parties have “commercial” interests in the

-36-
same—the real estate developer seeking to make a profit on

the sale of the apartment, and the flat/apartment
purchaser profiting by the sale of the apartment. Thus
construed, there can be no difficulty in stating that the
amounts raised from allottees under real estate projects
would, in fact, be subsumed within Section 5(8)(f) even
without adverting to the Explanation introduced by the
Amendment Act.”
29. The ratio of the judgment of the Hon’ble Supreme Court is that sub-
clause (f) of Section 5(8) would subsume within it amounts raised under
transactions which are not necessarily loan transactions so long as they have
the commercial effect of a borrowing. In paragraph 76, the Hon’ble Supreme
Court had quoted with approval the meaning of expression “borrow” and
“commercial” from Collins English Dictionary. The condition which is
essentially required to be fulfilled is disbursement against the consideration
for the time value of money. When we come to sub-clause (f), the transaction
has to have a commercial effect of a borrowing. We may further notice
subsequent judgment of the Hon’ble Supreme Court in (2022) 9 SCC 186 –
Kotak Mahindra Bank Limited vs. A Balakrishnan and Anr., where the
Hon’ble Supreme Court had again occasion to consider Section 5, sub-section
(8). Paragraphs 52, 53, 54 and 55, which are relevant for our purpose are as
follows:
“52. The three-Judge Bench of this Court in Pioneer Urban

Land & Infrastructure Ltd. v. Union of India [Pioneer
Urban Land & Infrastructure Ltd. v. Union of India, (2019)
8 SCC 416 : (2019) 4 SCC (Civ) 1] was considering a

-37-
challenge to the amendments made to the IBC vide which

Explanation to sub-clause (f) of clause (8) of Section 5 IBC
was inserted, which provides that any amount raised from
an allottee under a real estate project shall be deemed to be
an amount having the commercial effect of a borrowing.
This Court held that “the expression “and includes” speaks
of subject-matters which may not necessarily be reflected
in the main part of the definition”.
53. Applying these principles to clause (8) of Section 5 IBC,

it could clearly be seen that the words “means a debt along
with interest, if any, which is disbursed against the
consideration for the time value of money” are followed by
the words “and includes”. Thereafter various Categories (a)
to (i) have been mentioned. It is clear that by employing the
words “and includes”, the legislature has only given
instances, which could be included in the term “financial
debt”. However, the list is not exhaustive but inclusive. The
legislative intent could not have been to exclude a liability
in respect of a “claim” arising out of a recovery certificate
from the definition of the term “financial debt”, when such
a liability in respect of a “claim” simpliciter would be
included in the definition of the term “financial debt”.
54. In any case, we have already discussed hereinabove

that the trigger point for initiation of CIRP is default of claim.
“Default” is non-payment of debt by the debtor or the
corporate debtor, which has become due and payable, as
the case may be, a “debt” is a liability or obligation in
respect of a claim which is due from any person, and a
“claim” means a right to payment, whether such a right is
reduced to judgment or not. It could thus be seen that
unless there is a “claim”, which may or may not be reduced

-38-
to any judgment, there would be no “debt” and

consequently no “default” on non-payment of such a “debt”.
When the “claim” itself means a right to payment, whether
such a right is reduced to a judgment or not, we find that if
the contention of the respondents, that merely on a “claim”
being fructified in a decree, the same would be outside the
ambit of clause (8) of Section 5 IBC, is accepted, then it
would be inconsistent with the plain language used in the
IBC. As already discussed hereinabove, the definition is
inclusive and not exhaustive. Taking into consideration the
object and purpose of the IBC, the legislature could never
have intended to keep a debt, which is crystallised in the
form of a decree, outside the ambit of clause (8) of Section 5
IBC.
55. Having held that a liability in respect of a claim arising
out of a recovery certificate would be a “financial debt”
within the ambit of its definition under clause (8) of Section
5 IBC, as a natural corollary thereof, the holder of such
recovery certificate would be a financial creditor within the
meaning of clause (7) of Section 5 IBC. As such, such a
“person” would be a “person” as provided under Section 6
IBC who would be entitled to initiate the CIRP.”
30. What Hon’ble Supreme Court has emphasized in the above judgment is
that in the various categories under (a) to (i) of sub-section (8) of Section 5,
the legislature has only given instances, which could be included in the term
“financial debt”. However, the list is not exhaustive but inclusive. We may
first consider as to whether the investment made by Financial Creditors have
commercial effect of borrowing or not. We have noticed above that raising of
amount by the Company through Share Subscription-cum-Shareholders

