2024 (2) TMI 872 - AT - Insolvency and Bankruptcy

Rejection of section 7 application - Existence of financial debt or not - status of allottee for sale of plots (real estate project) - what is the nature of transaction between the parties whether the transaction can be held to be financial debt within the meaning of Section 5(8) of the Code? - HELD THAT - On accepting the submission of the Appellant that appellant is an allottee, application under Section 7 was required to be complied with the provisions of Section 7(1) as amended by Act 1/2020, thus Application has to be filed by not less than 100 of such creditors in a class or not less than 10% of total number of such creditors. Appellant having not filed the application as allottee has not even pleaded that the Application under Section 7 which was filed on 29th July, 2021 fulfils the conditions as provided in section 7(1) thus even if we accept that Appellant as an allottee within the meaning of Section 2(d) of the RERA, there being no compliance of Section 7(1), the Application under Section 7 cannot succeed on the ground that Appellant is an allottee in the Real Estate Project. Thus the submission of the Appellant that Appellant is an allottee does not render any benefit to the Appellant and on the said submission the application filed as an allottee cannot be admitted and was liable to be rejected due to non-compliance of Section 7(1) of the Code. Submission of the Appellant that transaction in question falls within the definition of Section 5(8)(f) of the Code - HELD THAT - All transactions which are covered under Section 5(8) which has to be treated as a financial debt, has to be necessarily disbursal against the consideration for the time value of money. Agreement entered between the parties was for sale and purchase of the land on consideration fixed in the agreement i.e. 21,000 per sq. m. The Appellant who was to bring allottees in whose favour the leases were to be executed by the Respondent, it was open for the Appellant to sell the land at any price i.e. even higher to the amount fixed between the parties and the excess amount on which any lease is executed by the Respondent shall be treated as commission of the Appellant - The transaction was thus clearly transaction for sale and purchase of the assets and it cannot be said that disbursal was for time value of money. The transaction between the parties does not fall under Section 5(8)(f) of the Code - also held that application filed by the Appellant cannot be sustained under Section 7 as an allottee of the real estate project as the Appellant being allottee of Real Estate Project thus under Section 5(8)(f) claim of the Appellant as Real Estate Project allottee is unsustainable. The Adjudicating Authority in the Impugned Order has come to the conclusion that transaction as described in MoU / Agreement to Sale / Addendum is essentially in the form of arrangement of selling, marketing , promoting and bringing prospective allottees to the Respondent Radiant Hotels Pvt. Ltd. The Adjudicating Authority has also rightly come to the conclusion that obligation of payments of money under the agreement of sale by no stretch of imagination can be construed as a financial debt - the finding of the Adjudicating Authority while rejecting the application filed under Section 7 of the Code agreed upon. Thus, no error has been committed by the Adjudicating Authority in rejecting the Section 7 Application filed by the Appellant. There is no merit in the Appeal - The Appeal is dismissed.

Summary

Issues Involved:
1. Whether the transaction between the parties constitutes a financial debt under Section 5(8) of the Code.
2. Whether the Appellant can be considered an allottee under the RERA Act and the implications thereof.
3. Compliance with the requirements of Section 7(1) of the IBC for initiating corporate insolvency resolution process.

Summary:

1. Nature of Transaction and Financial Debt:
The primary issue was whether the transaction between the parties could be considered a financial debt under Section 5(8) of the Insolvency and Bankruptcy Code (IBC). The Appellate Tribunal noted that the transaction was based on a Memorandum of Understanding (MoU) and an Agreement to Sale, where the Respondent agreed to sell land to the Appellant. The agreement included terms for payment and the right of the Appellant to book plots for prospective buyers. The Tribunal concluded that the transaction was for the sale and purchase of land and not a financial debt, as it did not involve disbursal against the consideration for the time value of money. The Tribunal upheld the Adjudicating Authority's finding that the obligation of payment under the agreement could not be construed as a financial debt.

2. Appellant as an Allottee under RERA:
The Appellant argued that it should be considered an allottee under the Real Estate (Regulation and Development) Act (RERA), which would classify it as a financial creditor. The Tribunal acknowledged that the definition of an allottee under Section 2(d) of RERA is broad. However, it was noted that the Appellant's Section 7 Application was not based on its status as an allottee but on the claim of excess payment. The Tribunal also highlighted the requirement under Section 7(1) of the IBC, amended by Act 1/2020, which mandates that an application by allottees must be filed jointly by not less than 100 allottees or 10% of the total allottees. The Appellant did not comply with this requirement, and thus, the application could not succeed on the ground of being an allottee.

3. Compliance with Section 7(1) of IBC:
The Tribunal emphasized that even if the Appellant were considered an allottee, the application under Section 7 of the IBC would still fail due to non-compliance with the amended Section 7(1). The Appellant did not file the application jointly with the required number of allottees, nor was this issue raised before the Adjudicating Authority. Consequently, the Tribunal rejected the Appellant's submission that it was an allottee and found that the application under Section 7 was not maintainable.

Conclusion:
The Tribunal concluded that the transaction between the parties was not a financial debt under Section 5(8) of the IBC. The Appellant's claim as an allottee under RERA did not benefit its case due to non-compliance with Section 7(1) of the IBC. The Adjudicating Authority's decision to reject the Section 7 Application was upheld, and the appeal was dismissed.