Ajit Kaur Gill Vs Raheja Developers Limited (NCLT Delhi)
The said question was analyzed, in the matter Mrs. Ajit Kaur Gill vs. Raheja Developers Limited (dated 12th May, 2023), by Principal Bench of Hon’ble NCLT, New Delhi. Basically, an application was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (the Code), r/w Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, (Adjudicating Authority Rules), for initiating the Corporate Insolvency Resolution Process (‘CIRP’) against the Corporate Debtor viz., M/s Raheja Developers Limited (hereinafter referred as ‘CD’) for due amount of Rs. 3,03,30,000/- (Rupees Three Crore, Three Lac, Thirty Thousand Only/-) as on 30.09.2018 which was payable by CD as part consideration under MOU dated 07.10.2016.
The applicant along with three land owners (Collectively known as Land Owners) executed a Collaboration Agreement dated 13.08.2012 with Corporate Debtor (as Developer) which was further amended by Supplementary Collaboration Agreement dated 25.06.2013 (collectively known as “collaboration agreements”) for the development of certain land measuring 24.1563 acres land (Total Land) in which applicant and the other Land owners have an undivided share. Out of total land, CD obtained a license for 12.48675 acres (Licensed Land) of Land from the Directorate of Town and Country Planning (DTCP) for the development of a residential group Housing Project known as “Raheja Vanya”. Balanced land measuring 11.6695 acres remained unlicensed. A revised understanding through MOU dated 07.10.2016 was entered into between the parties wherein Applicant along with other land owners agreed to permit the CD to construct, develop, maintain, and sell the Land Owners’ share subject to other terms and conditions of MOU.
Section 5(21) of the IBC defines the term ‘operational debt’ as:
“Operational debt” means a claim in respect of the provisions of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to Central Government, any State Government or any local authority”
On perusal of the definition of the operational debt, it is clear that the definition is comprehensive in nature and has to be understood within the four corners of this code. It means a ‘claim in respect of the provision of goods and services’. Latter part of the definition is not relevant in the facts and circumstances of the case. The Hon’ble NCLT said that we will confine ourselves to the interpretation of the impugned agreements/MOU in terms of claims with respect to goods and services.
In the instant case at hand, it is very much clear that the Applicant along with other land owners obtained the license of the land from the competent authority and agreed with the Corporate Debtor for development of the Land with consideration. Collaboration (Development) agreements, MOU, and all the agreements on which applicant relied upon to make his claim are placed on record.
The Hon’ble NCLT found that on perusal of these various agreements/MOU entered upon between parties and reading them taking as a whole it is evident that the nature of transactions involved in the case is a Joint Development Agreement wherein the Developer will develop the land and share the profit in the agreed ratio as per the term of agreements/MOU between the Applicant along with other land owners and itself (CD).
It has been reiterated in many cases both by this Adjudicating Authority as well as by Hon’ble NCLAT that Joint Development agreement are not within the ambit of financial debt as defined in the code. Although the question of financial debt is not an issue in the case but if the similar kind of agreements are not in the ambit of financial debt, then, Can this type of agreement and claims arising out of same be considered under the definition of ‘Operational Debt’? The Hon’ble Supreme Court in the matter of Phoenix ARC Private Limited versus Spade financial Services Limited and Ors. (2021) 3 Supreme Court Cases 475 observed that:
“Further, IBC recognizes that for the success of an insolvency regime, the real nature of the transactions has to be unearthed in order to prevent any person from taking undue benefit of its provisions to the detriment of the rights of legitimate creditors.”
It has been submitted by the Applicant itself that :
“land and construction over the land is the main component for development of any real estate project by a real estate company. The Licensed Land and development right over there are directly related to the units/product which are being developed, marketed and sold by the Corporate Debtor being a real estate company for their commercial operation/production. Therefore, the Land Owners of the Licensed Land are Operational Creditors.”
Presumably, Applicant is suggesting that there is a direct nexus between the unit sold by the developer and the licensed land for which ownership belongs to applicant alongwith other land owners and so they come under the ambit of “Operational Creditor” as a person to whom operational debt is owed.
The Court thinks that the Applicants are attempting to give a very wide interpretation to Section 5(21) which cannot be the legislative intention. Reasonably, parties vide various agreements share a legal and binding relationship and have mutual financial obligations towards each other. But these transactions are not in the nature of ‘Operational Debt’. It is the Licensed Land and rights associated with it are in question. The development of the said land is within the Developer’s sphere and benefits accrued from that land is what the Applicant along with other landowners and developer will share amongst each other in a specified ratio.
This type of agreement cannot be considered under the ambit of “Operational debt” under Section 5(21) and “Operational Creditor ” under section 5(20) and thereby under Section 9 of the IBC, 2016. It may not be out of place to note that there may be variety of real estate development contracts under different names which can be entered upon which may have a component in the nature of a loan. For example Collaboration Agreement, Joint Development Agreement, the purpose of which is the mutual binding legal relationship in exchange of consideration. These type of agreements cannot come under the purview of operational debt as understood under the Code. What has to be seen is the real intention between the parties.
