M/s Wild Flower Farms and Estate Pvt. Ltd. vs Vipul Limited

ORDER

“….

39.

Thus, even if only the facts admitted to the parties are taken into cognizance it will emerge that the two flats have been allotted to the appellant under MoU dated 25.11.2021 and 03.02.2022 only on account of adjustment of the brokerage money of the appellant which was allegedly due on .the CD and therefore there was no money parted or disbursed by the appellant to the CD and in our considered opinion, the debt of the appellant which was due on the CD was only for the commission/brokerage services allegedly rendered by the appellant and no money was disbursed by the appellants to the CD for time value of the money and the appellants are also estopped to change the nature of debt pertaining to which they have earlier filed a petition under Section 9 of the /BC, admitting themselves as operational creditor.

40.

Thus, keeping in view all the facts and circumstances of this case and in the background of the law discussed herein before, no illegality appears to have been committed either by the /RP or by the Adjudicating Authority in rejecting the claim of the appellant to treat himself as financial creditor.”

“26.

To reiterate, the Applicant had issued notice to the Respondent under Section 8, terming it as an 'Operational debt'. Be that as it may, this Application seeking initiation of CIRP by one partner of JOA against the other only jeopardizes the interests of the allottees. Apart from the fact that the Joint Development Agreement entered into, is a contract of reciprocal rights and obligations, both parties are admittedly 'Joint Development Partners', who entered into a consortium of sorts for developing an Integrated Township and for any breach of terms of contract, Section 7 Application is not maintainable as the amount cannot be construed as 'Financial Debt' as defined under Section 5(8) of the Code. Therefore, we are of the considered view that the Appellant cannot be termed to be a 'Financial Creditor' as envisaged under Section 5(7) of the IBC, 2016."

“14.

In the instant case, on mutual Agreement, the 'Corporate Debtor' and other parties decided to transfer 25% of the land to the Appellant herein on a price decided jointly. As per Clause 4 of the MoU, the Appellant shall fund the cost of construction to the 'Corporate Debtor'/developer, till the sample flat is ready. It was correlatively decided that 'both parties have rights to book flats with mutual consent'. Clause 6 stipulates that 'whatever income is earned from the sale of flats; the Appellant is entitled to 25% of the Net Profit'.

15.

The MoU entered into is an Agreement of reciprocal rights and obligations. We are of the earnest view that both parties being 'Joint Development Partners' who entered into a consortium of sorts for developing the subject land and for any breach of terms of the contract, Section 7 Application filed under the Code would not be maintainable as the amount cannot be construed as 'Financial Debt' as there is no sum(s) i.e., owed, assigned or transferred to in compliance of the provisions of Section 5(8) of the Code. To reiterate, being a profit share owner, who in the event of the success of the Project would receive the residual gain, the amount invested in the land cannot be said to be a 'Financial Debt' as defined under Section 5(8) of the Code. Hence, the ratio of the Judgements relied upon by the Learned Counsel for the Appellant are not applicable to the facts of this case.”

“m. All the above citations reflect one thing categorically and clearly that there must be a disbursal of fund by the Creditor to the Debtor purely in the form of release of fund as a "borrowing" and must have a "time value of money". The method may be different but the nature must be borrowing and in extended terminology even the liability in respect of guarantee is also covered. There must be a "Financial Debt" which is owed by the other side i.e. the Debtor. It should be amply clear that the CD owe the "Financial Debt" to the Creditor. There is a difference between the levy of liquidated damages or penal interest for default and the financial debt per se. Hence, we cannot borrow unrelated concept from unrelated judgments to prove that wherever a word "interest" is there it means corresponding to a "Financial Debt" and we accordingly confirm that "Financial Debt" will always carry an interest towards time value of money. However, interest per se in any business contract cannot be termed to make the "debt" as a "Financial Debt", if it is in the nature of liquidated damages or in the nature of penal interest, which is a result of compensation for breach of contract which is stipulated for penalty. Hence, while examining the case, whether the Appellant is a Financial Creditor or not we are now arriving at a conclusion based on above said discussions both on law & on facts and the citations produced by the parties, some of which have been explicitly cited as above reveals that the Appellant is not a "Financial Creditor" and hence, we are upholding the order of the Adjudicating Authority.”

" .... 5. Looking into the terms and conditions of the development agreement, the Adjudicating Authority has come to the conclusion that the Appellant was not a financial creditor since no amount was disbursed for the time value of money on the basis of which the Appellant can be held to be financial creditor. 6. The Adjudicating Authority has relied on the Judgement of this Tribunal in "Namdeo Ramchandra Patil and Ors. Vs. Vishal Ghisulal Jain" Company Appeal (AT) Ins. No. 821 and 930 of 2021 decided on 19.09.2022. This tribunal in the aforesaid case had occasion to consider the similar development agreement and in paragraph 13, 14 and 15, following has been laid down:

"13.

When we look into the provision of Section S(B)(f) Explanation (i) and (ii), it is clear that pre-condition for a debt being a Financial Debt is disbursement against the time value of money and when any amount is raised from an allotment under real estate such transaction is also covered under Section 5(8)(f). The precondition for application of Explanation (i) of Section 5(8)(f) is raising of an amount from allottee. The present is not a case where an amount has been raised from the Appellants - the Landowners. The submission of the Appellant that they are allottees within the meaning of Section 2(d) of RERA Act does not make their transaction as a Financial Debt within the meaning of Section 5(8)(f). It is relevant to notice that RERA Act itself has noticed the definition of 'Promoter' under Section 2(zk). When we look in the real nature of the transaction entered between the Corporate Debtor and the Appellants - Landowners, the landowners were entitled to share the constructed area in the ratio of 45:55 and allotment of flats and commercial units in lieu of their entitlement under the Development Agreement does not make the transaction of allotment a Financial Debt within the meaning of Section 5(8)(f). The Adjudicating Authority in the impugned order has rightly relied on the judgment of Hon'ble Supreme Court in "Pioneer Urban Land and Infrastructure Ltd. vs. Union of India, (2019) 8 SCC 416", where the term 'disbursal' was explained in Para 70 of judgment and following has been observed:-

"70.

