NCLT Principal Bench Dismisses Section 9 Applications, Reiterates That Landowners Entering Into Joint Collaboration Are Not Operational Creditors
The National Company Law Tribunal on 12 May 2023 dismissed four Applications under Section 9 of the Insolvency and Bankruptcy Code, 2016 (the Code) for initiating the Corporate Insolvency Resolution Process (CIRP) against M/s Raheja Developers Limited, holding that the agreements between the Corporate Debtor and landowner Applicants cannot be considered under the ambit of “Operational debt” under Section 5(21) and “Operational Creditor” under section 5(20) and thereby under Section 9 of the IBC, 2016.
The Principal Bench of NCLT observed that the Applicants are attempting to give a very wide interpretation to Section 5(21) which cannot be the legislative intention. Reasonably, parties vide various agreements share a legal and binding relationship and have mutual financial obligations towards each other. But these transactions are not in the nature of ‘Operational Debt’.
Background
As per the Applicants, being the land owners they executed Collaboration Agreements with Corporate Debtor (as Developer) for the development of certain land in which the Applicants have an undivided share. Subsequently, a revised understanding through a MOU was entered into between the parties wherein the Applicants agreed to permit the Corporate Debtor to construct, develop, maintain, and sell their share subject to terms and conditions of MOU. It was the case of the Applicants that in consideration of the abovementioned, the Corporate Debtor agreed to develop the project and to pay certain amounts to the Land Owners Applicants on account of various heads as agreed under the MOU including “Revenue sharing”, on which the Corporate Debtor defaulted.
The Corporate Debtor submitted that the Applications under Section 9 of the Code are not maintainable as the debt claimed by the Applicants does not fall within the purview of ‘operational debt’, for which reliance was placed upon the judgment passed by the NCLAT in M/s Sree Sankeshwara Foundation and Investments vs. M/s Dugar Housing Limited Company Appeal (AT) (Insolvency) No. 515 of 2019. It was the contention of the Corporate Debtor that no goods or services as stated by alleged operational creditor were supplied/ rendered to the Corporate Debtor. He further submitted that the parties are in joint collaboration as the licenses are also in the name of the Applicants Land owners. The Applicants cannot demand alleged dues in contravention of the Agreements and MOU, which has also jeopardized the development of the entire project. Mr. Srinivasan further raised the existence of various disputes before appropriate Court, much prior to the issuance of Demand Notice and Section 9 Applications.
The Principal Bench of NCLT while dismissing the Applications filed by the Applicants, noted that the contracts between the parties are in nature of joint development of project with sharing of profit in an agreed ratio amongst them rather than a claim in respect of the provision of goods or services, hence noting that there is no case to be covered and admitted under Section 9 of the Code.
Counsel for Applicant: Mr. Sunil Fernandes, Mr. Nitish K. Sharma, Ms. Nandini Aishwarya, Ms. Diksha Dadu, Advocates.
Counsel for Respondent: Mr. Ramji Srinivasan, Sr. Advocate, Mr. Gaurav Mitra, Advocate, along with Ms. Manmeet Kaur, Ms. Suditi Batra, Mr. Abhishek Rana, Advocates from Karanjawala & Co.
C.P. (IB)/392(PB)/2019 | C.P. (IB)/393(PB)/2019 | C.P. (IB)/408(PB)/2019 | C.P. (IB)/409(PB)/2019