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NATIONAL COMPANY LAW TRIBUNAL

NEW DELHI SPECIAL BENCH (COURT-II)

(IB)-88(ND)/2021

IN THE MATTER OF:

Mr. Surendra Kanaiyalal Shah,

(Through its Proprietor of
Shah Photo Film Company)
2nd Floor, B J House, Near
Mount Carmel School,
Bata House Building,
Ashram Road, Navrangpura,
Ahmedabad, Gujarat-380009 …Financial Creditor/ Applicant

VERSUS

M/ s. Magicon Impex Pvt. Ltd.

B1/625, 2nd Floor, Main Road,
Janakpuri, Delhi-110058 …Corporate Debtor

Section: 7 of IBC, 2016

Order Delivered on: 11.10.2021

CORAM:

DR. DEEPTI MUKESH, HON’BLE MEMBER (J)

SHRI L. N. GUPTA, HON’BLE MEMBER (T)

PRESENT:

For the Applicant : Adv. Gulshan Kr. Sachdev along with

Adv. Aman Gautam

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ORDER

PER SHRI L. N. GUPTA, MEMBER (T)

The present Petition is filed under the Section 7 of the

Insolvency and Bankruptcy Code, 2016 (‘IBC, 2016’) read with Rule

4 of the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016 by Mr. Surendra Kanaiyalal Shahthrough its

proprietor of Shah Photo Film Company (‘Financial Creditor’), with

a prayer to initiate the Corporate Insolvency process against M/s

Magicon Impex Private Limited (‘Corporate Debtor’).

2. The Corporate Debtor M/s Magicon Impex Private Limited is a

Company incorporated with CIN U32201DL2004PTC127870 on

27.07.2004 under the provisions of the erstwhile Companies Act

1956 having its registered office at B1/625, 2nd Floor, Main Road,

which is within the jurisdiction of this Tribunal.

3. The Authorized Share Capital of the Corporate Debtor

Company is Rs. 10,50,00,000/- and Paid-up Share Capital of the

Company is Rs. 4,34,00,000/- as per the master data annexed with

the Application.

4. That this Application filed under Section 7 of IBC, 2016 was

listed for the first time on 10.02.2021. During the course of

preliminary hearing, the Ld. Counsel for the Applicant sought time to

make necessary amendments in the Part IV of the Application.

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5. That vide order dated 15.07.2021, this Adjudicating Authority

had dismissed the Application for default due to the Non-Appearance

of the Applicant on 10.03.2021 and 24.03.2021 and their main

counsel on 15.07.2021.

6. That the Applicant, then filed an IA No. 3333/2021 seeking

restoration of the main Section 7 Application. The same was allowed

by this Adjudicating Authority vide order dated 03.08.2021 and the

petition CP(IB)-88/2021 was restored to its original file.

7. That the matter was heard on 10.09.2021 on the issue of

maintainability of the Application under Section 7 of IBC, 2016 and

whether the amount claimed by the Applicant in Part IV of the

Application is covered under the definition of “Financial Debt” ?

8. That the following has been stated by the Applicant in the

Amended Part IV of the Application, which is reproduced below :

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9. In order to establish that the debt claimed in the Part IV of the

Application is covered under the ambit of “Financial Debt” as defined

under Section 5(8) of IBC, 2016, the Applicant has filed its written

submission and has averred the following:

“2. That the Corporate Debtor had appointed the Financial

Creditor as "Consignment and Freight Agent” and for that
purpose the parties had executed an Agreement dated
25.03.2019 which is produced at Exhibit-C along with
the Petition.

3. It is pertinent to note that by virtue of the aforesaid

Agreement dated 25.02.2019, the Petitioner had paid and
the Respondent had accepted an interest-bearing Deposit
Rs.70,00,000/- (Rupee Seventy Lakhs Only). The
Petitioner has produced the copies of his Bank Statement
for the relevant period (Exhibit-D) showing the
corresponding entries which demonstrate that the amount
was transferred from the Petitioner to the Respondent.
The Petitioner has also produced the copy of the ledger at
Exhibit-F which reflects the relevant entries.

