Introduction:

Ashoka Hi-Tech Builders Pvt. Ltd. ("Appellant") filed an Appeal1 before the Hon'ble National Company Law Appellate Tribunal, New Delhi ("NCLAT") challenging the order dated November 03, 2022 ("Impugned Order") passed by the National Company Law Tribunal, Indore ("NCLT") thereby allowing the application filed under Section 60 (5) of Insolvency and Bankruptcy Code, 2016 ("IBC") read with Section 5(8) of IBC filed by home buyers and financial creditors ("Corporate Debtor").

Facts:

The Appellant had purchased an agricultural land of 11.40 acres and subsequently, entered into a Development Agreement dated April 01, 2009 ("Development Agreement") with JSM Devcons Private Limited ("Corporate Debtor") for construction of multistoried township on the said agricultural land. It was also agreed between parties to share the real estate units i.e. flats or revenue generated from sale of the constructed flats in ration of 64:32 in the newly constructed township. The loan was availed by the Corporate Debtor through L&T Housing Finance Ltd. and the same was secured by corporate guarantee provided by the Appellant.

Vide order dated March 17, 2022, the Hon'ble NCLT initiated Corporate Insolvency Resolution Process ("CIRP") of the Corporate Debtor and appointed Mr. Sanjay Kumar Singh ("Mr. Singh") as Interim Resolution Professional. The Appellant filed its claim in the month of April 2022 of Rs. 395,37,17,091 as a financial creditor of the Corporate Debtor. The claim of the Appellant was accepted by Mr. Singh after seeking a legal opinion on the same.

During CIRP, various Interlocutory Applications were filed by the home buyers and financial creditors for inter alia exclusion of the Appellant from the Committee of Creditors ("CoC") as the Appellant was not a financial creditor in the present case.

On hearing both the parties, the Hon'ble NCLT passed the Impugned Order wherein in was held that the Appellant cannot be considered as a financial creditor and therefore, cannot be a member of the CoC. Thus, the Appellant challenged the Impugned Order before Hon'ble NCLAT.

Issue before the Hon'ble NCLAT:

Whether the Appellant, being the land owner, qualifies to be a financial creditor?

Observations:

The Hon'ble NCLAT stated that the judgment passed in the matter of Namdeo Ramchandra Patil and Ors. vs Vishal Ghisulal Jain2 by the Hon'ble NCLAT had considered similar issue and laid down the following observations:

a. The pre-condition for debt to be a financial debt under Section 5(8)(f) Explanation (i) and (ii), is that there should be disbursement against the time value of money and the transaction of any amount raised from allotment under real estate shall be covered under Section 5(8)(f).

b. However, even though the land owners would be allottees within the meaning of Section 2(d) of RERA Act, it does not make the transaction between the land owner and developer under the development agreement to be classified as a financial debt as there is no disbursal of consideration against the time value of money.

In the present case, the Hon'ble NCLAT observed that the Corporate Debtor was to carry out construction and out of the total saleable construction, 32% was to be allotted to the Appellant. However, according to the terms and conditions of the Development Agreement entered into between the Appellant and the Corporate Debtor, it was clear that the Appellant was a merely a collaborator and cannot be considered or classified as a financial creditor.

Conclusions:

In light of the aforesaid, the Hon'ble NCLAT held that there was no disbursement for time value of money in the transaction between the Appellant and the Corporate Debtor which would fall within the meaning of Section 5 (8) of the IBC. Thus, the Hon'ble NCLAT dismissed the Appeal and upheld that the Impugned Order passed by the Hon'ble NCLT as it did not find any error in it.

Footnotes

1. Company Appeal (AT) (INS) No. 46 of 2023

2. Company Appeal (AT) (INS) No. 821 and 932 of 2021

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