Landowner In A Development Agreement Not A Financial Creditor: NCLAT Delhi
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal filed in Ashoka Hi-Tech Builders Pvt. Ltd. v Sanjay Kundra & Anr., has held that a landowner in a development agreement is not a financial creditor within the meaning of Section 5(8) of...
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal filed in Ashoka Hi-Tech Builders Pvt. Ltd. v Sanjay Kundra & Anr., has held that a landowner in a development agreement is not a financial creditor within the meaning of Section 5(8) of IBC and cannot be included in the Committee of Creditors.
Background Facts
Ashoka Hi-Tech Builders Pvt. Ltd. (“Landowner/Appellant”) was the owner of an agricultural land admeasuring 11.40 acres on which a development project was proposed to be constructed by the Corporate Debtor. A Development Agreement dated 01.04.2009 was executed between the Landowner and the Corporate Debtor. The Agreement stated that the Corporate Debtor would carry on construction, and out of total saleable construction 32% will be of the Landowner and remaining 68% shall be owned by the Corporate Debtor.
When the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”), the Landowner filed its claim before the Resolution Professional in the capacity of a financial creditor and the same was admitted. Accordingly, the Landowner was inducted in the Committee of Creditors (“CoC”). Thereafter, the Home-Buyers filed an application before the Adjudicating Authority seeking removal of the landowner from the CoC since he is not a financial creditor.
The Adjudicating Authority vide an order dated 03.11.2022 removed the Landowner from the CoC, while observing that since no amount was disbursed for the time value of money, the Landowner cannot be regarded as a Financial Creditor. Reliance was placed on the NCLAT judgment in Namdeo Ramchandra Patil and Ors. v Vishal Ghisulal Jain, Company Appeal (AT) Ins. No. 821 and 930 of 2021, wherein it was held as under:
“13. When we look into the provision of Section 5(8)(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 pre-condition 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).”
NCLAT Verdict
The Bench observed that the judgment of Namdeo Ramchandra Patil & Ors. fully covers the issues and Adjudicating Authority had rightly held that the Landowner is not a financial creditor. The Development Agreement clearly states that the Landowner was a collaborator in the development agreement and not a financial creditor. There was no disbursement for time value of money by the Landowner within meaning of Section 5(8) of the IBC. The Appeal was dismissed.
Case Title: Ashoka Hi-Tech Builders Pvt. Ltd. v Sanjay Kundra & Anr.
Case No.: Company Appeal (AT) (Insolvency) No. 46 of 2023