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2023 (12) TMI 312 - AT - Insolvency and BankruptcyInitiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor u/s 7 - Financial debt or not - financial assistance of Rs.25 crore given by the Appellant to the Respondent by way of an ICD for the purpose of buying land for a real estate project which was being jointly developed under a JVA - Financial Creditor - HELD THAT - A careful perusal of the JVA and the ICD between the two parties show that there are unmistakable signs of reciprocal rights and obligations contained in both the agreements besides evidence of common participation as well as sharing of profits and losses in the real estate projects. This spirit of being collaborators and profit-sharing partners is writ large in both the JVA and the ICD and therefore the Adjudicating Authority has committed no error in holding that the JVA and the ICD are interdependent and inter-related and not independent of each other. Undisputedly both parties being partners in developing the project together, the purchase and availability of land for the project was an essential ingredient thereof and hence any assistance by the Appellant to the Respondent tantamount to financing the operations of the joint venture. When shared liability for profit is so clearly manifested in the JVA and the ICD and responsibilities well demarcated in the execution of the real estate projects, it cannot be overlooked that both parties are development partners and co-sharers in the real estate projects. The JVA and ICD laid the foundations of a legal and binding relationship with mutual financial obligations towards each other. Given this backdrop, clearly the present transaction is in the nature of investment for profit and not disbursement for time value of money and hence does not fall within the canvas of financial debt as defined under Section 5(8) of the IBC - This Tribunal has also observed time and again that the primary focus of IBC, as a beneficial legislation, is to ensure revival and continuation of the Corporate Debtor and that the provisions of IBC cannot be misused for staging recovery of debt and for treating the Adjudicating Authority as a debt recovery forum. In so far as the findings of the Adjudicating Authority are concerned that both the parties being joint venture partners, there was no financial debt in terms of Section 5(8) of IBC and hence the application under Section 7 of the IBC could not be entertained, there are no error in the impugned order - the Appellant is not a Financial Creditor in terms of Section 5(7) of IBC and the application under Section 7 at the instance of the Appellant was not maintainable and hence the same has been rightly rejected by the Adjudicating Authority. Appeal dismissed.
Issues Involved:
1. Whether the financial assistance of Rs.25 crore given by the Appellant to the Respondent can be construed as a financial debt in terms of IBC. 2. Whether the Appellant qualifies as a Financial Creditor under Section 5(7) of IBC. 3. Whether the Section 7 application filed by the Appellant for initiating CIRP against the Respondent was maintainable. Summary: Issue 1: Financial Debt The primary issue was whether the Rs.25 crore given by the Appellant to the Respondent under an Inter-Corporate Deposit Agreement (ICD) for purchasing land for a real estate project can be considered a financial debt under the Insolvency and Bankruptcy Code (IBC). The Appellant argued that the disbursement was made with 24% compound interest, indicating it was against the consideration for the time value of money. They contended that the ICD and the Joint Venture Agreements (JVAs) were independent, and the loan was a financial debt. The Respondent countered that the ICD and JVAs were inter-dependent, and the Rs.25 crore was an investment for profit, not a financial debt. Issue 2: Financial Creditor The Appellant claimed they were a Financial Creditor under Section 5(7) of IBC as the Rs.25 crore loan was disbursed for time value of money. The Respondent argued that the ICD and JVAs were collaborative agreements for developing real estate projects, making the Appellant a partner rather than a Financial Creditor. The Adjudicating Authority found that the ICD and JVAs were linked, and the financial arrangement was a commercial business transaction, not a financial debt. Issue 3: Maintainability of Section 7 Application The Adjudicating Authority held that the Appellant was not a Financial Creditor and the loan was not a financial debt. Consequently, the Section 7 application for initiating Corporate Insolvency Resolution Process (CIRP) against the Respondent was dismissed. The Tribunal upheld this decision, stating that the primary intent of IBC is the resolution of the Corporate Debtor, not debt recovery. The Tribunal found no error in the Adjudicating Authority's conclusion that the Appellant and Respondent were joint venture partners, and the transaction was an investment for profit, not a financial debt. Conclusion: The appeal was dismissed, affirming the Adjudicating Authority's decision that the Appellant was not a Financial Creditor under IBC, and the Section 7 application was not maintainable. The Appellant was advised to seek other legal remedies to protect their interests.
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