NCLT Guwahati Bench: Amount Given As Investment For Joint Venture By Financial Creditor To Corporate Debtor Is Not Financial Debt Under IBC
The National Company Law Tribunal (“NCLT”), Guwahati Bench, comprising of Shri H. V. Subba Rao (Judicial Member) and Shri Satya Ranjan Prasad (Technical Member) has dismissed a petition. The Bench has held that the amount given to a Corporate Debtor by a Financial Creditor by way of an investment for a Joint Venture does not fall within the definition of a financial debt as per...
The National Company Law Tribunal (“NCLT”), Guwahati Bench, comprising of Shri H. V. Subba Rao (Judicial Member) and Shri Satya Ranjan Prasad (Technical Member) has dismissed a petition. The Bench has held that the amount given to a Corporate Debtor by a Financial Creditor by way of an investment for a Joint Venture does not fall within the definition of a financial debt as per the provisions of Insolvency and Bankruptcy Code, 2016 (“IBC”).
Background Facts
Vaishno Devi Traders Private Limited (“Respondent/Corporate Debtor”) is a Private Limited Company incorporated under the provisions of the Companies Act, 1956. Chirag Sala Sales Pvt. Ltd. (“Petitioner/Financial Creditor”) is engaged in the business of investment and finance.
On 23.09.2019, a Memorandum of Understanding (MoU) was entered by and between the parties. As per the MoU, the parties would participate in e-auctions for land to undertake the development of them jointly.
The Corporate Debtor approached the Financial Creditor to obtain amount for participation in the e-auction held by Canara Bank. The auction was for the sale of land standing in the name of Prism Alloys Pvt. Ltd.
The total sale consideration was Rs. 6.11 Crores. Out of which Rs. 3 Crores was paid by the Financial Creditor between 19.09.2019 to 02.01.2020. The said amount was obtained at an interest @ 8 % per annum.
On 30.05.2020, the Corporate Debtor paid a sum of Rs 50 lakhs to the Financial Creditor. As of 31.10.2022, the total remaining amount given by the Financial Creditor to the Corporate Debtor is Rs 2.5 Crores along with interest @8% i.e., Rs. 60.32 Lakhs. On 05.08.2022, the Financial Creditor made a demand for repayment of the amount through email. The Financial Creditor made a similar demand on 21.11.2022.
Following this, the Financial Creditor filed a petition under Section 7 of IBC for the initiation of Corporate Insolvency Resolution Process (“CIRP”).
Contentions of Petitioner
The Petitioner argued that the Respondent Company approached the Petitioner and requested for providing funds. The Petitioner disbursed an amount of Rs. 3 Crore to the Corporate Debtor between 19.09.2023 to 02.01.2020 as a loan.
The Petitioner pointed out that the MoU dated 23.09.2019 between the parties was never effective. The Respondent had borrowed money from the Petitioner to obtain a sell letter of land in its own name. The Petitioner further argued that there was no joint venture agreement between the Petitioner and the Respondent. Thus, the amount given by the Petitioner to the Respondent is a loan and not an investment.
The Petitioner thus, pointed out that mere submission of a remark of dispute by the Respondent on the Information Utility cannot be construed as debt disputed.
Contentions of Respondent
The Respondent opposed the submissions of the Petitioner and argued that the amount given by the Petitioner to the Respondent was never a loan but an investment in the joint venture. The Respondent argued that the auction property was to be jointly developed by the Petitioner and the Respondent as per the MoU.
The Respondent further pointed out that there is no agreement or basis which shows that the transaction is a Loan Transaction. The parties have jointly bid for an e-auction of a piece of land. The Respondent pointed out that the ratio to create a holding company was 50:50 for developing new business ventures on the same land.
The Respondent argued that since the amount was not taken as a loan but only as Joint Capital and used as per MoU, it cannot be called a debt under IBC.
NCLT Verdict
NCLT stated that, the claims of the Financial Creditor that, the amount was given as a loan are very difficult to believe. The Bench observed that the Financial Creditor being a Company doing business in financing and investments would not disburse amounts to the public without taking any security documents, loan documents etc.
The Bench further referred to the National Company Law Appellate Tribunal's judgement in M/s Jagbasera Infratech Private Ltd. v. Rawal Variety Construction Ltd. CA (AT)(Ins) No. 150 of 2019 and held that 'the amounts invested in partnership business or joint venture does not fall within the definition of financial debt'.
The Bench, thus, dismissed the petition and concluded that the said amount is an investment for a Joint Venture and does not fall within the definition of a financial debt under IBC.
Case Title: Chiragsala Sales Pvt. Ltd vs Vaishno Devi Traders Private Limited
Case No.: CP (IB) No.33/GB/2022
Counsel For the Petitioner: Mr. Arun Kumar, CMA
Counsel For the Respondent: Mr. Aditya Jain, Adv.