A Person Who Comes In A Project As A Speculative Investor In Garb Of A Lender Cannot Be Accorded The Status Of A Financial Creditor: NCLT New Delhi

The National Company Law Tribunal, New Delhi Bench, comprising Shri P.S.N Prasad (Judicial Member) and Shri Rahul Bhatnagar (Technical Member), while adjudicating an application under Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”) in Rohit Prasad vs M/s S and N Lifestyle Infraventures Pvt. Ltd. has held that the status of “Financial Creditor” cannot be accorded to a person who, in the garb of a lender comes in the project as a speculative investor and for mere recovery of monies files exorbitant claims. Background Facts Mr. Rohit Prasad (“Financial Creditor”) advanced a sum of Rs. 99,99,999 in favour of M/s. S and N Lifestyle Infraventures Pvt. Ltd (“Corporate Debtor”) for purchase of 5% equity share at a housing project at The Highlands, Dehradun vide a general agreement dated 18.10.2014.The amount was agreed to be locked in for a period of 4 years from the date of the agreement and the Corporate Debtor guaranteed to pay the Financial Creditor his investment and profit in the project pro-rata to his equity share. It was further an unconditional guarantee that the Corporate Debtor would pay the Financial Creditor a minimum amount not less than Rs. 2,00,00,000 as return of capital and profit, in any condition. It was also agreed that if the Corporate Debtor fails to complete the project within 4 years, then an additional grace period of 3 months would be provided and the Corporate Debtor would pay an additional 1.5% interest per month for these 3 months. It was contended by the Financial Creditor that even after the end of 4 years and additional 3 months, no payment has been made by the Corporate Debtor to the Financial Creditor. On the contrary, the Corporate Debtor has alleged that the investment of Rs. 99,99,999/- doesn’t fall within the definition of Financial debt as the Financial Creditor invested for 5% equity shares in the project and not the company. The invested amount was to be returned with 5% profit which would be minimum Rs 2,00,00,000 and maximum Rs. 3,50,00,000 and if the invested amount was not returned, the Financial Creditor was entitled to get land equivalent to the amount. Since there is no amount which is due and payable by the Corporate Debtor to the Financial Creditor and there is only a default in transferring the land, no claim arises under IBC, 2016 due to lack of consideration for Time Value of Money. The Corporate Debtor in its rejoinder contended that the Financial Creditor had not purchased equity in the project in perpetuity. There was a specified lock in period after which the amount was to be returned at a prescribed rate. It was submitted that this amount had the commercial effect of burrowing as the terms included utilization of the amount for construction and sale of the project and return of double amount of capital i.e. Rs. 2,00,00,000 after 4 years and completion of the project. Hence the invested amount qualifies as Financial Debt. Findings of the Tribunal The Tribunal observed that the Financial Creditor had not advanced a loan to the Corporate Debtor to enable the construction and commercial sale of the housing project. The agreement was a sale agreement with settled base return and profits amounting to contingencies with a maximum ceiling. The Financial Creditor had made an investment in the housing project where he was 5% equity holder and hence had a 5% share in the profits. The Tribunal further observed that the debt claimed by the Financial Creditor was a Lucrative Agreement Situation where the Financial Creditor claimed 3.5 crores as a principle amount and 1.26 crores as interest against a 1 crore investment. The Financial Creditor has further secured his interests by way of transfer of land by the Corporate Debtor for the amount payable in case of default. Reliance was placed on the NCLAT Judgment of Ankit Goyal vs. Sunita Agarwal [Company Appeal (AT)(INS) No. 1020/2019] wherein it was held that in situations where the allottee seeks to benefit from a “lucrative agreement” where he has secured his money by way of an agreement which gives him lien over the flats, he cannot be considered a Financial Creditor. Further reliance was placed on the NCLAT judgement of Sudha Sharma vs Mansi Brar and Anr. [Company Appeal (AT) (INS) No. 83 of 2020 wherein it was held that money invested for speculative purposes does not entitle a person to be considered a Financial Creditor by virtue of being an allotee of a housing unit. The Tribunal observed that the status of Financial Creditor cannot be accorded to a person who comes in the project as a speculative investor in the garb of a lender and files exorbitant claims for mere recovery of monies. With the aforesaid observations, the Tribunal dismissed the petition. Case:Rohit Prasad vs M/s S and N Lifestyle Infraventures Pvt. Ltd. Case No. Company Petition No. (IB)- 1026/PB/2020 Counsels for ...

A Person Who Comes In A Project As A Speculative Investor In Garb Of A Lender Cannot Be Accorded The Status Of A Financial Creditor: NCLT New Delhi

Udai Yashvir Singh

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A Person Who Comes In A Project As A Speculative Investor In Garb Of A Lender Cannot Be Accorded The Status Of A Financial Creditor: NCLT New Delhi

Udai Yashvir Singh

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