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Insolvency - Dues between Joint Venture Partners are not Financial Debt

IN THE MATTER OF M/s. Vipul Limited vs M/s. Solitaire Buildmart Pvt. Ltd., the application under Section 7 filed by the appellant was rejected by the Adjudicating Authority of NCLT holding that this Bench is of the opinion that the issue involved herein arises out of breach of a Contract and therefore initiation of CIRP against the Respondent is not justified. The Petition is devoid of the essential ingredients of the Section 5(8) of IBC, 2016 and is therefore Rejected.

On appeal, the NCLAT observed that the two litigants had entered into a Joint Venture as partners and the appellant had addressed itself as an ‘Operational Creditor’ and called upon the Respondent to pay the ‘unpaid Operational debt’. The Appellant has admitted that it is a ‘Joint Partnership Agreement’. This emphasizes that the parties have a mutual right to control the enterprise involving mutual duties and obligations. Further, this Tribunal whiledealing with a Joint Venture in a real estate Project, in Mamatha V/s. AMB Infrabuild Pvt. Ltd. and Ors. dated 30.11.2018, has held as follows;

’14. If the two ‘Corporate Debtors’ collaborate and form an independent corporate unity entity for developing the land and allotting the premises to its allottee, the application under Section 7 will be maintainable against both of them jointly and not individually against one or other.’

Based on the above observations, the NCLAT decided that that in such a kind of a Joint Venture Project, both the parties, if they are a Corporate should be jointly treated to be one for the purpose of initiation of CIRP and hence this Application under Section 7 is not maintainable.

The NCLAT further held that the Joint Development Agreement entered into, is a contract of reciprocal rights and obligations, both parties are admittedly ‘Joint Development Partners’, who entered into a consortium of sorts for developing an Integrated Township and for any breach of terms of contract, Section 7 Application is not maintainable as the amount cannot be construed as ‘Financial Debt’ as defined under Section 5(8) of the Code. Therefore, we are of the considered view that the Appellant cannot be termed to be a ‘Financial Creditor’ as envisaged under Section 5(7) of the IBC, 2016.

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