NCLAT determined that the advance was an investment rather than a financial debt, rendering the Section 7 application non-maintainable.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench led by Justice Rakesh Kumar Jain (Judicial Member) and Indevar Panday (Technical Member) reviewed an appeal and observed that the NCLT rightly classified the amount advanced by the Appellant as an investment, not a financial debt, under Section 5(8) of the Insolvency and Bankruptcy Code, 2016, rendering the Section 7 application non-maintainable.
The appeal was directed against the National Company Law Tribunal, Kolkata Bench’s order dated October 20, 2023, which dismissed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The application had been filed by the Appellant seeking resolution of a debt amounting to Rs. 2,77,98,630/- owed by the Respondent. The crux of the dispute lay in a term sheet executed on May 5, 2024, which the Appellant contended was the foundation for claiming the sum as a loan, not as an investment.
The Tribunal had found that the sum disbursed did not constitute "financial debt" under Section 5(8) of the Code, based on its interpretation of the term sheet. It referred to clause 6.96 of the term sheet, which detailed the allocation of land, and aligned its decision with the precedent set in Mukesh N. Desai v. Piyush Patel and Others, REEDLAW 2022 NCLAT Del 02588. The Tribunal concluded that the financial transaction was related to a joint development agreement, not a loan, and thus, the application under the Code was not maintainable.
In appeal, the Appellant had argued that the Tribunal erred by misclassifying the advance as an investment. They cited precedents such as SAJ Housing Private Limited v. Ms. Priyanka Chouhan, REEDLAW 2023 NCLAT Del 09502. However, the Respondent’s Counsel countered by asserting that the amount was an investment for clearing land titles rather than a loan, further reinforcing that no interest rate or repayment timeline was stipulated.
After reviewing the arguments and the record, the Appellate Authority upheld the Tribunal’s findings. It determined that the financial arrangement was indeed an investment rather than a loan and that the Appellant's cited judgments did not align with the case’s specifics. Consequently, the appeal was dismissed with no order as to costs.
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