NCLAT New Delhi: Inter-Corporate Deposit In A Joint Venture Can't Be Construed As A 'Financial Debt' Under IBC
Sachika Vij
25 Dec 2023 6:30 PM IST
The National Company Law Appellate Tribunal ('NCLAT'), New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) has held that financial assistance given by one party to another in a Joint Venture Agreement ('JVA') by way of an Inter-Corporate Deposit ('ICD') to develop a real estate project jointly cannot be construed as a 'Financial Debt' in...
The National Company Law Appellate Tribunal ('NCLAT'), New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) has held that financial assistance given by one party to another in a Joint Venture Agreement ('JVA') by way of an Inter-Corporate Deposit ('ICD') to develop a real estate project jointly cannot be construed as a 'Financial Debt' in terms of Insolvency and Bankruptcy Code, 2016 ('IBC').
Background Facts
Ansal Housing Limited ('Appellant') and Samyak Projects Pvt. Ltd. ('Corporate Debtor') entered into JVAs to develop four real estate projects as per which the Appellant was to be the Developer of the real estate project while the Corporate Debtor had to provide the land for the project and they were to enjoy a sharing ratio of 67.5% and 32.5% respectively from the sales receivable.
The Corporate Debtor took a loan of Rs. 25 crores from Appellants for purchasing the land for one of these projects. An Inter-Corporate loan with a 24% interest rate compounded monthly and returnable within 24 months was extended and documented in an ICD dated 27.03.2014. It provided the Appellant the right to cover the loan via the sale of receivables of the Corporate Debtor in case of failure to repay.
On 31.07.2018, a sum of Rs. 35.64 crore was due and payable and the date of default was 15.05.2015.
The Appellant filed a Corporate Insolvency Resolution Petition ('CIRP') against the Corporate Debtor under Section 7 of IBC, however, the same was dismissed by NCLT Delhi's Order dated 28.02.2023 since the Appellant was not a Financial Creditor and the liability under the ICD was not a financial debt. Thus, the Appellant has preferred an appeal against the said order.
NCLAT Verdict:
The NCLAT New Delhi dismissed the appeal and held that financial assistance given by one party to another in a JVA by way of an ICD to develop a real estate project jointly cannot be construed as a 'Financial Debt' in terms of IBC.
The Appellate Tribunal noted as per the Supreme Court's decision in Pioneer Urban Land and Infrastructure Ltd. v. Union of India, it is settled law that for any debt to be treated as financial debt, there must happen disbursal of money to the borrower for utilization by the borrower and that the disbursal must be against consideration for time value of money. Further, as per Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. v. Axis Bank Limited & Ors., the Supreme Court has also held that the essential condition of financial debt is disbursement against the consideration for the time value of money. In the most recent judgment in Orator Marketing (P) Ltd. v. Samtex Desinz (P) Ltd., the Apex Court has laid out that financial debt also includes an interest-free loan.
The NCLAT pointed out that the JVA and ICD between the parties indicate mutual rights, obligations, and shared profits and losses in real estate projects. The collaborative and profit-sharing nature of their partnership is evident in both agreements. Thus, NCLT New Delhi correctly recognized the interdependence of JVA and ICD, considering them integral to each other.
Further, it was observed that both parties, as development partners, jointly contributed to the project, with land acquisition being a crucial aspect. The Appellant's financial assistance to the Corporate Debtor amounted to financing the joint venture's operations. The shared liability for profits, defined responsibilities, and the binding nature of the JVA and ICD established a legal relationship with mutual financial obligations.
The Appellate Tribunal concluded that the transaction is deemed an investment for profit, not a disbursement for the time value of money, and falls outside the scope of 'financial debt' as defined in Section 5(8) of the IBC. Further, it emphasized that the primary purpose of the IBC is the resolution of the Corporate Debtor, not the creditor's debt recovery. The IBC should not be misused for debt recovery. Thus, the Appellant is not a Financial Creditor in terms of Section 5(7) of IBC and the CIRP under Section 7 was rightly dismissed.
Case Title: Ansal Housing Ltd. Vs. Samyak Projects Pvt. Ltd.
Case No.: Company Appeal (AT)(Insolvency) No. 542 of 2023
Counsel for the Appellant: Mr. Abhijeet Sinha, Mr. Vikas Tiwari, Mr. Kumar Deepraj, Mr. Aamir Jamal, and Mr. Achint Gupta Advocates.
Counsel for the Respondent: Mr. Vivek Kohli, Sr Advocate with Mr. Sandeep Bhuraria, Mr. Monish Surendran, Mr. Juvas Rawal, Ms. Nishtha Grover, Ms. Bhavya Bhatia, Advocates.
