NCLT : Landowner in a Development Agreement is not a Financial Creditor

Cause Title : Ashoka Hi-Tech Builders Pvt. Ltd. vs Sanjay Kundra & Anr., National Company Law Appellate Tribunal, Company Appeal (AT) (Insolvency) No. 46 of 2023

Date of Judgment/Order : 18.01.2023

Corum : Justice Ashok Bhushan (Chairperson) & Barun Mitra (Member-Technical)

Citied: 

1. Pioneer Urban Land and Infrastructure Ltd. vs. Union of India, (2019) 8 SCC 416
2. Namdeo Ramchandra Patil and Ors. Vs. Vishal Ghisulal Jain, Company Appeal (AT) Ins. No. 821 and 930 of 2021 decided on 19.09.202
3. Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Ltd. & Ors., (2020) 8 SCC 401

Background

Appellant was a land owner on which a development project was to be constructed by the Corporate Debtor and he had filed the claim before the Resolution Professional which was admitted and he was inducted in the Committee of Creditors however subsequently on an Application filed by the Home-Buyers, impugned Order has been passed removing the Appellant from the Committee of Creditors holding that he is not the financial creditor.

Appellant challenged the Order by referring to the Development Agreement between the parties which  clearly indicates that Appellant is an owner of 11.40 acres agriculture land on which development agreement, construction to be executed. The agreement further states that corporate debtor was to carry on the construction and the out of total saleable construction, 32% will be of the Appellant that is the first party and remaining 68% shall be owned by the second party, the Corporate Debtor.

Looking into the terms and conditions of the development agreement, the Adjudicating Authority has come to the conclusion that the Appellant was not a financial creditor since no amount was disbursed for the time value of money on the basis of which the Appellant can be held to be financial creditor.

Judgment

The Ld. NCLAT rejecting the appeal and referring to Namdeo Ramchandra (supra), observed that as per the the definition of “financial debt” in Section 5(8) of the Insolvency and Bankruptcy Code,  a “debt” must be “disbursed” against the consideration for time value of money. Disbursement” is defined in Black’s Law Dictionary (10th ed.) to mean:

1. The act of paying out money, commonly from a fund or in settlement of a debt or account payable.

2. The money so paid; an amount of money given for a particular purpose.

The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, remains an essential part even in respect of any of the transactions/dealings stated in the clauses, even if it is not necessarily stated therein. The definition cannot be read so broadly that any transaction could stand alone to become a financial debt. 

This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money.

In view of the above judgments, the NCLAT concluded that the terms and conditions of development agreement entered between the appellant and the corporate debtor, makes it clear that the appellant was a collaborator in the development agreement and not a financial creditor. There was no disbursement for time value of money by the appellant within meaning of Section 5(8) of the IBC.