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2022 (9) TMI 906 - AT - Insolvency and BankruptcyFinancial Creditors or not - Appellants are allottee within the meaning of the Real Estate (Regulation and Development) Act, 2016 or not - admission of claim of the landowners as Financial Creditors, by Resolution Professional - allotment of flats and commercial shops consequent to the Development Agreement - Financial Debt or not - HELD THAT - The present is a case where on the land which was offered by the landowners including the Appellants the development was proposed to be undertaken by the Corporate Debtor. A Development Agreement was entered between the parties where area sharing was in the ratio of 45 55 percent. The Landowners has also received a refundable security deposit of Rs.1.75 Crores from the Corporate Debtor. Learned counsel for the Appellants has much emphasized on the fact that as per the Development Agreement 117 flats and 20 commercial shops have been allotted to the landowners and they are allottee within the meaning of RERA Act, 2016. From 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 - On looking into the real nature of the transaction entered between the Corporate Debtor and the Appellants Landowners, the landowners were entitled to share the constructed area in the ratio of 45 55 and allotment of flats and commercial units in lieu of their entitlement under the Development Agreement does not make the transaction of allotment a Financial Debt within the meaning of Section 5(8)(f). There are no error in the decision of the Adjudicating Authority holding the Appellants-Landowners as not Financial Creditors - appeal dismissed.
Issues Involved:
1. Inclusion of Landowners as Financial Creditors in the Committee of Creditors (CoC). 2. Validity of the Development Agreement and allotment of flats and commercial shops. 3. Interpretation of "Financial Debt" under Section 5(8) of the Insolvency and Bankruptcy Code, 2016. 4. Observations and directions against the Resolution Professional. Issue-wise Detailed Analysis: 1. Inclusion of Landowners as Financial Creditors in the Committee of Creditors (CoC): The central issue revolves around whether the landowners, who had entered into a Development Agreement with the Corporate Debtor, should be considered as Financial Creditors. The Resolution Professional had initially admitted the landowners' claims as Financial Creditors, allowing them to participate in the CoC meetings. However, the Bank of India objected, leading to the filing of I.A. No. 1035/MB/2021, which contested the inclusion of the landowners in the CoC. The Adjudicating Authority ruled in favor of the Bank of India, rejecting the landowners' claims as Financial Creditors, which the landowners subsequently appealed. 2. Validity of the Development Agreement and allotment of flats and commercial shops: The Development Agreement dated 23.01.2006 between the Corporate Debtor and the landowners stipulated that the landowners would receive 45% of the constructed area as consideration for development rights. The Corporate Debtor allotted 117 flats and 20 commercial shops to the landowners. The landowners argued that this allotment made them "allottees" under the Real Estate (Regulation and Development) Act, 2016 (RERA), thereby qualifying them as Financial Creditors under Section 5(8) of the I&B Code. However, the Adjudicating Authority found that the nature of the transaction did not constitute a Financial Debt as defined under the I&B Code. 3. Interpretation of "Financial Debt" under Section 5(8) of the Insolvency and Bankruptcy Code, 2016: The legal crux of the judgment lies in the interpretation of "Financial Debt" under Section 5(8) of the I&B Code. The Tribunal emphasized that for a debt to qualify as a Financial Debt, there must be a disbursement against the consideration for the time value of money. The landowners' claim did not involve any disbursement of money against the time value. The Tribunal referenced the Supreme Court's judgments in "Pioneer Urban Land and Infrastructure Ltd. vs. Union of India" and "Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Ltd. & Ors." to support its interpretation that the transaction between the landowners and the Corporate Debtor did not meet the criteria for a Financial Debt. 4. Observations and directions against the Resolution Professional: The Adjudicating Authority made certain observations against the Resolution Professional, suggesting that the decision to admit the landowners' claims as Financial Creditors was erroneous. The Authority directed that a copy of the order be sent to the Insolvency and Bankruptcy Board of India (IBBI). The Resolution Professional appealed against these observations, arguing that there was no malafide intent or ulterior motive in the decision-making process. The Tribunal noted that while the Adjudicating Authority's observations were based on the facts and sequence of events, there were no allegations of malafide against the Resolution Professional. Conclusion: The Tribunal dismissed both appeals, upholding the Adjudicating Authority's decision that the landowners were not Financial Creditors under the I&B Code. The Tribunal also left it to the IBBI to decide whether any proceedings should be initiated based on the Adjudicating Authority's observations regarding the Resolution Professional.
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