Land Owners Entering Into Joint Development Agreements For Sharing Of Profit Do Not Come Within The Ambit Of Operational Creditors: NCLT New Delhi

The National Company Law Tribunal, New Delhi Bench, comprising Chief Justice (Retd.) Ramalingam Sudhakar (Judicial Member) and Shri Avinash K. Srivastava (Technical Member), while adjudicating an application under Section 9 of Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”) in Mrs. Gurmeet Kaur Gill vs Raheja Developers Limited has held that an agreement in the nature of a Joint Development Agreement for a project with sharing of profit in an agreed ratio does not come within the ambit of an Operational Debt. Background Facts Mrs. Gurmeet Kaur Gill (“Operational Creditor”) and 3 other land owners (Collectively “Land Owners”) entered into a Collaboration Agreement dated 13.08.2012 with M/s Raheja Developers Limited (“Corporate Debtor”) for development on the Total land of the Land Owners admeasuring 24.15 acres. Out of the Total Land, a license was obtained for development of a residential group Housing Project on an area admeasuring 12.48 acres. A revised MOU dated 07.10.2016 was signed between the Land Owners and the Corporate Debtor vide which the Land Owners permitted the Corporate Debtor to construct, develop, maintain, and sell the Land Owners’ share and provided exclusive right to the Corporate Debtor to sell the units and another saleable areas of the project. It was agreed that in consideration of the abovementioned rights, the Corporate Debtor would develop the project on their own cost and pay certain amount to the Land Owners under various heads including “Revenue sharing.” It was contended by the Operational Creditor that the Land Owners were entitled to 23.5% of the amounts received by the customers of the projects. The total collection under the project till September 2017 was 71.3 crores out of which 16.7 crores was owed to the Land Owners. It was contended that the land and its construction was the main component for development of any real estate project and the Licensed Land and development right over that land were directly related to the development and selling of the units by the Corporate Debtor. Thus, the Land Owners of the Licensed Land were Operational Creditors. The Operational Creditor issued a Demand Notice dated 7.12.2018 to the Corporate Debtor for payment of the outstanding amount. On the Contrary, it was contended by the Corporate Debtor that the petition under Section 9 was not maintainable as the debt doesn’t fall within the purview of Operational Debt. The parties are in joint collaboration and the licenses are in the name of the Land Owners. It was further contended that a Backup Security Agreement dated 25.10.2016 was executed between the parties vide which a net amount of Rs. 130 crores is payable to the Operational creditor as minimum security which is inclusive of the alleged debt of 9.1 crores. Findings of the Tribunal It was observed by the Tribunal that the Land Owners obtained a license to the land from the competent authority and agreed with the Corporate Debtor for development of the land in lieu of the consideration under the MOU dated 07.10.2016. The nature of the transactions under the MOU and the Collaboration Agreement involved a Joint Development Agreement wherein the Corporate Debtor would develop the land and share the profits in the agreed ratio as per the term of Collaboration Agreements and MOU between the Corporate Debtor and the Land Owners. The Tribunal further observed that such agreements are not within the ambit of Financial Debt. However, the suggestion that the Land Owners come within the ambit of “Operational Creditors” as there is a direct nexus between the units sold by the Corporate Debtor and the licensed land owned by the Land owners would amount to giving a very wide interpretation to Section 5(21) which cannot be the intention of the Legislature. The Agreement involved that there would be development of the Land by the Corporate Debtor and the benefits accrued from the land would be shared between the Corporate Debtor and the Land Owners in a specified ratio. Such type of an Agreement could not be covered under the ambit of Operational Debt under section 5(21) of IBC, 2016 It was further observed that there may be a wide variety of development contracts like Collaboration Agreement, Joint Development Agreement, etc under different names which may have a component in the nature of a loan. The purposes of these agreements involve giving rise to mutually binding legal relation in lieu of consideration. These types of agreements cannot come within the purview of an Operational Debt and what needs to be seen is the real intention of the parties. With the aforesaid observations, the Tribunal dismissed the petition. Case: Mrs Gurmeet Kaur Gill vs Raheja Developers Limited Case No. C.P. (IB)/393(PB)/2019 Counsels for the Applicants Adv. Sunil Fernandes, Adv. Nitish K. Sharma, Adv. Nandini Aishwarya, Adv. Diksha Dadu ...

Land Owners Entering Into Joint Development Agreements For Sharing Of Profit Do Not Come Within The Ambit Of Operational Creditors: NCLT New Delhi

Udai Yashvir Singh

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