NCLAT Observes Landowner is a Collaborator in a Development Agreement and not a Financial Creditor.
The National Company Law Appellate Tribunal, Principal bench (in short NCLAT) ruled that a landowner in a development agreement is not a financial creditor according to Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (in short IBC) and cannot be a member of the Committee of Creditors (in short CoC).
The brief facts of the case were that the appellant- Ashoka Hi-Tech Builders Pvt. Ltd. was the Landowner 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 1 April, 2009 was executed between the landowner and the corporate debtor/respondents- Sanjay Kundra. According to the Agreement the Corporate Debtor was required to carry on construction, and out of total saleable construction thirty-two per cent will be of the Landowner and remaining sixty-eight per cent shall be owned by the corporate debtor.
Admittedly, when the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (in short "CIRP"), the Landowner had filed its claim before the Resolution Professional in the capacity of a financial creditor and the same was admitted. Accordingly, the Landowner was added in the Committee of Creditors (in short "CoC"). Thereafter, the Home-Buyers filed an application before the Adjudicating Authority seeking removal of the landowner from the CoC since they contended that he was not a financial creditor.
The Adjudicating Authority relied on the Judgement passed by this Tribunal in Namdeo Ramchandra Patil and others vs. Vishal Ghisulal Jain (2022) wherein it was observed, "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)."
Looking into the terms and conditions of the development agreement, the Adjudicating Authority vide its order dated 3 November, 2022 removed the Landowner from the CoC as it concluded that the Appellant was not a financial creditor since no amount was disbursed for the time value of money based on which the Appellant can be held to be financial creditor.
The Appellate Tribunal upheld the order passed by the Adjudicating Authority. It was of the view that the judgement passed in Namdeo Ramchandra Patil and others fully covered the issues and Adjudicating Authority had rightly referred to the Judgement holding that Appellant was not a financial creditor.
The Tribunal found that the terms and conditions of development agreement entered between the appellant and the corporate debtor, made it clear that the appellant was a collaborator in the development agreement and not a financial creditor. Since there was no disbursement for time value of money by the appellant within meaning of Section 5(8) of the IBC, the Appellate Tribunal dismissed the appeal.