-39-
Agreement was a commercial borrowing, since the said transaction has direct
effect with the business, which was carried out by the Corporate Debtor, i.e.
construction of building and township. We have also noticed the
Supplementary Share Subscription-Cum-Shareholders Agreement dated
12.07.2008, where the Agreement clearly noted that “the Company now
requires further funding to the extent of Rs.50 in order to carry out
objectives of the Business Plan, i.e. approval of township, and actual
execution of the township as per the designs prepared by the Company
architects”. Thus, the raising of the amount through the above Agreement
has the commercial effect of borrowing, which is clearly demonstrated by the
above statements contained in the Supplementary Agreement. The use of
expression “further funding” indicates that transaction has commercial effect
of borrowing. Now the question remains to be considered is as to whether the
investment by the Financial Creditors can be said to be an investment by
disbursal against consideration of time value of money? The expression ‘time
value of money’ encompasses in itself the concept of time value of the
disbursement. We have already noticed the various clauses of amended and
restated Share Subscription-cum-Shareholders Agreement dated 14.05.2008
and we have extracted the relevant clauses, where Company and Promoters
were obliged to purchase all the shares held by the non-defaulting
Shareholders at a price that provides the non-defaulting Shareholders at an
internal rate of return of 15% per annum compounded annually or the Fair
Market Value, whichever is higher. Clauses 19.1(a) and 19.6(a) as extracted
above, contains clear indication that investment was with an eye to earn

-40-
profits and the investment was for consideration for the time value of money.
Binding Term Sheet, which we have also noticed above also contains several
clauses, which indicate that proposals were given by the Promoters to develop
the Project and provide an exit to the Investors and the Exit Consideration was
carrying IRR of 17%.
31. It is further relevant to notice that Section 7 Application filed by the
Financial Creditor was not based only on the Consent Award passed by the
Arbitrator on 19.01.2021, but all previous transactions were also basis of the
Application. The Application filed under Section 7 cannot be said to be an
Application for execution of Consent Decree, rather Section 7 Application was
filed on account of default committed by the Company in not honouring its
obligation under different Agreements as noted above.
32. We now need to notice certain judgments, which have been relied by
learned Counsel for the Appellant in support of his submission that in the
Application filed under Section 7, there was no ‘financial debt’ and the
Application deserved to be rejected. The Appellant has relied on judgment of
the Hon’ble Supreme Court in (2020) 10 SCC 538 – Radha Exports (India)
(P) Ltd. vs. K.P. Jayaram. The above case arose out of an Application under
Section 7, which was admitted by the Adjudicating Authority. However, Appeal
against the same was allowed and the Application filed under Section 7 stood
rejected as barred by limitation. In the above case, the Respondent had
requested the Company to convert a sum of Rs.90 lakhs from out of the said
outstanding loan as share application money for issuance of shares in the

-41-
name of Respondent No.2. the facts and sequence of events as noticed in
paragraph 9,10, 11, 12 and 13 are as follows:
“9. On or about 6-10-2007, Respondent 2 resigned from

the Board of the appellant Company. At the time of
resignation, Respondent 2 requested the appellant
Company to treat the share application money of Rs
90,00,000 as share application money of Mr M. Krishnan
and to issue shares of the value of Rs 90,00,000 in the
name of Mr M. Krishnan. The amount of share application
money of Rs 90,00,000 transferred to Mr M. Krishnan was
to be treated as a personal loan from Respondent 2 to the
said Mr M. Krishnan.
10. By another letter dated 11-1-2011 addressed to the

Deputy Commissioner of Income Tax, Company Circle V(3),
Chennai, being Annexure A-4 to the reply filed by the
appellant Company, Respondent 2 confirmed that she had
requested the appellant Company to allot shares in the
name of the said Mr M. Krishnan against her share
application money, which the said M. Krishnan had agreed
to treat as his personal loan from Respondent 2 and pay
her the amount at a later date.
11. The appellant Company claims to have issued shares

of the value of Rs 90,00,000 in the name of Mr M. Krishnan
in 2008. According to the appellant Company, there is thus,
no further liability to be discharged by the appellant
Company to the respondents. After 23-3-2006, there had
been no financial transaction between the appellant
Company and the respondents.
12. However, by a legal notice dated 19-11-2012, the

