Collaboration Agreement Termination Doesn't Extinguish Development Rights: NCLT

Collaboration Agreement Termination Doesn't Extinguish Development Rights: NCLT

Introduction

The National Company Law Tribunal (NCLT) New Delhi bench of Shri Manni Sankariah Shanmuga Sundaram (Judicial Member) and Shri Atul Chaturvedi (Technical Member) has held that development rights crystallised before the termination of a collaboration agreement can be included in the assets of the corporate debtor, even if the termination was later upheld by the Arbitral Tribunal.

Factual Background

The applicant sought exclusion of unsold inventory in the real estate project Spaze Arrow from the valuation and Information Memorandum, arguing that the corporate debtor had no rights over the subject property, project, or unsold inventory. The applicant further argued that including the subject property would misrepresent facts to any prospective resolution applicant.

Procedural Background

The application was filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC). The NCLT heard arguments from both sides and examined previous judgments on similar issues.

Contentions of the Parties

Applicant’s Contentions:

• The corporate debtor has no rights over the subject property, project, or unsold inventory.
• The development rights were terminated and this was upheld by the Arbitral Tribunal.
• Including the subject property would misrepresent facts to any prospective resolution applicant.

Respondent’s Contentions:

• The applicant cannot seek exclusion of properties that belong to the corporate debtor.
• The applicant relied on the Arbitral Award to assert that the Collaboration Agreement is inoperative but cannot now exclude the unsold inventory.
• It is not open to the applicant to first claim termination and then attempt to remove the developed property from the CIRP.

Reasoning and Analysis

The bench observed that it is not examining the merits of the Arbitral Award or contract law but only whether the development rights qualify as an asset under the IBC. Relying on the NCLAT’s judgments in K.H. Khan & Anr. v. Art Constructions Pvt. Ltd. & Ors. and Nilesh Sharma, RP of Today Homes v. Mordhwaj Singh & Ors., the Tribunal held that such issues fall within its remit to decide whether the asset should be included in the Information Memorandum. It held that the Applicant’s assertion that the Collaboration Agreement’s termination was upheld does not extinguish the development rights that had already crystallised and were exercised before termination.

Implications

This decision has significant implications for CIRP proceedings involving terminated development or collaboration agreements. It clarifies that rights crystallised before termination can still be treated as assets of the corporate debtor.

Outcome

The NCLT dismissed the application, holding that the unsold inventory and development rights form part of the corporate debtor’s assets:

“Accordingly, the present application is dismissed.”

In this case, the applicant was represented by Mr. Saurabh Kalia and Mr. Guneet Sindhu, Advocates. The respondent was represented by Mr. Karan Gandhi and Mr. Sikhar Tiwari, Advocates.