Jagbasera Infratech Private Ltd. Vs Rawal Variety Construction Ltd. (NCLAT Delhi)
Clause 15 of the Memorandum of Understanding specifies that ‘promoter’ shall be entitled to raise loans in its own name from banks/financial institutions for the project. There shall be no liability on the Developer for repayment of the loans or interest.” A careful perusal of the Memorandum of Understanding and also the Joint Venture Agreement entered into between the parties on 28.09.2011 and 27.02.2012 respectively shows that the relationship between the Appellant and Respondent is that of land owner and developer and furthermore viewed from any angle the amount invested by the Appellant towards the completion of the Project cannot be termed to be a ‘Financial Debt’ as defined under Section 5(8) of the Code. Having regard to the nature of the transactions between the Appellant and the Respondent this Tribunal is of the earnest view that the Appellant does not fall within the definition of term ‘Allottee’. This Tribunal in Company Appeal (AT)(Ins) No.780/2020 while dealing with a similar issue has observed as follows:-
“15. The MoU entered into is an Agreement of reciprocal rights and obligations. We are of the earnest view that both parties being ‘Joint Development Partners’ who entered into a consortium of sorts for developing the subject land and for any breach of terms of the contract, Section 7 Application filed under the Code would not be maintainable as the amount cannot be construed as ‘Financial Debt’ as there is no sum(s) i.e., owed, assigned or transferred to in compliance of the provisions of Section 5(8) of the Code. To reiterate, being a profit share owner, who in the event of the success of the Project would receive the residual gain, the amount invested in the land cannot be said to be a ‘Financial Debt’ as defined under Section 5(8) of the Code. Hence, the ratio of the Judgements relied upon by the Learned Counsel for the Appellant are not applicable to the facts of this case.”
Keeping in view the ratio of the aforenoted Judgement and having regard to the terms and conditions of the Memorandum of Understanding and the Joint Venture Agreement entered into between the parties, this Tribunal is of the considered view that the amount invested in the ‘Joint Venture Project’ by the Appellant herein in his capacity as a ‘Promotor’ and ‘Investor’ does not fall within the ambit of the definition of ‘Financial Debt’ as defined under Section 5(8) of the Code.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
1. Challenge in this Appeal under Section 61(3) of the Insolvency and Bankruptcy Code, 2016 (herein referred to as the Code) is to the Impugned Order dated 11.12.2018 passed by the Adjudicating Authority (National Company Law Tribunal, Chandigarh Bench, Chandigarh) in CP(IB) No.273/CHD/HP/2018. By the Impugned Order, the Adjudicating Authority has dismissed the Petition preferred under Section 7 of the Code by M/s Jagbasera Infratech Privatge Ltd, the Appellant herein, for initiating the Insolvency Resolution Process against M/s Rawal Variety Construction Ltd./Respondent Company and has observed as hereunder:-
“17. In the present case there is no such term of the assured return of any agreement which may amount to the repayment for the time value of money. Simply because the petitioner has invested the money for the project being a Promoter would not fall within the definition of term ‘Financial Creditor’ under any circumstances. This was not a case of a forward sale or purchase agreement having effect of borrowing rather the petitioner was equally interested in the project to be marked for sale.
18. The learned counsel for the petitioner however laid emphasis to the word ‘other transaction’ as provided in sub-clause (f) of Section 5(8) of the Code. The term ‘Transaction’ is defined in sub-section (33) of Section 3 of the Code which includes an agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor. We are unable to accept the contention of the learned counsel for the petition because the main requirement of the provision that the amount was disbursed against the consideration of time value of money has not been established.
19. However, to fortify his contention, learned counsel referred to the explanation of sub-clause (f) of Section 5(8) of the Code as brought by way of amendment. It says that any amount raised from allottee in real estate project shall be deemed to be an amount having a commercial effect of the borrowing. The fact that project is real estate project as defined in sub-clause (zn) of Section 2 of the Real Estate (Regulation and Development) Act, 2016 (RERA) cannot be doubted but the question here is whether the petitioner can be treated as an Allottee for taking advantage of the explanation to sub-clause (f) of Section 5(8) of the Code.