respondents called upon the appellant Company to repay

-42-
to the respondents a sum of Rs 1,49,60,000 alleged to be

the outstanding debt of the appellant Company, repayable
to the respondents as on 19-7-2004.
13. By a letter dated 5-12-2012, the appellant Company
refuted the claim of the respondents, whereupon the
respondents filed petition being CP No. 335 of 2013 in the
High Court of Madras under Sections 433(e) & (f) and 434
of the Companies Act, 1956, for winding up of the appellant
Company. The said petition was transferred [K.P. Jayaram
v. Radha Exports (India) (P) Ltd. Company Petition No. 335
of 2013, order dated 14-2-2017 (Mad)] to the Chennai
Bench of NCLT and renumbered TCP/301/(IB)/2017.”
33. In the above background, the Hon’ble Supreme Court made
observations in paragraph 42, which is relied by the learned Counsel of the
Appellant, which is as follows:
“42. The definition of “financial debt” in Section 5(8) makes

it clear that “financial debt” means a debt along with
interest, if any, disbursed against the consideration for
time value of money and would include money raised or
borrowed against the payment of interest; amount raised
by acceptance under any acceptance credit facility or its
dematerialised equivalent; amount raised pursuant to any
note purchase facility or the issue of bonds, notes,
debentures, loan stock or any similar instrument; the
amount of any liability in respect of any lease or hire
purchase contract which is deemed as a finance or capital
lease under the Indian accounting standards or such other
accounting standards as may be prescribed; receivables
sold or discounted other than any receivables sold on non-
recourse basis or any amount raised under any other

-43-
transaction, including any forward sale or purchase

agreement, having the commercial effect of a borrowing.
Explanation to Section 5(8) which relates to real estate
projects is of no relevance in the facts and circumstances of
this case. The payment received for shares, duly issued to
a third party at the request of the payee as evident from
official records, cannot be a debt, not to speak of financial
debt. Shares of a company are transferable subject to
restrictions, if any, in its Articles of Association and attract
dividend when the company makes profits.”
34. What was held by the Hon’ble Supreme Court is that payment received
for shares duly issued to third party at the request of the payee cannot be a
debt, not to speak of financial debt. There can be no quarrel to the above
proposition laid by the Hon’ble Supreme Court in the above case. When
shares are duly issued to a third party, on the basis of which amount, filing of
an application under Section 7 by the Respondent was rightly rejected, which
was affirmed by the Hon’ble Supreme Court. The Hon’ble Supreme Court has
again reiterated that ‘financial debt’ means debt along with interest, if any
disbursed against the consideration for time value of money. The present is
not a case regarding allocation of shares by payment of money on the basis of
which money, Section 7 Application is filed. The transactions, which have
come up for consideration contains several clauses which makes it clear that
it is not a case of simple allotment of shares against payment of money. Hence,
we are of the view that judgment in Radha Exports cannot help the Appellant
in the present case.

-44-
35. The learned Counsel for the Appellant relied on judgment of this
Tribunal in Company Appeal (AT) (Insolvency) No.452 of 2020 – Sushil
Ansal vs. Ashok Tripathi and Ors., which Appeal arose out of an order of
admission passed by Adjudicating Authority on an Application filed by one Mr.
Ashok Tripathi and Saurabh Tripathi claiming to be Financial Creditors.
Ashok Tripathi and Saurabh Tripathi were allotted a dwelling unit under a
Real Estate Project. In the above case, the Ashok Tripathi and Saurabh
Tripathi has filed an Application before the Uttar Pradesh Real Estate
Regulatory Authority, which Authority passed an order in favour of the
Applicant and issued a Recovery Certificate. This Tribunal allowed the Appeal
and set-aside the order of Adjudicating Authority admitting Section 7
Application and the Application was dismissed. It is relevant to notice
paragraphs 19 and 20 of the judgment, which are to the following effect:
“19. Sub-clause (f) of sub-section (8) of Section 5 provides

that any amount raised under any other transaction,
including any forward sale or purchase agreement, having
the commercial effect of a borrowing would fall within the
ambit of ‘financial debt’ and the explanation added to sub-
section by Act No. 26 of 2018 provides that any amount
raised from an allottee under a Real Estate Project shall be
deemed to be an amount having the commercial effect of a
borrowing. Thus, the relevant consideration for
determination of ‘financial debt’ would be whether the debt
was disbursed against the consideration for the time value
of money which may include amount raised from an allottee
under a Real Estate Project, the transaction deemed to be
amount having the commercial effect of a borrowing. Since

