Commercial contract for purchase of NCDs is not ‘financial debt’: NCLT Mumbai

Edelweiss Asset Reconstruction Company Limited Vs Ajmera Realty and Infra India Limited (NCLT Mumbai)

In a significant legal proceeding, the National Company Law Tribunal (NCLT), Mumbai, witnessed the case between Edelweiss Asset Reconstruction Company Limited and Ajmera Realty and Infra India Limited. This detailed article aims to dissect the intricacies of the case, the arguments presented by both parties, the legal framework involved, and the Tribunal’s findings, offering a comprehensive insight into the implications of this dispute.

Background: The case revolves around a petition filed by Edelweiss Asset Reconstruction Company Limited (hereafter referred to as “Edelweiss”), a financial creditor, under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The petition sought to initiate the Corporate Insolvency Resolution Process (CIRP) against Ajmera Realty and Infra India Limited (hereafter referred to as “Ajmera Realty”), the corporate debtor, over a default amounting to Rs. 31,01,08,937 as of May 15, 2023.

The Genesis of the Dispute: The dispute traces back to a development agreement dated December 27, 2006, involving Meeti Developers Private Limited (MDPL) and New Kamal Kunj Co-op Housing Society Limited for the redevelopment of the Society’s building. For funding the redevelopment project, MDPL issued Non-Convertible Debentures (NCDs) worth Rs. 55 Crores to the predecessor of Edelweiss, which were later assigned to Edelweiss in 2019.

Following MDPL’s default in repaying the NCDs, Edelweiss filed a company petition against MDPL under the IBC. Subsequently, Ajmera Realty agreed to purchase the NCDs from Edelweiss, resulting in a series of agreements that outlined the terms of purchase and the conditions for the transfer of NCDs.

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