Case Law Details
Ashoka Hi-Tech Builders Pvt. Ltd. Vs Sanjay Kundra & Anr. (NCLAT)
The Hon’ble National Company Law Appellate Tribunal in a recent judgment i.e. Ashoka Hi-Tech Builders Pvt. Ltd. v Sanjay Kundra & Anr[i]., held that the Landowners who have not invested any money and are the collaborators in the development agreements cannot be termed as a financial creditor and the said transaction cannot be considered as disbursement against the time value of money.
FACTS OF THE CASE :-
1. The Appellant i.e. the Landowner of the development project was admitted as a Financial Creditor in the COC. The Homebuyers filed the IA to remove the landowner from the COC.
2. The Landowner entered into development agreement with the Corporate Debtor. That as per the said agreement upon the construction of the land, the landowner is entitled to receive 32% of the total saleable area and the Corporate Debtor is liable to receiver 68% of the total saleable area.
THE HON’BLE NATIONAL COMPANY LAW TRIBUNAL
1. The Hon’ble NCLT came to the conclusion that the said transaction that as per the developmental agreement no money was disbursed by the Landowner and therefore he is not a Financial Creditor as there was no amount disbursed or raised against the time value of money.
2. The Hon’ble NCLT at the time of passing this judgment has considered the precedent passed by the Hon’ble NCLAT in the matter of Namdeo Ramchandra Patil and Ors. Vs. Vishal Ghisulal Jain[ii]. In the said judgment the Hon’ble NCLAT held that a pre-consideration for a debt to be considered as a financial debt is that there must be disbursement against the time value of money. The Hon’ble NCLAT in this case held that just because the landowner is entitled to receive certain ratio in the constructed area does not make such transaction as a financial debt or the said landowner an allottee under Insolvency and Bankruptcy Code, 2916. That until and unless a transaction has been made against the time value of money till then no such transaction cannot be termed as financial debt.
3. The Hon’ble NCLT has also considered the precedent passed in Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Ltd. & Ors.[iii], wherein the Hon’ble Supreme Court has laid down the basic element to be considered for evaluating whether a transaction has been made against the time value of money, these are as follows:-
4. Method of raising or incurring liabilities as mentioned under Section 5 (8) (a to f) of Insolvency and Bankruptcy Code, 2016.
5. Any kind of counter-indemnity liability or derivative transaction as mentioned under Section 5 (8) (g to h) of Insolvency and Bankruptcy Code, 2016.
6. Liability arising from guarantee or indemnity under Section 5 (8) (a to h) of Insolvency and Bankruptcy Code, 2016.
THE HON’BLE NATIONAL COMPANY LAW APPELLATE TRIBUNAL
The Hon’ble NCLAT in the present case passed the Judgment that the order passed by the Adjudicating Authority has been rightly upheld that the Appellant i.e Landowner is not the financial creditor. That the Landowner is a collaborator with the Corporate Debtor in the development project as per the development agreement. That the Hon’ble NCLAT also held that as there has been no disbursement of sum against the time value of money by the Appellant, therefore the said transaction cannot be considered as financial debt and simultaneously, the Appellant cannot be considered as a financial creditor as per the provisions of Insolvency and Bankruptcy Code, 2016.
[i] Company Appeal (AT) (Insolvency) No. 46 of 2023
[ii] Company Appeal (AT) Ins. No. 821 and 930 of 2021
[iii] (2020) 8 SCC 401
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
Heard Learned Counsel for the Appellant.
2. This Appeal has been filed against the Order dated 03rd November, 2022 by which on an Application filed by the Home-Buyers, the Appellant has been removed from the Committee of Creditors.
3. Appellant’s case is that Appellant was a land owner on which the development project was to be constructed and he had filed the claim before the Resolution Professional which was admitted and he was inducted in the Committee of Creditors however subsequently on an Application filed by the Home-Buyers, impugned Order has been passed removing the Appellant from the Committee of Creditors holding that he is not the financial creditor.
4. Learned Counsel for the Appellant challenging the Order referred to the Development Agreement between the parties that is filed as Annexure A-6. The development agreement which was entered into between the parties on 01st April, 2009 clearly indicates that Appellant is an owner of 11.40 acres agriculture land on which development agreement, construction to be executed. The agreement further states that corporate debtor was to carry on the construction and the out of total saleable construction, 32% will be of the Appellant that is the first party and remaining 68% shall be owned by the second party, the Corporate Debtor.