-45-
the initial transaction was an allotment under a Real Estate

Project, there can be no doubt that such transaction has the
contours of a borrowing as contemplated under Section 5(8)
(f) of the ‘I&B Code’. However, the case set up by the
Respondent Nos. 1 and 2 before the Adjudicating Authority
is not on the strength of a transaction having the
commercial effect of a borrowing, thereby clothing them
with the status of ‘Financial Creditors’ but on the strength
of being ‘decree-holders’. It having been noticed that before
the Adjudicating Authority Respondent Nos.1 and 2 staked
claim in their capacity as ‘decree-holders’ and they having
approached ‘UP RERA’ with complaints for refund of money
culminating in issuance of a Recovery Certificate by the ‘UP
RERA’ in terms of order dated 10th August, 2019, it cannot
lie in their mouth that they are the allottees and the
amounts raised from them as allottees under the Real
Estate Project deemed to be having the commercial effect of
a borrowing would clothe them with the capacity of being
‘Financial Creditors’. Such argument being absurd and
incompatible with their plea before the Adjudicating
Authority and the events following filing of complaints
before the ‘UP RERA’ and leading to passage of Recovery
Certificate needs to be rejected outright. Respondent Nos. 1
and 2 neither asserted nor sought triggering of Corporate
Insolvency Resolution Process in a purported capacity as
allottees of Real Estate Project but sought initiation of
Corporate Insolvency Resolution Process against the
Corporate Debtor on the strength of being ‘decree-holders’
which owed its genesis to the Recovery Certificate issued
by the ‘UP RERA’. It is, therefore, required to be determined
whether in their projected capacity as ‘decree-holders’

-46-
Respondent Nos.1 and 2 could maintain an application

under Section 7 as ‘Financial Creditors’.
20. A ‘decree-holder’ is undoubtedly covered by the

definition of ‘Creditor’ under Section 3(10) of the ‘I&B Code’
but would not fall within the class of creditors classified as
‘Financial Creditor’ unless the debt was disbursed against
the consideration for time value of money or falls within any
of the clauses thereof as the definition of ‘financial debt’ is
inclusive in character. A ‘decree’ is defined under Section
2(2) of the Code of Civil Procedure, 1908 (“CPC” for short)
as the formal expression of an adjudication which
conclusively determines the rights of the parties with regard
to the matters in controversy in a lis. A ‘decreeholder’,
defined under Section 2(3) of the same Code means any
person in whose favour a decree has been passed or an
order capable of execution has been made. Order XXI Rule
30 of the CPC lays down the mode of execution of a money
decree. According to this provision, a money decree may be
executed by the detention of judgment-debtor in civil prison,
or by the attachment or sale of his property, or by both.
Section 40 of the ‘Real Estate (Regulation and Development)
Act, 2016’ lays down the mode of execution by providing
that the RERA may order to recover the amount due under
the Recovery Certificate by the concerned Authority as an
arrear of land revenue. In the instant case, RERA has
conducted the recovery proceedings at the instance of
Respondent Nos.1 & 2 against the Corporate Debtor which
culminated in issuance of Recovery Certificate and passing
of order under Section 40 of the ‘Real Estate (Regulation
and Development) Act, 2016’ directing the concerned
Authority to recover amount of Rs.73,35,686.43/- from the
Corporate Debtor as an arrear of land revenue. As already

-47-
stated elsewhere in this Judgment, Respondent Nos.1 & 2

instead of pursuing the matter before the Competent
Authority sought triggering of Corporate Insolvency
Resolution Process against the Corporate Debtor resulting
in passing of the impugned order of admission which has
been assailed in the instant appeal. The answer to the
question whether a decree-holder would fall within the
definition of ‘Financial Creditor’ has to be an emphatic ‘No’
as the amount claimed under the decree is an adjudicated
amount and not a debt disbursed against the consideration
for the time value of money and does not fall within the
ambit of any of the clauses enumerated under Section 5(8)
of the ‘I&B Code’.”
36. What was held by this Tribunal in the aforesaid case is that Application
by a Decree Holder would not fall within the definition of Financial Creditor.
We have noticed the judgment of Hon’ble Supreme Court in Kotak Mahindra
Bank (supra), where the Hon’ble Supreme Court has clearly held that
legislature could never have intended to keep a debt, which is crystallized in
the form of a Decree, outside the ambit of Section 5, sub-section (8).
Paragraphs 53 and 54 of the judgment we have already extracted above. In
view of the clear pronouncement of the Hon’ble Supreme Court as noted above,
we are of the view that Appellant cannot take any benefit from the above
judgment of this Tribunal.
37. We may also notice one another recent judgment of the Hon’ble Supreme
Court, which may have some bearing on the issue, i.e., judgment of the
Hon’ble Supreme Court in Civil Appeal No.3806 – Vishal Chelani & Ors.