The definition of "financial debt" in Section 5(8) then goes on to state that a "debt" must be "disbursed" against the consideration· for time value of money. "Disbursement" is defined in Black's Law Dictionary (10th ed.) to mean: "1. The act of paying out money, commonly from a fund or in settlement of a debt or account payable. 2. The money so paid; an amount of money given for a particular purpose.""

14.

We may also notice judgment of the Hon 'ble Supreme Court in "Anuj Jain, Interim Resolution Professional for Jaypee lnfratech Limited vs. Axis Bank Ltd. & Ors., (2020) B sec 401 ", where Hon 1 ble Supreme Court while examining the definition under Section 5(8) of the l&B Code noticed the essentials for Financial Debt. In Para 46, the Hon 'ble Supreme Court has again emphasised that essential element is disbursement against time value of the money. Para 46 of the judgment is as follows:-

"46.

Applying the aforementioned fundamental principles to the definition occurring in Section 5(8) of the Code, we have not an iota of doubt that for a debt to become 'financial debt' for the purpose of Part II of the Code, the basic elements are that it ought to be a disbursal against the consideration for time value of money. It may include any of the methods for raising money or incurring liability by the modes prescribed in sub-clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per sub-clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in subclauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of 'disbursement' against 'the consideration for the time value of money' could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said subclauses (a) to (i) of Section 5(8) would be falling within the ambit of 'financial debt' only if it _carries the essential elements stated in the principal clause or at least has the features -which could be traced to such essential elements in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time va_lue of money, needs to be found in the genesis of any debt before it may be treated as 'financial debt' within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money."

15.

When we look into the facts of the present case and transaction entered by the Appellants Landowners with the Corporate Debtor, we do not find any error in the decision of the Adjudicating Authority holding the Appel/ants-Landowners as not Financial Creditors. The Company Appeal (AT) (Ins.) No. 821 of 2021, thus, deserved to be dismissed. "

7.

We are of the view that Judgement of this Tribunal in Namdeo Ramchandra Patil & Ors. (supra) fully covers the issues and Adjudicating Authority has rightly referred to the Judgement holding that Appellant is not a financial creditor. The terms and conditions of development agreement entered between the appellant and the corporate debtor, Annexure 6 makes it clear that the appellant was a collaborator in the development agreement and not a financial creditor. There was no disbursement for time value of money by the appellant within meaning of Section 5(8) of the /IBC….”

" ... 10. The Respondent submits that he received a claim from 6 Landowners on the basis of a Development Agreement entered in the year 2012, a Flat Allotment Confirmation dated 20.07.2014 through which a total of 117 units/ flats and 20 commercial shops had been allotted to these 6 Landowners in the real estate project viz. Wadhwa Rhodesia_ being constructed by the Corporate Debtor and a Demand Promissory Note dated 09.01.2012. Then, the Respondent finally admitted claim of f1,27,25,09,613/- crores and thereafter, the Respondent admitted them into the CoC of the Corporate Debtor.

22.

The real estate Project undertaken by the Corporate Debtor are in the nature of joint venture wherein the land is provided by Landowners through different Development Agreements on the basis of area sharing model. One such joint venture project viz. Wadhwa Rhodesia has been undertaken • by the Corporate Debtor on a parcel of land belonging to the 6 land owners viz. Mr. Namdeo Patil, Mr. Parshuram Patil, Mr. Ashok Patil, M r. Vinayak Patil, Mr. Nana Patil and Ravikant Patil. As a consideration for the development rights, the Corporate Debtor had agreed to pay, as per the Development Agreement dated 23.01.2006, 45% of the constructed area out of the total construction. Thereby, the Corporate Debtor had an area sharing arrangement in the ratio of 45:55 .

In this regard, we would also like to refer to the decision of the Coordinated Bench of NCL T, Delhi in the case of Global Credit Capital Ltd vs Venta Rea/tech Pvt. Ltd. dated 26.02.2020 wherein the NCL T Bench while dealing with a similar matter had held that land owners having area sharing arrangement, who are Promoter as per RERA, cannot claim as Financial Creditor on the basis of Development Agreement and allotment letters unless money was raised from them under the Real Estate Project. Further, NCLT, Delhi in another matter of Arenja Enterprises Private Limited Vs. Edward Ke venter (Successors) Private Limited (IB/775/ND2019) dealt with the similar issue whether claim filed by the Applicants having area sharing _arrangement under real estate project fall within purview of definition of Financial Debt as defined under Section 5(8)(f) of the /BC, 2016. In this matter, the NCL T, Delhi held that the Financial Debt refers to nonpayment of money, which is due and payable and default has occurred in paying the same. In connection with financial creditors falling in the category of home buyers, any amount raised from an allottee under real estate project shall be deemed to be an amount having commercial effect of borrowing. Therefore, it held that when claim was not filed basis any amount raised or for non-payment of any money but merely on basis of arrangement whereby the Applicant was to receive specified built up area hence the contention that such application is financial creditor is misconceived and accordingly held that Section 7 Petition by the Applicant was not maintainable. The aforesaid Judgment of NCLT, Delhi in Arenja Enterprises was upheld by Hon'ble NCLAT in (Company Appeal (AT) (Insolvency) No. 528 of 2020… "