Gokul Kripa Colonizers and Developers Private Limited vs Radiant Hotels Private Limited

Ashok Bhushan, J.

This Appeal has been filed against the Order dated 21^st April, 2022 passed by National Company Law Tribunal, Court No. 5, Mumbai Bench by which order Section 7 Application filed by the Appellant has been rejected holding that in the transaction between the parties, there is no financial debt.

Aggrieved by the Impugned Order, Appellant has come up in this Appeal.

Brief facts of the case necessary to be noticed for deciding this Appeal are:-

 The Respondent Company owned land in Village Sanganer and Khokhawas, Tehsil Sanganer, situated in Sanganer District, Jaipur which as per Jaipur Development Authority is a land earmarked for group housing project. Total land owned by the Respondent Company was 73585 sq.m. part of which was sold to one Vedanta Properties and another part of housing scheme which is underway and further 36,402 sq.m. was available which was owned by the Respondent.

 A Memorandum of Understanding between Respondent as First Party and the Appellant as Second Party was entered on 28.02.2019 under which First Party agreed to sell area 36,402 sq.m. The Second Party was interesting in buying the same. Consideration stated was Rs. 21,000 per sq. m. Total amount was Rs. 91,42,95,850/- out of which Rs. 7,51,00,000/- was received as advance. The parties agreed that First Party will get sub-division done in the manner and approved by the Jaipur Development Authority and Second Party shall pay 25% of the total amount of consideration within 7 days of the approval of the map and balance 75% will be paid within period of 6 months from the date of map approval.

 The Agreement further contemplates that Second Party of the Agreement shall have the right of booking of the plots to prospective buyer on any price on the approved map of plotting project. 12.5% of the 25% paid in advance will be treated as advance deposit and will be adjusted in the last 12.5% plots of project. Agreement further contemplates that if Second Party makes excess payment to the First Party which is received through booking of plots which is excess to the agreed amount between the parties for execution of agreement then in that situation the excess amount will be treated as commission of the Second Party and First Party shall transfer the excess amount to Second Party.

 Subsequent to the MoU, Lay Out Plan was approved by the Jaipur Development Authority and Agreement to Sale dated 14.10.2019 was again entered between Respondent M/s. Radiant Hotels Pvt. Ltd. and the Appellant Mr. Gokul Kripa Colonizers and Developers Pvt. Ltd. The Agreement to Sale was with regard to 36,399.38 sq. m. The Agreement to Sale also contemplates that loan amount of Rs. 18.87 Crores outstanding to State Bank of India shall be cleared by the land owner First Party. The Agreement to Sale contains following agreement between the parties:

 Agreement to Sale further contemplates that out of entire amount of sale consideration, 25% amount has been received by the land owner from the Second Party and the entire remaining amount of the consideration will be paid to the First Party land owned by the Second Party buyer or the persons nominated by the Second Party. After the Agreement to Sale another supplementary agreement was executed on 10^th July, 2020 as per the aforesaid agreement, land was allotted to nominees of Appellant by the Respondent and amounts were received.

 Appellant filed Section 7 Application CP(IB) 849/MB/2019 claiming a Financial Debt of Rs. 13,48,07,556/- against the Respondent which according to Part-IV of Section 7 Application was balance amount which was required to be paid by the Respondent. In the said application, Reply was filed by the Respondent refuting the claim. It was pleaded by the Respondent that there is no financial debt owed by the Respondent, money was transferred to the Respondent as sale consideration for 17,314.85 sq.m. in the project in favour of the persons nominated by the Appellant and not as a commercial borrowing or a debt which needed to be repaid by the Respondent in any given amount of time. Agreement between the parties contains a payment schedule, to be paid by the Appellant to the Respondent and not vice versa. Appellant is neither Financial Creditor nor an allottee under Section 5(8) of the Code. It was pleaded that Respondent does not owe any amount. The Adjudicating Authority heard both the parties and by the Impugned Order has dismissed Section 7 Application holding that the Appellant cannot be treated to be allottee under Section 5(8) of the Code and MoU/Agreement to Sale/Addendum is essentially an arrangement of certain marketing, promoting and bringing prospective allottee to the Corporate Debtor for developing the project through its sister company Gokul Kripa Pvt. Buildtech.

 The Adjudicating Authority rejected the Application holding that obligation of payment of money under the agreement to sale by no stretch of imagination can be considered as a financial debt.