4. The Petitioner most respectfully submits that the term

“Financial Debt” as envisaged under Sec. 5(8) of the Code.
In particular Section 5(8)(f) reads as follows:

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Section 5(8)(f) “financial debt” means a debt alongwith

interest, if any, which is disbursed against the
consideration for the time value of money and includes ----
(a)… … ….
(b)… … ….
(c)… … ….
(d)… … ….
(e) Any amount raised under any other transaction,
including any forward sale or purchase agreement,
having the commercial effect of a borrowing, … … …

5. Thus it is very clear from the Section itself that the term
“financial debt” is not restricted only to the “loan” in strict
sense but in its broader connotation, it includes all kinds
of transactions wherein the money is raised by a party
against consideration for the time value of money. Thus
what is required under the law is that there has to be
“debt” and it must satisfy the criteria of “time value of
money”. In the present case, it is undisputed fact that the
Corporate Debtor had accepted a refundable Deposit of
Rs. 70 Lakhs from the Petitioner and has agreed to pay
interest thereon.

6. It is most respectfully submitted that an interest bearing

refundable deposit squarely falls within the purview of
“financial debt” in view of the clear mandate of Section
5(8)(f) as well as in light of the judicial pronouncements”.

10. Through its Written Submissions, the Financial Creditor has

contended that by virtue of the Agreement dated 25.03.2019,

whereby the Corporate Debtor was appointed the Applicant as

“Consignment & Freight Agent”, the Applicant had paid an interest-

bearing Deposit of Rs. 70,00,000/- and the same is a “Financial

Debt” in terms of Section 5(8)(f) of IBC, 2016.

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11. The Applicant has also placed reliance on the Judgment of

Hon’ble NCLAT in the matter of Sh. Satish Chand Gupta Vs. Sarvel

India Pvt. Ltd. in Company Appeal No. 502/2020:

“37.……….. the term ‘deposit’ includes any receipt of

money by a company either as deposit or loan or in any
other form by it…….”
“42.………. the ‘Corporate Debtor’ had accepted money
from the Appellant against the payment of interest and
bearing in mind the payment of interest on the amounts
borrowed by the Respondent Company is nothing but a
consideration for the time value of money and in as much
as the ‘interest’ is the compensation paid by the borrower
to the lender for using the lender’s money over a period of
time, this Tribunal comes to an inevitable and inescapable
conclusion that the Appellant’s status is that of a
‘Financial Creditor’ as per Section 5(7) read with Section
5(8) of the Code and that there is a default in payment of
the accepted amounts by the Respondent/CD and in
short, the Respondent / Corporate Debtor comes within
the purview of the definition of ‘Financial Debt’……”

12. After hearing submissions of the Applicant and perusing the

documents and written submissions placed on record,wefeel that

before examining whether the debt claimed by the applicant in Part

IV of the Application is a “Financial Debt” or not, it is necessary to

examine the origin of the transaction. Hence, we refer to the relevant

clause of the deposit in the Agreement dated 25.03.2019, contained,

scanned copy of which is reproduced below :

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13. Here, we also refer to the definition of “Financial Debt” as

defined under Section 5(8) of IBC, 2016 :

(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;
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(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 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;

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14. From the conjoint reading of para 12 and 13 above, we find

that in the instant case, the amount has been released pursuant to

the Agreement dated 25.03.2019 in the form of Security Deposit and

the same is interest bearing, which means it is carrying

consideration of time value of money having commercial effect of a

borrowing. Therefore, in our view the “debt” claimed is a “Financial

Debt” within the definition of Section 5(8)(f) of IBC, 2016.

15. Accordingly, we find that the Petition is maintainable.

Therefore, we direct the petitioner to issue notice upon the Corporate

Debtor by all modes as to why the CIR process shall not be initiated

against it. List the matter on 29.10.2021.

16. However, nothing expressed herein shall be construed as an

opinion on the merits of the case and shall not come as an obstacle

for the Corporate Debtor in raising its defence.

Sd/- Sd/-
(L. N. Gupta) (Dr. Deepti Mukesh)
Member (T) Member (J)

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