-48-
vs. Debashis Nanda decided on 06.10.2023. The issue raised in the Hon’ble
Supreme Court was that a beneficiary of Decree by the Uttar Pradesh Real
Estate Regulatory Authority cannot be treated differently from allottees to real
estate project. In the above case, the Resolution Professional has taken a view
that once an allottee seeks remedies under RERA, and opts for return of money
in terms of the order made in her favour, it is not open for her to be treated in
the class of home buyer, as the said allottees, who had Decree from RERA
were kept in a separate class, which classification was not upheld by the
Hon’ble Supreme Court and the Hon’ble Supreme Court has held following in
paragraph 8:
“8. The Resolution Professional’s view appears to be that

once an allottee seeks remedies under RERA, and opts for
return of money in terms of the order made in her favour, it
is not open for her to be treated in the class of home buyer.
This Court is unpersuaded by the submission. It is only
home buyers that can approach and seek remedies under
RERA – no others. In such circumstances, to treat a
particular segment of that class differently for the purposes
of another enactment, on the ground that one or some of
them had elected to take back the deposits together with
such interest as ordered by the competent authority, would
be highly inequitable. As held in Natwar Agarwal (HUF)
(Supra) by the Mumbai Bench of National Company Law
Tribunal the underlying claim of an aggrieved party is
crystallized in the form of a Court order or decree. That does
not alter or disturb the status of the concerned party - in the
present case of allottees as financial creditors. Furthermore,
Section 238 of the IBC contains a non obstante clause
which gives overriding effect to its provisions. Consequently

-49-
its provisions acquire primacy, and cannot be read as

subordinate to the RERA Act. In any case, the distinction
made by the R.P. is artificial; it amounts to “hyper
classification” and falls afoul of Article 14. Such an
interpretation cannot therefore, be countenanced.”
38. One more judgment, which is relied by learned Counsel for the Appellant
is Raj Singh Gehlot vs. Vistra (ITCL) India Ltd. – Company Appeal (AT)
(Ins.) No.6 of 2021 decided on 02.08.2021. In the above case also a Share
Subscription cum Shareholders Agreement was entered, which also contained
various conditions. The Financial Creditor invested through the above
Agreement. The Agreement also contained clauses for distribution of revenue,
cash flow etc. for which investment was made by the Financial Creditor in the
SPV. Section 7 Application filed by the Financial Creditor was admitted by
Adjudicating Authority, which was challenged by Raj Singh Gehlot. The
Appeal was allowed by this Tribunal, on which heavy reliance has been placed
by the learned Counsel for the Appellant. It is to be noticed that in the said
case, there was Arbitral Award in favour of the Financial Creditor. This
Tribunal in the above judgment placed reliance on judgment of the Hon’ble
Supreme Court in Anuj Jain vs. Axis Bank – (2020) 8 SCC 401, in which
Hon’ble Supreme Court explained the meaning of concept of ‘financial debt’
under Section 5, sub-section (8). When we look into the judgment of this
Tribunal in the above case, the basis of the judgment of this Tribunal is that
Section 7 Application was filed on the basis of breach of Settlement Agreement,

-50-
which is not permissible under Section 7. Paragraph 25 (xi), (xii) and (xiii) are
as follows:
“(xi) The Arbitral Award/Decree cannot be enforced by

invoking Section 7 of the Code. A decree/Award holder is
not a Financial Creditor and any obligation arising there
under will not amount to a financial debt as held in the
following cases:
a. In Shubankar Bhowmik v. Union of India W.P.

