TMI Blog2023 (12) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Adjudicating Authority that both parties being involved in the joint development of the subject property for which purpose they have entered into a collaborative agreement and hence the amount paid by the Appellant in terms of the financial arrangements outlined therein, is an investment for making profits which cannot be treated as a financial debt qua the Respondent. A plain understanding of a joint venture is a combination of two or more parties/entities that seeks the development of any enterprise or project for profit and entails sharing the risks associated with its development. Applying the above to the facts of the present case, from a perusal of the terms and conditions of the Agreement, when read in a composite and holistic manner, it can well be said that the Appellant and Respondent had entered into a particular business arrangement of accomplishing development of the subject property in which they had agreed to pool their resources proportionately in an agreed upon ratio of 25:75 and in the process share the profits, losses and costs associated with it - There are unmistakable signs of reciprocal rights and obligations contained therein besides evidence of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IB) No.44(PB)/2022. By the impugned order, the Adjudicating Authority has dismissed the Section 7 application filed by M/s Realpro Realty Solutions Pvt. Ltd.- the Appellant seeking initiation of Corporate Insolvency Resolution Process ( CIRP in short) against the Corporate Debtor-M/s Sanskar Projects and Housing Ltd.-present Respondent. Aggrieved by the impugned order, the present appeal has been filed by the Appellant. 2. The Learned Counsel for the Appellant submitted that a profit-sharing loan agreement (hereinafter referred to as Agreement ) was entered between the Appellant and the Respondent on 09.12.2020 by which the Appellant disbursed a profit-sharing loan to the Respondent for the development of 2nd floor and 3rd floor of a property bearing no. 107 in Block 172 in Jor Bagh, New Delhi (hereinafter referred to as subject property ). It was added that prior to entering into the above Agreement, a tripartite MoU was signed on 20.11.2020 between Royal Insignia Premium Constructions (a sister concern of the Corporate Debtor/Respondent) in its capacity as a Developer; Chetan Prakash as the owner and the present Respondent as the buyer for transfer of ownership rights of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IBC as the objective behind filing this application is debt recovery and not insolvency resolution. 5. We have duly considered the arguments advanced by the Learned Counsel for the parties and perused the records carefully. 6. The brief point that falls for our consideration is whether in the facts of the present case, the profit-sharing loan given by the Appellant to the Respondent can be construed as a financial debt in terms of IBC basis which the Appellant could claim the status of a Financial Creditor for the purposes of filing Section 7 application. 7. Before we proceed to answer the question as outlined above, we may go through some of the relevant definition clauses which finds place in Section 3 and 5 under Part II Chapter I Preliminary of the IBC would be constructive: 3(11) debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. 5(7) financial creditor means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. 5(8) financial debt means a debt alongwith interest, if any, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty bearing No. 107, in Block 172, situated at New Capital of Delhi, (commonly known as 107, jor Bagh, New Delhi) (the SAID PROPERTY ), upto the limits of sky, with right to construct, own and to have and to hold any areas/floors on the Third Floor and subsequent Terraces thereupon and thereabove, as and when permitted by the authorities concerned of the SAID PROPERTY bearing No. 107, in Block 172, situated at New Capital of Delhi, (commonly known as 107, Jor Bagh, New Delhi), for common objective to earn and share profits or gain on its use or subsequent sale in near future. ..Construction Cost, Statutory fees, Electricity and Water Charges, Property Tax, MCD Fees, maintenance, up keeping, Provident Fund, Employee State Insurance, labour license charges, Labour Cess, fees, insurance charges, etc or any other statutory taxes and duties levied by Central and/or State Government and/or local bodies during the execution of the work and all other incidental expenses etc in relation to Entire Second Floor and also the Exclusive ownership and usage rights of the Entire Terrace over and above the Entire Second Floor of the SAID PROPERTY and thereabove shall be incurred/shared by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the working profit towards Administration expenses/ statutory Charges/fees and other indirect expenses to be borne by Second Party. (d) Second Party is obliged to pay capital contribution in respect to cost incurred within 7 days of intimation by First Party. Interest at the rate of 15% per annum will be charged in case of delay in payment beyond 7 days by Second Party. Similarly, First Party is obliged to pay/refund capital contributed by Second Party with proportionate share in profit within 7 days of receipt of any sale consideration or advance from any intended buyer/customer. Interest at the rate of 15% is payable by First Party to Second Party in case of delay in payment beyond 7 days. 8. Miscellaneous. (h) No partnership agency: That nothing in this Agreement shall be construed as creating a partnership or joint venture between the Parties. Neither party will be deemed to be an agent of the other party as a result of any act under or related to this Agreement, and will not in any way pledge the other Party's credit or incur any obligation on behalf of the other Party. 