For the aforementioned reasons, we are of the opinion that the said contract is in nature of joint development of project with sharing of profit in an agreed ratio amongst them. Rather than a claim in respect of the provision of goods or services. In our opinion, the agreements cannot be read in isolation alone rather are to be seen collectively as a whole. The parties appear to have entered into an agreement with a different motive i.e. development of the project and sharing the proceeds there from. There is no case to be covered and admitted under section 9 of the code. Parties may pursue the matter to seek appropriate remedy as per law.
FULL TEXT OF THE NCLT JUDGMENT/ORDER
1. This is an Application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (the Code), r/w Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, (Adjudicating Authority Rules), for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor viz., M/s Raheja Developers Limited, Corporate Debtor, hereinafter referred as ‘CD’ for due amount of Rs. 3,03,30,000/- (Rupees Three Crore, Three Lac, Thirty Thousand Only/-) as on 09.2018 which was payable by CD as part consideration under MOU dated 07.10.2016.
2. Another Application No. 1420(PB)/2020 has been filed by the Applicant under Rule 11 of the NCLT Rules, 2016 seeking relisting of the captioned matter i.e. 409(PB)/ 2019. The Application (409/2019) was last listed for hearing on 01.2020 whereby this Adjudicating Authority directed the Registry to not list the matter and granted liberty to the petitioner/applicant to mention the same as and when the Hon’ble NCLAT passes the final judgment in Comp Appeal (AT) (Insolvency) No. 864/2019. Hon’ble NCLAT has passed a judgment dated 22.01.2020 wherein it had allowed the appeal setting aside the insolvency admission order against the Corporate Debtor (Raheja Developers) annexed as Annexure A in the aforesaid application.
3. Thereafter, CP/409(PB)/2019 has been listed many times on pervious occasions. Accordingly, CA-1420(PB)/2020 is Disposed of as
4. The CD was incorporated on 11.1990 under the Companies Act, 1956 (now Companies Act, 2013). Its CIN is U45400DL1990PLC042200. It is a real estate developer company engaged in development and construction of integrated residential/commercial plotted colonies/group housing apartments etc. The authorized and paid up share capital of the CD is Rs. 100,00,00,000.00 and Rs. 46,08,40,000.00/- respectively.
BRIEF FACTS SUBMITTED BY THE APPLICANT ARE AS FOLLOWS:
5. Applicant along with three land owners (Collectively known as Land Owners) executed a Collaboration Agreement dated 08.2012 with Corporate Debtor (as Developer) which was further amended by Supplementary Collaboration Agreement dated 25.06.2013 (collectively known as “collaboration agreements” for the development of certain land measuring 24.1563 acres land (Total Land) in which applicant and the other Land owners have an undivided share. Out of total land, CD obtained a license for 12.48675 acres (Licensed Land) of Land from the Directorate of Town and Country Planning (DTCP) for the development of a residential group Housing Project known as “Raheja Vanya”. Balanced land measuring 11.6695 acres remained unlicensed.
6. A revised understanding through MOU dated 10.2016 was entered into between the parties wherein Applicant along with other land owners agreed to permit the CD to construct, develop, maintain, and sell the Land Owners’ share subject to other terms and conditions of MOU. In terms of MOU, Applicant along with other Land Owners agreed to provide the following:
i. Licensed Land to the CD with the exclusive right to develop and construct;
ii. Exclusive and Absolute right to CD to sell the units and another saleable area of the project;
iii. Conveying and Transferring the title and interest in the project;
iv. Granted exclusive Irrevocable Rights w.r.t. the project’s development;
7. In consideration of the abovementioned, the CD agreed to develop the project with their own cost and to pay certain amounts to the Land Owners on account of various heads as agreed under the MOU including “Revenue sharing” as per clause 5.2 of the MOU. Clause 5.2 is extracted below:
Note: TDR stands for: Transferrable Development Rights
8. The Applicant along with three other Land Owners further entered into an Agreement dated 25.10.2016 annexed as Annexure P/4 with one Mr Navin M Raheja son of Late Shri M.N. Raheja (as “Personal Guarantor”), Raheja SEZs Limited (as “Mortgagor 1”) and Enkay Buildwell Private Limited (as “Mortgagor 2”). The Developer, Personal Guarantor, Mortgagor I, and Mortgagor 2 are collectively known as the “Raheja Group”. In the agreement dated 25.10.2016, the parties agreed that since the Project was given as cross collateral for other projects’ loans, therefore to ensure the payment of Land Owners’ entitlement under MOU, the Developer, and the Raheja Group agreed to provide security/mortgage/hypothecation, etc. on second charge basis on the Mortgaged Properties, Receivables, etc. subject to other terms and conditions of Agreement. In terms of the MOU and the Agreement, the Applicant along with three other Land Owners are entitled to payments towards Total Land purchase with development rights by the Corporate Debtor. As per the MOU the Operational Creditors along with 3 other Land Owners are entitled to 23.5 % of the amounts received from the customers of the Project and such amount is to be paid in the manner provided in the MOU and Agreement and the same should be disbursed by the Corporate Debtor to the Applicant as and when received by the Corporate Debtor. Applicant further submitted that the lenders of the CD, L &T Financial Services (LTFS) issued an email dated 24.10.2018 to the landowners’ representative. It is the submission of the applicant that it was informed to the landowners (including applicant as one amongst landowners) for the first time that total collection in the project till September 2017 was Rs. 71.3 crores, out of which the landowners share of 23.5% was Rs. 16.7 crores. The tabulation is as under:
