2022 (4) TMI 206 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Appellant invested in the Real Estate Joint Venture Project in the capacity of a Promoter - Financial Creditors or not - existence of debt and dispute or not - Section 5(7) of the IBC - HELD THAT - The Appellant is classified as a Promoter who seeks to develop the said Plot and construct the studio apartment, club, jogging track, shops, dormitory, children park on the said plot and has entrusted the Project to the Respondent who is arrayed as the Developer in the said Memorandum of Understanding. In fact, the Joint Venture Project in the name and style of Valley View Apartments Project was to be launched and promoted in the name of Appellant herein. 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 re-payment 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 . 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 - Appeal dismissed.

Summary

Issues Involved:
1. Whether the Appellant qualifies as a 'Financial Creditor' under Section 5(7) of the Insolvency and Bankruptcy Code, 2016 (IBC).
2. Whether the amount invested by the Appellant in the Real Estate Joint Venture Project constitutes a 'Financial Debt' under Section 5(8) of the IBC.
3. Applicability of the explanation to sub-clause (f) of Section 5(8) of the IBC regarding the amount raised from an allottee in a real estate project.

Issue-wise Detailed Analysis:

1. Whether the Appellant qualifies as a 'Financial Creditor' under Section 5(7) of the Insolvency and Bankruptcy Code, 2016 (IBC):

The Appellant argued that it is a 'Financial Creditor' who entered into a Memorandum of Understanding (MOU) with the Respondent on 28.09.2011 and a Joint Venture Agreement on 27.02.2012, investing ?4,21,37,850/- in the project. The Appellant contended that this investment falls within the definition of 'financial debt' under Section 5(8) of the IBC. However, the Tribunal noted that the MOU and the Joint Venture Agreement classified the Appellant as a 'Promoter' interested in the forward sale of furnished studio flats. The Tribunal emphasized that the relationship between the Appellant and the Respondent is that of a landowner and developer, and the amount invested by the Appellant towards the completion of the project cannot be termed a 'Financial Debt' as defined under Section 5(8) of the IBC. Therefore, the Appellant does not qualify as a 'Financial Creditor' under Section 5(7) of the IBC.

2. Whether the amount invested by the Appellant in the Real Estate Joint Venture Project constitutes a 'Financial Debt' under Section 5(8) of the IBC:

The Tribunal analyzed the terms of the MOU and the Joint Venture Agreement to understand the nature of the transaction. The MOU specified that the Appellant, as a 'Promoter,' would bear the cost of land, development, and construction of the project, while the Respondent would act as the 'Developer.' The Tribunal referred to the definition of 'Financial Debt' under Section 5(8) of the IBC, which includes any amount raised under any other transaction having the commercial effect of borrowing. However, the Tribunal concluded that the amount invested by the Appellant does not meet the criteria for 'Financial Debt' as it was not disbursed against the consideration for the time value of money. The Tribunal cited a similar case (Company Appeal (AT)(Ins) No.780/2020) where it was held that the amount invested in a joint development project cannot be construed as 'Financial Debt' as there is no sum owed, assigned, or transferred in compliance with Section 5(8) of the IBC.

3. Applicability of the explanation to sub-clause (f) of Section 5(8) of the IBC regarding the amount raised from an allottee in a real estate project:

The Appellant argued that the project is a real estate project, and the amount invested should be deemed to have the commercial effect of borrowing under the explanation to sub-clause (f) of Section 5(8) of the IBC. The Tribunal examined whether the Appellant could be considered an allottee under the Real Estate (Regulation and Development) Act, 2016 (RERA). The Tribunal found that the Appellant, being a 'Promoter,' was equally interested in the completion of the project for business purposes and could not be treated as an allottee. Therefore, the explanation to sub-clause (f) of Section 5(8) of the IBC was not applicable in this case.

Conclusion:

The Tribunal concluded that the Appellant, in its capacity as a 'Promoter' and 'Investor,' does not fall within the definition of 'Financial Creditor' under Section 5(7) of the IBC, and the amount invested does not constitute 'Financial Debt' under Section 5(8) of the IBC. Consequently, the appeal was dismissed with no order as to costs.