9. Coming to the impugned order, we notice that the Adjudicating Authority has ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d notice which must then be replied to within the specified period. What is important is that at this stage, if an application is filed before the adjudicating authority for initiating the corporate insolvency resolution process, the corporate debtor can prove that the debt is disputed. When the debt is so disputed, such application would be rejected. 24. A perusal of the agreement dated 09.12.2020 reveals that the Applicant had no direct engagement in the functioning of the Respondent. However, the nature of agreement is in the form of an investment in the ratio of 75% 25% and sharing of profit / losses in the same proportion after completion of the project. They had to invest Rs. 35,00,00,000/- (Rupees Thirty Five Crore Only) together in the proportion of their profit sharing entitlement. It was the first party i.e. the Respondent who had absolute right and authority to construct and develop / sell etc. the property to the purchasers in whole or in part. As per the agreement, the Applicant besides investing 25% i.e. Rs. 8,75,00,000/- (Rupees Eight Crore and Seventy Five Lakh Only) towards purchase of rights from the owner had to incur expenses in the construction, taxes e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Applicant neither falls in the category of the financial creditor as defined under Section 5 (7) of IBC nor the alleged transaction can be said to be covered within the ambit of financial debt as defined under Section 5 (8) of IBC. The application therefore is not maintainable and is required to be dismissed. 10. We find that the Adjudicating Authority has returned the finding that the Section 7 application filed by the Appellant was not maintainable since the Appellant neither fell in the category of a financial creditor nor the alleged transaction fell within the ambit of financial debt in terms of the statutory provisions enshrined in the IBC. The above findings of the Adjudicating Authority have been predicated on the terms of Agreement entered between the Appellant and the Respondent. It has been held by the Adjudicating Authority that both parties being involved in the joint development of the subject property for which purpose they have entered into a collaborative agreement and hence the amount paid by the Appellant in terms of the financial arrangements outlined therein, is an investment for making profits which cannot be treated as a financial debt qua the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it-sharing loan appearing in the Agreement to show that they had disbursed a loan. It has been submitted that the Agreement was for profit/loss sharing in the ratio of 25% for the Appellant subject to the Appellant having invested 25% for development of the subject property. Thus, it has been asserted that the entire transaction was purely for investment in the project on profit/loss sharing basis and was not in the nature of disbursal of loan and did not have the commercial effect of borrowing. The present is a case of joint investment for purchasing second floor and terrace floor of the subject property and then either selling it as it is or after reconstructing. It was also contended that the Agreement has to be read as a whole and if so done it becomes amply clear that disbursal of loan was neither the intent of the Agreement nor the intent of the parties executing the Agreement. The Agreement was neither for borrowing money from the Appellant nor was any loan disbursed. 14. Further it was asserted by the Appellant that the ground cited by the Adjudicating Authority that the Appellant cannot claim the status of a Financial Creditor since full disbursement of the entire loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot claim the status and benefits of a Financial Creditor as defined under Section 5(7) of the IBC. On the applicability of the ratio in the Mach Soft case which has been relied upon by the Appellant, we notice that the facts therein are clearly distinguishable in that in the Mach Soft matter, the financial creditor had acquired the majority shareholding of the Corporate Debtor and in that context the disbursement was held to be against the consideration for the time value of money. Thus, this judgment cannot come to the aid of the Appellant. 16. Undisputedly both parties being partners in developing the subject property together, hence any sum provided by the Appellant tantamount to financing the operations of the joint venture and not a disbursal of loan for the purposes of exclusive utilization by the Respondent for his own requirement. When shared liability for profit is so clearly manifested in the Agreement, it stares in our eyes that both parties are development partners and co-sharers in the development of the subject property. The terms of the Agreement laid the foundations of a legal and binding relationship with mutual financial obligations towards each other. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IBC. We see no necessity either to enter into any question of breach of agreement as any such enquiry falls beyond the remit and domain of the Adjudicatory/Appellate forum keeping in view the summary nature of proceedings contemplated under IBC. The Appellant can always take recourse in law including suit for specific performance of contract as provided for in Clause 6 of the Agreement which is to the effect: That in case any of the parties hereto infringes any of the terms and conditions of this Agreement, then the other party shall be entitled to get this transaction enforced through the Court of law by Specific Performance of the Contract, at the cost and expenses of the defaulting party. 20. We concur in the findings of the Adjudicating Authority that the Appellant is not a Financial Creditor in terms of Section 5(7) of IBC and that there was no financial debt in terms of Section 5(8) of IBC and hence the application under Section 7 of the IBC could not be entertained. We see no error in the impugned order. Hence the appeal fails and is dismissed accordingly. We, however, are of the view that the Appellant will have the liberty to exhaust other remedies available in law be ..... 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