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TMI Blog2023 (12) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... rity 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the land for the project and they were to enjoy a sharing ratio of 67.5% and 32.5% respectively from the sales receivable. 3. Towards purchase of land for one of these real estate projects- Ansal Hub 83-II, the Respondent had sought financial assistance of Rs.25 crore from the Appellant. The Appellant extended an inter-corporate loan of Rs.25 crore which transaction has been documented in an Inter-Corporate Deposit Agreement ( ICD in short) dated 27.03.2014. In terms of the ICD, the loan facility carried an interest of 24% p.a, compounded monthly and returnable within 24 months. The ICD also provided that the Appellant would have the right to recover the liability of Rs.25 crore from the sales receivable of the Respondent in case the latter failed to liquidate the debt. 4. It was submitted that as on 31.07.2018 an amount of Rs. 35,64,03,784/- had become due and payable, the default having occurred on 15.05.2015. The Respondent having failed to make the payments towards its liability qua the ICD, the Appellant filed a Section 7 application against the Respondent. The Adjudicating Authority however dismissed the application on the ground that the Appellant was not a Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the ICD; copies of TDS certificates issued by the Respondent for the FY 2014-15 and 2015-16, certified copies of Bank statement, audited Accounts of Corporate Debtor for the FY 2016-17 proves the existence of debt. 7. It has been strongly argued that the Adjudicating Authority failed to appreciate that it was the sole and exclusive obligation of the Respondent to procure the land for which it was the sole responsibility of the Respondent to mobilize resources for this purpose. It was wrong on the part of the Adjudicating Authority to look at the ICD and the JVA as being integral to each other rather than view the two being independent of each other. This presumption on the part of the Adjudicating Authority had led to the erroneous conclusion that the Rs.25 crore advance made by the Appellant was a commercial business transaction and not a financial debt. Further, it was submitted that adjustment against the future receivables of the Respondent under the JVA was just a security under the ICD with an optional right with the lender to adjust the same against the ICD agreement. The Adjudicating Authority ought not to have substituted its own views and assumptions with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the Respondent placed reliance on the judgment of this Tribunal in the matter of Mukesh N Desai v. Piyush Patel Ors. in CA (AT) (Ins.) No.789 of 2020 wherein it has been held that any amount invested in the purchase of land cannot be said to be a financial debt under Section 5(8) of the IBC. Further, reference was also made to the decision of this Tribunal in Samyak Projects Pvt. Ltd. v. Ansal Housing Ltd. in CA(AT) (Ins.) No.384 of 2022 where it has been clearly held that the Joint Development Agreement between the two parties shows that it was a case of sharing revenue profit by both the parties and hence initiation of CIRP proceedings under Section 9 by a JV partner was not maintainable. Reliance has also been placed on the decision of this Tribunal in Jagbasera Infratech Pvt. Ltd. v. Rawal Variety Construction Ltd. in 2022 SCC OnLine NCLAT wherein it has been held that an amount invested in the joint venture project by any party in their capacity as a promoter/investor does not fall within the ambit of definition of Section 5(8) of the Code. It was further added that this Tribunal in Vipul Ltd. v. Solitaire Buildmart Pvt. Ltd. in 2020 SCC OnLine NCLAT 620 has held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; 14. Given the above statutory definitions of financial creditor and financial debt , it may now be useful to peruse the salient terms of the JVA entered into between the parties to have a better understanding of the relationship between the Appellant and the Respondent as it would be relevant in deciding the matter. The relevant excerpts are as reproduced below wherein the present Respondent is described as first party and the second party is the present Appellant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant is described as the Lender and the present Respondent as the Borrower . The relevant portions are as extracted below: - WHEREAS the Borrower had approached the Lender for grant of an Inter Corporate Deposit (ICD) of Rs. 25 crores (Rupees Twenty Five Crores only) for making the payment to the land owners pertaining to the land purchased by the Borrower in Sector 83, Gurgaon for development of the Project Ansal's Hub 83-11 by the Lender in collaboration with the Borrower. AND WHEREAS the Lender had considered the request of the borrower and has placed an ICD of Rs. 25 crores (Rupees Twenty Five Crores only) on the terms and conditions as agreed between the Lender and Borrower. The parties hereto are now desirous of formally recording the said terms and conditions in writing which are recorded hereinafter. NOW IT IS HEREBY MUTUALLY AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS: 1. The Lender has extended to the Borrower an Inter Corporate Deposit of Rs. 25 Crores (Rupees Twenty Five Crores only) and the Borrower acknowledge receipt of the same. 2. The ICD is for a maximum period of 24 months and shall be repaid by the Borrower as per agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent in favour of the Appellant also establishes the ingredients of a financial debt. Further, it is their contention that adjustment against the future receivables of the Respondent under the JVA was just a security under the ICD which has been wrongly construed by the Adjudicating Authority to come to the conclusion that the JVA and the ICD were interdependent. The Adjudicating Authority erred in holding that the advancement of money is not a financial debt simply because the real estate projects were being jointly developed. Moreover, the fact that the Respondent was depositing TDS qua its liability under the ICD also shows the two agreements being independent of each other. It is also pointed out that the ledger statement of the Respondent shows that an interest amount of Rs.6.29 lakhs was outstanding qua the Appellant as on 31.03.2015 and that this figure is also reflected in the balance sheet of 2015-16. Since, the Section 7 application was filed in 2018, the default being more than Rs. 1 lakh, the threshold limit was met. 17. Summarizing the rival submissions made by the Learned Senior Counsel for the Respondent, it is noted that a counter-claim has been made to the effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Samtex Desinz (P) Ltd. (2023) 3 SCC 753, it has been clearly held that financial debt also includes an interest free loan. 19. Given this backdrop of settled law, it may now be relevant to refer to the impugned order to see how the Adjudicating Authority has approached the JVA and the ICD in deciding whether the Appellant falls within the purview of the definition of Financial Creditor and whether the loan extended by the Appellant falls within the ambit of Financial Debt as defined respectively under Sections 5(7) and 5(8) of the IBC. 20. We notice that while proceeding to examine whether the mutual arrangement entered between the Appellant and the Respondent on mutually agreeable conditions is covered under the definition of financial debt under the IBC, the Adjudicating Authority at paragraphs 22 to 25 of the impugned order have made reference to the salient recitals of the JVA and the ICD and dwelled upon them at length. These recitals have already been reproduced by us in the preceding paragraphs. 21. Now coming to the impugned order, we find that the Adjudicating Authority has returned the findings that the ICD read with JVAs entered upon were in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the parties appear to have entered into an agreement with a different motive i.e. development of the project and sharing the proceeds therefrom. There is no case to hold that it is a case of admitted debt and default. No case is made out under the code. Parties may pursue the matter to seek appropriate remedy as per law. 22. The above findings of the Adjudicating Authority has been premised on the fact that both the JVAs and ICD are linked together for the development of real estate projects. In both these agreements which has been entered into between the two parties for the four projects, there are similar clauses of receivables of a particular percentage of sale realisations from sale of areas to be developed/constructed which both parties have mutually agreed to. Hence it has been held that both parties being involved in the joint development of projects for which purpose they have entered into collaborative agreements, the financial arrangements outlined in the ICD cannot be a loan agreement simpliciter and hence cannot be treated as a financial debt. 23. A careful perusal of the JVA and the ICD between the two parties show that there are unmistakable signs of recipr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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