We have heard Mr. Krishnendu Dutta, Learned Sr. Counsel for the Appellant and Mr. Dhruv Dewan, Learned Counsel appearing for the Respondent.

Learned Sr. Counsel for the Appellant in support of his submissions submits that Appellant is an allottee in terms of Section 2(d) and 2(zn) of the RERA Act. The RERA Authority has also by its order dated 18^th July, 2022 held the Appellant as an allottee. It is recorded in the Agreement to Sale dated 14.10.2019 that Appellant has made payment of Rs. 23,22,99,796/-. Learned Sr. Counsel for the Appellant has referred to clause 3,5 and 11 of the MoU dated 28.02.2019. Learned Sr. Counsel for the Appellant has also referred to Agreement to Sale, its various clauses, which agreement superseded all previous agreement. It is submitted that transaction entered between the parties contains a Financial Debt. The amount paid by the Appellant was disbursal against time value for money as per agreement and as addendum, Respondent is required to refund the amount of Rs. 13,48,07,556/- since the Respondent has received an amount of Rs. 33,96,45,071/- and Respondent has repaid only an amount of Rs. 20,38,37,5015-. It is submitted that the certificate of registration issued by RERA is in the name of Respondent who is promoter. Appellant is not basing its entire case on the Order dated 18^th July, 2022 of the RERA. The impugned order is liable to be set aside on the ground that Appellant is an allottee in terms of Section 2(d) and Section 2(zn) of the RERA Act and Section 7 of IBC read with Section 5(8) of the Code.

Learned Counsel for the Respondent refuting the submissions of Learned Counsel for the Appellant submits that the Appellant is taking a new case in this Appeal that Appellant is an allottee whereas no such case was taken by the Appellant in Section 7 Application, and case in Section 7 Application was that amount of Rs. 13,48,07,556/- which was received by the Respondent as an excess amount of sale value has not been refunded which is financial debt owed by the Respondent to the Appellant. It was pleaded by the Respondent in his Reply that Appellant is not Real Estate Allottee nor he can be considered as a Financial Creditor under Section 5(8)(f) of the Code. It is submitted that nature of transaction between the parties was transaction of sale of plot of land to the final allottee as nominated by the Appellant. The Order of RERA dated 18^th July, 2022 where Appellant has been held to be allottee has been stayed by the Real Estate Appellate Tribunal by order dated 02.09.2022 which stay is still effective hence reliance on the order dated 18^th July, 2022 by the Appellant is erroneous. It is submitted that Appellant cannot be said to be allottee of the land, the responsibility of promoting, marketing the project and bringing the final allottee for sale of plots was of the Appellant and any excess amount paid above the rate agreed between the Appellant and Respondent by the allottee for the plot, was required to be transferred to the Appellant as its commission and for any deficit amount paid by the allottees to Respondent, Appellant was required to issue debit note asking the Respondent to deduct the amount from security lying with the Respondent, no plot was allotted or transferred to the Appellant. The Respondent owes no sum to the Appellant. It is further submitted that under the Agreement to Sale, there was arbitration clause and it was open for the Appellant to take recourse of the arbitration clause.

We have considered the submissions of the Learned Counsel for the parties and have perused the record.

Before we enter into rival submissions of the parties, it is relevant to notice certain clauses of agreement to sale dated 28.02.2019 entered between the Respondent as Seller First Party and Appellant as Purchaser Second Party. From the very description of parties in the Agreement that is “seller first party and purchaser second party” indicates that agreement was nothing but sale and purchase agreement. The agreement contained following statement:

The agreement further noted the consideration and total consideration of the land and advance payment of Rs. 7,51,00,000/- in following words:

The agreement contemplated that after approval from the Jaipur Development Authority of plotting project, Second Party of the Agreement (Appellant herein) shall have the right of booking of the plots to prospective buyer on any price on the approved map. The agreement further contemplated in clauses 17 to the following effect:

Subsequent to above agreement dated 28.02.2019, an agreement to sale was entered between the parties on 14.10.2019 after approval by the Jaipur Development Authority of the lay out plan and the project. After certain preliminary statement, the agreement contains the relevant clauses in clause 1 to 4 to the following effect:

The first issue which need to be considered in this Appeal is as to what is the nature of transaction between the parties whether the transaction can be held to be financial debt within the meaning of Section 5(8) of the Code.

