National Company Law Appellate Tribunal, New Delhi: In an appeal challenging the order dated 20-10-2023, whereby the NCLT dismissed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) initiated by the appellant against the Respondent, a Division bench of Rakesh Kumar Jain,* J., and Indevar Pandey (Technical Member), upheld the NCLT’s finding that the money advanced, for the purpose of clearing their title over the land in question, was an investment rather than a loan, and thus, the provisions of the Insolvency and Bankruptcy Code were not applicable.
NCLT’s Decision
The NCLT noted that the term sheet suggested an investment in land rather than a loan and therefore, the amount advanced did not constitute a financial debt under Section 5(8) of the IBC. The NCLT cited Mukesh N. Desai Shree Darshan Society v. Piyush Patel, 2022 SCC OnLine NCLAT 78, and held that the funds were part of a joint development project rather than a financial debt, and thus, the application under Section 7 was not maintainable.
Appellant’s Contentions
The appellant claimed that a sum of ₹2.77 Crores was disbursed to the respondent as a loan based on the term sheet executed between the parties on 05-05-2024. Following the cancellation of the term sheet, the appellant sought a refund of the entire amount along with interest at 18%. The appellant contended that the NCLT erred in treating the amount as an investment rather than a loan and therefore wrongly dismissed the Section 7 IBC application.
Respondent’s Contentions
The Respondent argued that the transaction was not a loan but an investment. The respondent alleged that no interest rate was fixed, and no specific timelines were set for repayment. The Respondent also cited issues related to land title and the prohibition of transfer of barga rights under the West Bengal Land Reforms Act, 1955.
Moot Point
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Whether the amount disbursed by the appellant to the respondent constituted a financial debt under Section 5(8) of the IBC?
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Whether NCLT’s classification of the transaction as an investment rather than a loan was erroneous?
NCLAT’s Analysis
The NCLAT noted that the appellant failed to provide financial statements showing the amount as a loan. The NCLAT held that the amount advanced by the appellant was for the purpose of clearing land title issues which was to be shared by both of them in the ratio of 30% / 70% is an investment, and not a financial debt as per Section 5(8) of the IBC. The NCLAT found no merit in the appeal as the judgments cited by the appellant were not applicable to the facts of the case.
NCLAT’s Decision
The NCLAT dismissed the appeal and upheld the NCLT’s order of dismissing appellant’s application under Section 7 of the IBC. The NCLAT directed the appellant to pursue remedies under other applicable laws if desired.
[Meehika Buildcon LLP v. City Star Infrastructure Ltd., 2024 SCC OnLine NCLAT 1114, Decided on 09-09-2024]
*Judgment by Justice Rakesh Kumar Jain
Advocates who appeared in this case :
Mr. Sujoy Datta, NPS Chawla, Vibhor Kapoor, Jasjeet Singh, Counsel for the Appellants
Mr. Swarnendu Chatterjee, Niloy Sengupta, Sujit Banerjee, Deepak Shi Garg, Mugdha Malik, Counsel for the Respondent
