2019 (7) TMI 1847 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors/landowners - financial debt under the explanation to sub-clause (f) of Section 5(8) of I B Code - whether landowners are also categorized as allottees under RERA? - HELD THAT - The treatment of landowners under RERA can be understood by looking at the circulars released by various State governments. The Government of Maharashtra vide MahaRERA Circular 12/2017 dated 04.12.2017 has stated that landowners who enter into agreements with the developer/ builder for share of total revenue generated from sale of apartments or share of the total area developed for sale are also to be classified as promoters under RERA. The same has been stated by the government of Goa in Circular No. 11/35/2017-DMA/ 3390(A) dated 13.02.2018. Thus, it can be concluded that landowners are not treated as allottees under RERA. The intent behind introducing the explanation to Section 5(8)(0 also has to be noted. The amendment according to the Insolvency and Bankruptcy (Amendment) Ordinance, 2018 was to protect the interests of home buyers who make payments in advance for their purchase in the real estate project, as is evident from the Ordinance itself as well as the Report of the Insolvency Law Committee, March 2018 - The present transaction does not appear to be a transaction between a home buyer and developer/ builder and the sum paid for renewal of licenses does not appear to be money paid by the Applicants for their purchase in the real estate project. The Applicants have the right to employ their own experts to supervise the project and control the progress and quality of the project. The Respondent has to take consent of the Applicants before finalizing the drawing/ plans. The Applicants and the Respondent have a joint escrow account for the project which was could be controlled by the Applicants and the Applicants had the right to get the Respondent's accounts regarding the escrow account audited. All these factors show that the arrangement between the two parties was not so much of a home-buyer and builder as it was of a co-venturers or at the very least of an independent contractor and a person hiring an independent contractor to undertake construction, and instead of paying consideration in money, the consideration was paid in kind in form of saleable area. The Applicants cannot be said to be homebuyers/ allottees under the Code and since, the Applicants are not allottees, the money paid for renewal of license cannot form a financial debt under Section of the debt. Application dismissed.

Summary

Issues Involved:
1. Whether the claim made by the Applicants can be categorized as financial debt under Section 5(8) of the Insolvency and Bankruptcy Code, 2016.

Issue-wise Detailed Analysis:

1. Categorization of the Claim as Financial Debt:

- Applicant's Position:
- The Applicants, owners of 3.44 acres of land in Gurgaon, entered into a collaboration agreement with the Respondent for developing a commercial colony.
- The Respondent was to develop the project at its own cost, obtain necessary approvals, and bear all related expenses.
- The Applicants paid significant sums towards external development charges (EDC), infrastructure development charges (IDC), and license renewals due to the Respondent's failure to fulfill its obligations.
- The Applicants claimed a total sum of ?10,23,79,151/- from the Respondent and argued that their claim qualifies as financial debt under Section 5(8)(f) of the Code, asserting they are allottees of the real estate project.

- Tribunal's Analysis:
- Section 5(8)(f) of the Code: The Tribunal examined whether the Applicants' claim could be considered a financial debt under Section 5(8)(f), which includes amounts raised under transactions having the commercial effect of borrowing.
- RERA Definitions: The Tribunal referred to Section 2(d) of the Real Estate (Regulation and Development) Act, 2016 (RERA), which defines "allottee" and noted that landowners are categorized as promoters, not allottees, under RERA.
- State Government Circulars: Circulars from Maharashtra and Goa clarified that landowners sharing revenue or area with developers are considered promoters, not allottees. Thus, the Tribunal concluded that the Applicants, as landowners, are promoters under RERA and not allottees under the Code.

- Intent of Section 5(8)(f) Explanation:
- The Tribunal emphasized that the explanation to Section 5(8)(f) was introduced to protect homebuyers who make advance payments for real estate projects. The Applicants' transaction did not resemble a typical homebuyer-developer relationship but rather a collaboration between co-venturers or an independent contractor arrangement.

- Agreement Clauses:
- The Tribunal reviewed several clauses from the Agreement, highlighting that:
- Legal possession of the project remained with the Applicants.
- The Applicants had the right to supervise the project, employ their experts, and control the project's progress and quality.
- A joint escrow account was maintained for the project, controlled by both parties.
- These factors indicated a relationship more akin to co-venturers or independent contractors than a homebuyer-builder relationship.

Conclusion:
- The Tribunal concluded that the Applicants could not be considered allottees under the Code, and their claim did not constitute a financial debt under Section 5(8)(f). Consequently, the application was dismissed with no costs.