5. Looking into the terms and conditions of the development agreement, the Adjudicating Authority has come to the conclusion that the Appellant was not a financial creditor since no amount was disbursed for the time value of money on the basis of which the Appellant can be held to be financial creditor.
6. The Adjudicating Authority has relied on the Judgement of this Tribunal in “Namdeo Ramchandra Patil and Ors. Vs. Vishal Ghisulal Jain” Company Appeal (AT) Ins. No. 821 and 930 of 2021 decided on 19.09.2022. This tribunal in the aforesaid case had occasion to consider the similar development agreement and in paragraph 13, 14 and 15, following has been laid down:
“13. When we look into the provision of Section 5(8)(f) Explanation (i) and (ii), it is clear that pre-condition for a debt being a Financial Debt is disbursement against the time value of money and when any amount is raised from an allotment under real estate such transaction is also covered under Section 5(8)(f). The pre-condition for application of Explanation (i) of Section 5(8)(f) is raising of an amount from allottee. The present is not a case where an amount has been raised from the Appellants – the Landowners. The submission of the Appellant that they are allottees within the meaning of Section 2(d) of RERA Act does not make their transaction as a Financial Debt within the meaning of Section 5(8)(f). It is relevant to notice that RERA Act itself has noticed the definition of ‘Promoter’ under Section 2(zk). When we look in the real nature of the transaction entered between the Corporate Debtor and the Appellants – Landowners, the landowners were entitled to share the constructed area in the ratio of 45:55 and allotment of flats and commercial units in lieu of their entitlement under the Development Agreement does not make the transaction of allotment a Financial Debt within the meaning of Section 5(8)(f). The Adjudicating Authority in the impugned order has rightly relied on the judgment of Hon’ble Supreme Court in “Pioneer Urban Land and Infrastructure Ltd. vs. Union of India, (2019) 8 SCC 416”, where the term ‘disbursal’ was explained in Para 70 of judgment and following has been observed:-
“70. The definition of “financial debt” in Section 5(8) then goes on to state that a “debt” must be “disbursed” against the consideration for time value of money. “Disbursement” is defined in Black’s Law Dictionary (10th ed.) to mean:
“1. The act of paying out money, commonly from a fund or in settlement of a debt or account payable.
2. The money so paid; an amount of money given for a particular purpose.””
14. We may also notice judgment of the Hon’ble SupremeCourt in “Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Ltd. & Ors., (2020) 8 SCC 401”, where Hon’ble Supreme Court while examining the definition under Section 5(8) of the I&B Code noticed the essentials for Financial Debt. In Para 46, the Hon’ble Supreme Court has again emphasised that essential element is disbursement against time value of the money. Para 46 of the judgment is as follows:-
“46. Applying the aforementioned fundamental principles to the definition occurring in Section 5(8) of the Code, we have not an iota of doubt that for a debt to become ‘financial debt’ for the purpose of Part II of the Code, the basic elements are that it ought to be a disbursal against the consideration for time value of money. It may include any of the methods for raising money or incurring liability by the modes prescribed in sub-clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per sub-clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in sub-clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of ‘disbursement’ against ‘the consideration for the time value of money’ could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said sub- clauses (a) to (i) of Section 5(8) would be falling within the ambit of ‘financial debt’ only if it carries the essential elements stated in the principal clause or at least has the features which could be traced to such essential elements in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as ‘financial debt’ within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money.”
15. When we look into the facts of the present case and transaction entered by the Appellants – Landowners with the Corporate Debtor, we do not find any error in the decision of the Adjudicating Authority holding the Appellants-Landowners as not Financial Creditors. The Company Appeal (AT) (Ins.) No. 821 of 2021, thus, deserved to be dismissed.”
7. We are of the view that Judgement of this Tribunal in Namdeo Ramchandra Patil & Ors. (supra) fully covers the issues and Adjudicating Authority has rightly referred to the Judgement holding that Appellant is not a financial creditor. The terms and conditions of development agreement entered between the appellant and the corporate debtor, Annexure 6 makes it clear that the appellant was a collaborator in the development agreement and not a financial creditor. There was no disbursement for time value of money by the appellant within meaning of Section 5(8) of the IBC.
We do not find any error in the order impugned. The Appeal is dismissed.
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