(C) (PIL) No. 4/2022, Division Bench, Hon’ble Tripura High
Court has held that Decree Holder, although recognized as
Creditor under S. 3(10), are a different class of creditor and
cannot be treated as Financial Creditor or an Operational
Creditor under I &B Code, 2016 as follows:
“[11]… The interest recognized is that in the decree
and not in the dispute that leads to the passing of the
decree. This is apparent from the fact that decree
holders as a class of creditors are kept separate from
“financial creditors” and “operational creditors”. No
divisions or classification is made by the statute
within this class of decree holders. The inescapable
conclusion from the aforesaid discussion is, that the
IBC treats decree holders as a separate class,
recognized by virtue of the decree held. The IBC does
not provide for any malleability or overlap of classes
of creditors to enable decree holders to be classified
as financial or operational creditors…”
This view was affirmed by the Hon’ble Supreme Court of

India in SLP (C) 6104/2022 wherein the SLP to challenge
the above Order was rejected.

-51-
b. In Sushil Ansal v. Ashok Tripathy CA (AT) Ins.

No. 452 of 2020 this Hon’ble Appellate Tribunal has held
that an award/decree holder cannot be a Financial
Creditor, as there is no disbursement and return under a
decree. A decree is merely a settled/adjudicated amount
culminating from the resolution of a dispute. This Tribunal
held as follows:
“The answer to the question whether a
decreeholder would fall within the definition of
Financial Creditor has to be an emphatic No as
the amount claimed under the decree is an
adjudicated amount and not a debt disbursed
against the consideration for the time value of money
and does not fall within the ambit of any of the
clauses enumerated under Section 5 (8) of the I & B
Code.”) SCC Citation- 2020 SCC Online NCLAT 680
c. In Digamber Bhondwe v. JM Financial Asset

Reconstruction CA (AT) (Ins) No. 1379/2019 this Hon’ble
Tribunal has held that decree holder cannot be termed as
Financial Creditor for initiation of CIRP:
“We further reject the submission that because in
Section 3(10) of I & B Code in definition of “Creditor”
the “decree holder” is included it shows that decree
gives cause to initiate application under Section 7 of
I & B Code. Section 3 is in Part I of I & B Code. Part
II of I & B Code deals with “Insolvency Resolution
and Liquidation for Corporate Person” & has its own
set of definitions in Section 5. Section 3 (10) definition
of “Creditor” includes “Financial Creditor”,
“Operational Creditor” “Decree-holder” etc. But
Section 7 or Section 9 dealing with “Financial
Creditor” and “Operational Creditor” do not include

-52-
“decree-holder” to initiate CIRP in Part II. We accept

the submissions made by the Learned Counsel for
the Appellant…”
(xii) It is very much clear that the Respondent no.1 cannot

be said to be a financial creditor of the Corporate debtor.
Simply, relying on the consent award CIRP cannot be
invoked .The Code/Adjudicating Authority is not the
executing authority for enforcing the Arbitral Award under
the provisions of Arbitration & Conciliation Act, 1996.
(xiii) It is abundantly clear that the Respondent no.1

investment of debentures & unsecured loans to the Joint
Venture Company are evidently not a disbursement made
to the Corporate Debtor. This Appellate Tribunal has
already prevented in the following Judgments the
enforcement of a decree/Arbitral Award using the
provisions of IBC.
(i) G Eswara Rao v. SASF, Judgment dtd. 7.2.2020 –
internal para. 26, pg. 22
(ii) Sushil Ansal v. Ashok Tripathy, Judgment dtd.
14.08.2020- internal para. 23, pg.29 (iii) HDFC Bank
v. Bhagwan Das Auto Finance Ltd. Judgment dtd.
9.12.2019. (iv) C. Shivakumar Reddy v. Dena Bank,
Judgment dated 18.12.2019 (v) IARCL v. Jayant
Vitamins, Judgment dated 17.12.2019”
39. Paragraphs 26 and 27 of the above judgment, which are also relevant,
are as follows:
“26. We are making it clear that Investment made in

SPV/Joint Venture through Share Subscription &

-53-
Shareholders Agreement will not come within the purview

of Section 7 R/w Section 5(8) of the ‘Code’.
27. It is also further stated that to get it covered under