The first limb of argument of the Appellant is that Appellant is an allottee of the Real Estate Project which has also been accepted by RERA in its order dated 18^th July, 2022. Learned Counsel for the Appellant has relied on provisions of Section 2(d) and 2(zn) of the RERA Act, 2016 which are as follows:

The definition of an allottee under Section 2(d) is a wide definition.

Learned Counsel for the Respondent has pleaded that the Section 7 Application filed by the Appellant was not premised on, that the Appellant is an allottee of Real Estate Project rather the claim of the amount of Rs. 13,40,07,556/- was based on MoU and Agreement to Sale as the amount which according to the Appellant the Respondent was liable to refund as the excess amount received. IBC also adopt the definition of allottee as occurring in RERA Act. Section 5(8) of IBC, Explanation II defines allottees in following words:

When we look into the MoU and Agreement to Sale, the parties agreed that lease/allotment shall be issued in favour of nominees of the Appellant thus actual allotment were issued by the Respondent in favour of allottees. With regard to initiation of Corporate Insolvency Resolution Process by Financial Creditor, Section 7 has been amended by Act 1/2020 by inserting proviso which is as follows:

Thus, even for argument sake, we accept the submission of the Appellant that appellant is an allottee, application under Section 7 was required to be complied with the provisions of Section 7(1) as amended by Act 1/2020, thus Application has to be filed by not less than 100 of such creditors in a class or not less than 10% of total number of such creditors. Appellant having not filed the application as allottee has not even pleaded that the Application under Section 7 which was filed on 29^th July, 2021 fulfils the conditions as provided in section 7(1) thus even if we accept that Appellant as an allottee within the meaning of Section 2(d) of the RERA, there being no compliance of Section 7(1), the Application under Section 7 cannot succeed on the ground that Appellant is an allottee in the Real Estate Project. Thus the submission of the Appellant that Appellant is an allottee does not render any benefit to the Appellant and on the said submission the application filed as an allottee cannot be admitted and was liable to be rejected due to non-compliance of Section 7(1) of the Code.

It is relevant to notice that said issues were not gone into before the Adjudicating Authority nor raised by the Appellant hence the Adjudicating Authority had no occasion to consider the claim of the Appellant as an allottee in the Impugned Order. Bare perusal of the Impugned Order indicates that the case was not pleaded by the Appellant as Financial Creditor being an allottee of the Real Estate Project. The submission of the Appellant that application was maintainable under Section 7 as Appellant being Real Estate Allottee cannot be accepted and deserves to be rejected.

Now we come to the submission of the Appellant that transaction in question falls within the definition of Section 5(8)(f) of the Code. All transactions which are covered under Section 5(8) which has to be treated as a financial debt, has to be necessarily disbursal against the consideration for the time value of money. Agreement entered between the parties was for sale and purchase of the land on consideration fixed in the agreement i.e. 21,000 per sq. m. The Appellant who was to bring allottees in whose favour the leases were to be executed by the Respondent, it was open for the Appellant to sell the land at any price i.e. even higher to the amount fixed between the parties and the excess amount on which any lease is executed by the Respondent shall be treated as commission of the Appellant. The Agreement further contemplated that if the lease is executed at a price less than the agreed price, the difference of the amount from the agreed price is to be deducted from the Security which was deposited by the Appellant. The transaction was thus clearly transaction for sale and purchase of the assets and it cannot be said that disbursal was for time value of money. The transaction between the parties does not fall under Section 5(8)(f) of the Code. We having also held that application filed by the Appellant cannot be sustained under Section 7 as an allottee of the real estate project as the Appellant being allottee of Real Estate Project thus under Section 5(8)(f) claim of the Appellant as Real Estate Project allottee is unsustainable for the reasons as indicated above.

The Adjudicating Authority in the Impugned Order has come to the conclusion that transaction as described in MoU/Agreement to Sale/Addendum is essentially in the form of arrangement of selling, marketing, promoting and bringing prospective allottees to the Respondent Radiant Hotels Pvt. Ltd. The Adjudicating Authority has also rightly come to the conclusion that obligation of payments of money under the agreement of sale by no stretch of imagination can be construed as a financial debt. We are in full agreement with the above finding of the Adjudicating Authority while rejecting the application filed under Section 7 of the Code.

In view of the above discussion and conclusion, we are of the view that no error has been committed by the Adjudicating Authority in rejecting the Section 7 Application filed by the Appellant. There is no merit in the Appeal. The Appeal is dismissed.