Case Title:- M/s Jagbasera Infratech Private Ltd. v Rawal Variety Construction Ltd.
The National Company Law Tribunal has explicitly held that the amount invested in a Joint Venture project in the capacity of a 'Promoter' and 'Investor' does not come within the ambit of 'Financial Debt' under Section 5(8) of the IBC.
The instant appeal had been filed against an order passed by NCLT Chandigarh wherein it had rejected the application u/s 7 to initiate CIRP against the Respondent. The reason for rejection was given in the order and the relevant portion of it reads that “Simply because the petitioner has invested the money for the project being a Promoter would not fall within the definition of term ‘Financial Creditor’ under any circumstances. This was not a case of a forward sale or purchase agreement having effect of borrowing rather the petitioner was equally interested in the project to be marked for sale.”
The Appellant strongly contested that it had entered into an MOU (Memorandum of Understanding) and JVA (Joint Venture Agreement) and had paid an amount of Rs. 4,21,37,850/-. However, the Respondent failed in repaying the said amount, thus the same falls within the definition of ‘Financial Debt’ u/s 5(8).
It was further submitted by the Appellant that the Project is a Real Estate Project, and as such he holds the capacity of a ‘Promoter’ and is interested in the forward sale of furnished studio flats in the Real Estate Project of the Respondent/Developer because the investment was primarily for forward sale. It was a time-barred investment and therefore the Appellant fulfils all the essential characteristics to be covered under the definition of ‘Financial Creditor’ under section 5(7) of the Code.
The Respondent however had strongly refuted the arguments put forward by the Appellant and stated that according to the MOU the cost of the land had to be borne by the Appellant and that he was just a promotor.
The Appellate Tribunal after referring to the provisions of MOU and definitions of ‘Financial Creditor’ and ‘Financial Debt’ under sections 5(7) & 5(8) respectively came to a finding that “...relationship between the Appellant and Respondent is that of landowner and developer and furthermore viewed from any angle the amount invested by the Appellant towards the completion of the Project cannot be termed to be a ‘Financial Debt’ as defined under Section 5(8) of the Code.”