Section 7 R/w Section 5 (7) & (8) of the Code that there must
be disbursal of fund by the Financial Creditor to the
Corporate Debtor or in simple term, if there is no disbursal
then even ‘Financial Debt’ will not attract Section 7 of the
Code, as it looks from the bare reading of Section 5(8) of the
Code in order to qualify under Section 7 of the Code, the
following basic ingredients are a requirement to get covered
under Section 7 of the Code:
a. The Creditor must be a ‘Financial Creditor’ and be
covered by Section 5(7) & (8) of the Code.
b. The Financial Debt must be owed by the Corporate
Debtor. However, the default may be occurred in
respect of that Financial Creditor or any other
Financial Creditor.
c. Financial Debt to carry interest element and be
disbursed against the consideration of time value of
money.
d. Money borrowed against the payment of interest
e. Investment made with the object of profit sharing
from revenue generated will also not be covered
within the ambit of Section 7 of the Code. f. Award
received under Arbitration and Conciliation Act, 1996
or amount emerged from the Settlement Agreement
will not come within the purview of Section 7 of the
Code.”
40. When we look into the paragraph 27, it was held that there has to be
disbursal of fund by the Financial Creditor. The Tribunal held that Award

-54-
received under Arbitration and Conciliation Act or amount emerged from the
Settlement Agreement will not come within the purview of Section 7
Application, which was clearly held in paragraph 27 and 28. Paragraphs 28
and 29 are as follows:
“28. Even the Applicant has mentioned in the Form-1, Part-

IV total amount of debt guaranteed as on 31st October,
2018 Rs. 234,69,62,791/- are in default as per Settlement
Agreement dated 07.04.2017. This suggests that Section 7
of the Code is being invoked pursuant to Settlement
Agreement which is not permissible under Section 7 of the
Code.
29. In view of aforesaid facts & Circumstances we are not
in a position to sustain the order of Adjudicating Authority
& accordingly we are allowing the Appeal.”
41. The ratio of the judgment of this Tribunal as noted above was that since
Section 7 Application was filed alleging breach of Settlement Agreement, the
Application was not maintainable. The basis of judgment is that Settlement
Agreement, which resulted into Decree cannot be made basis for Section 7
Application. We have noticed the judgment of Hon’ble Supreme Court in
Kotak Mahindra Bank, which clearly says that mere fact that a Decree had
been obtained by the Financial Creditor, shall not take him out of Section 7
proceedings and if ingredients of ‘financial debt’ are in existence, Section 7
Application is maintainable. This Tribunal in Raj Singh Gehlot has noticed
the amendment made in the Shareholder Agreement. As per the judgment of
this Tribunal, there was no consideration for time value of the debentures.
Paragraph 12 of the judgment is as follows:

-55-
“12. The SHA was amended for the first time on 3

September 2011, wherein it was inter alia agreed between
the parties that the Debentures issued by JV Company to
Vistra ITCL and Ambience shall not carry any guaranteed
coupon payment. It may be noted that the originally the
Debentures issued by JV Company was to carry a coupon
rate of 15% per annum. After the amendment, even the
debentures issued by JV Company did not provide for any
consideration for time value of the debentures.”
42. This Tribunal, thus, noticing certain clauses has held that since coupon
rate of 15% per annum was deleted, there was no consideration for time value
of debentures. We in the present case have noticed the various relevant
clauses of the Agreement and Binding Term Sheet, which indicate that the
investment made by the Financial Creditor was with an eye for consideration
for time value and money and the said condition was fulfilled in the facts of
the present case. We have also held that the transaction had commercial
effect of borrowing. If the Settlement Agreement or Arbitration Award arises
out of transactions, which are ‘financial debt’, the mere fact that ‘financial
debt’ has crystallized in Decree, cannot result in disentitling the Financial
Creditor, the remedy provided under Section 7, as has been held by Hon’ble
Supreme Court in Kotak Mahindra Bank case (supra). We, thus, are of the
view that judgment of this Tribunal in Raj Singh Gehlot is clearly
distinguishable and not applicable in the facts of the present case and
Appellant cannot take any help from the said judgment in the facts of the
present case.

-56-
43. We have already noticed the facts and sequence of events of the present
case, from which it is clear that Corporate Debtor has time and again
acknowledged the debt. We having found that transactions between the
parties including the Agreement, Supplementary Agreement and Binding Term
Sheet, clearly indicate that there was a debt, due and payable, which debt was
in the nature of ‘financial debt’. We further noticed that in the present Appeal,
the Appellant has taken several opportunities to make payment to the
Corporate Debtor to liquidate his debt, which could not be done by the
Appellant. The above is also clear acknowledgement of debt and default on
the part of the Corporate Debtor. We, thus, are of the view that Adjudicating
Authority has not committed any error in admitting Section 7 Application.
44. We do not find any good ground to interfere with the impugned order
admitting Section 7 Application. The Appeal is dismissed. No order as to costs.
[Justice Ashok Bhushan]

Chairperson
[Barun Mitra]
Member (Technical)
NEW DELHI
24th November, 2023
Ashwini/Archana

Sanjay D. Kakade vs. HDFC Ventures Trustee Company Ltd.

