2022 (8) TMI 1487 - AT - Insolvency and Bankruptcy

Rejection of Application filed by the Appellant u/s 9 of the IBC 2016 - existence of operational debt or not - HELD THAT - The Joint Development Agreement between the parties makes it clear that both the parties are to share profits according to the percentage and mechanism as provided therein. Present was the case of sharing revenue profit by both the parties. Present was not a case where any Operational Debt was owed by the Corporate Debtor to the Appellant so as to initiate Section 9 Application. Various clauses of the Joint Development Agreement have been noticed and Revenue Sharing Concept is the key to the Joint Development Agreement and the Joint Development Agreement also contemplated arbitration between the parties in event of any dispute. It has been informed by the Learned Counsel for the Respondent that Arbitration Proceedings have already been initiated and are pending between the parties. Thus no grounds have been made out to entertain this Appeal - The Appeal is dismissed.

Summary

Issues involved:
1. Rejection of Application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Interpretation of Joint Development Agreement clauses.
3. Determination of operational debt versus ongoing business liability.
4. Consideration of profit-sharing mechanism between parties.

Analysis:

The judgment pertains to an appeal against the rejection of an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Appellant claimed operational debt owed by the Respondent based on providing land for development. The Adjudicating Authority rejected the application, emphasizing the nature of the relationship between the parties as per the Joint Development Agreements (JDAs) and profit-sharing mechanisms outlined therein.

The Adjudicating Authority analyzed the clauses of the JDAs and observed that the agreements focused on joint development through proportionate participation and profit-sharing, rather than the provision of services by one party to the other. The Authority highlighted that the JDAs did not indicate that the Respondent had to provide services to the Appellant, emphasizing the revenue-sharing concept as pivotal to the agreements. The clauses of the JDAs indicated a partnership for development and profit-sharing, with provisions for arbitration in case of disputes.

The judgment clarified that the case did not involve operational debt but an ongoing business liability between the parties as outlined in the JDAs. The Court noted that the Appellant and Respondent were to share profits as per the agreements, and the matter was more aligned with a partnership venture than a debtor-creditor relationship. The Court also acknowledged that arbitration proceedings had been initiated between the parties, further indicating the contractual nature of their relationship.

Ultimately, the Appellate Tribunal dismissed the appeal, stating that the grounds presented were insufficient to entertain it. The decision was based on the understanding that the nature of the relationship between the parties, as per the JDAs, did not support the claim of operational debt under Section 9 of the IBC. The judgment underscored the importance of contractual agreements and profit-sharing mechanisms in determining the nature of liabilities between parties in commercial ventures.