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Sanjay D. Kakade vs. HDFC Ventures Trustee Company Ltd.

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NATIONAL COMPANY LAW APPELLATE TRIBUNAL,

PRINCIPAL BENCH, NEW DELHI

[Arising out of Order dated 29.03.2023 passed by the Adjudicating Authority

IN THE MATTER OF:

1. HDFC Ventures Trustee Company Ltd.

2. Edward Mauritius Ltd.

3. Kakade Estate Developers Pvt. Ltd.,

This Appeal by the Suspended Director of the Corporate Debtor has

Authority (National Company Law Tribunal), Mumbai Bench-IV admitting

Section 7 application filed by the Respondent – HDFC Ventures Trustee

(i) A Share Subscription and Shareholders Agreement was entered on

14.05.2008 between the Promoters, the Appellant Sanjay D. Kakade

being one of them and IL&FS Trust Company Ltd. Promoters as

‘First Part’, IL&FS Trust Company Ltd. as ‘Second Part’, IIRF

Holdings XIV Limited as ‘Third Part’, Edward Mauritius Limited as

‘Fourth Part’, HDFC Ventures Trustee Company Limited as ‘Fifth

Part’ and Kakade Estate Developers Private Limited as ‘Sixth Part’.

The Kakade Estate Developers was referred to as ‘Company’ under

the Agreement. The Agreement contained various clauses dealing

with shareholding and Subscription Shares. Clause 16.4 provides

for ‘Put Option’. Clause 17 dealt with ‘Events of Default’. Clause 18

dealt with ‘Consequences of Events of Default’. Clause 19 dealt with

‘Consequences of Termination of Agreement vis-à-vis IL&FS

Investors’. Clause 21 deals with ‘Indemnity’. It also dealt with the

Company Appeal (AT) (Insolvency) No.481 of 2023

rights of convertible preference shares. A sum of Rs.72,86,65,720/-

was subscribed towards equity shares (Rs.85,720/-) and

compulsorily convertible preference shares (Rs.72,85,80,000/-).

(ii) On 11.07.2008, a Supplementary Agreement was entered into

between the same persons under which additional sum of Rs.15

Crores was subscribed in respect of 15,000 preference shares.

the Investors with proposal to develop and to provide exit to the

Trust Company Limited. Under the Term Sheet an exit was to be

provided to the Investors. The exit consideration was to carry an

IRR of 17% from March 10th, 2015.

Sole Arbitrator, Justice C. K. Thakkar (Retd.). Before the Arbitrator

a Consent Term by the parties was filed. On basis of which Consent

Terms arbitration proceedings were disposed of by Consent Award

dated 19.01.2021. As per Consent Term, a sum of

Rs.72,85,71,429/- was agreed to be paid to Respondent Nos. 1 and

2 on or before 25.08.2021 and a further sum of Rs.47,14,28,571/-

was agreed to be paid to the Respondent Nos. 1 and 2 on or before

expiry of 15 months from 25.11.2020. In terms of the Consent

Company Appeal (AT) (Insolvency) No.481 of 2023

of Rs.120 Crores being payable along with interest at 15% per

annum calculated from 25.08.2021 till date of payment.

paid. The Respondent Nos. 1 and 2 issued legal notices dated

27.08.2021, which legal notices were sent to the Company as well

as the Promoters. The legal notice stated that Company as well as

per the Consent Award.

(vi) On 16.06.2022, Section 7 application was filed by Respondent No.1

and 2 against the Corporate Debtor – Kakade Estate Developers

Private Limited claiming total default of Rs.133,75,89,041/- being

amount payable under the Consent Award amounting to Rs.120

Crores and interest accrued thereupon till 31.05.2022. Date of

default was 25.08.2021 as per the Part IV of the application, date

the Consent Award.

(vii) The Corporate Debtor filed a reply in Section 7 application. The

were heard and by impugned order dated 29.03.2023 the