NCLAT Rules, Advance Paid Under Land Development MoU Not Financial Debt
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi has held that advance amounts paid under a 2013 Memorandum of Understanding (MoU) for land acquisition and development in Noida cannot be classified as “financial debt” under the Insolvency and Bankruptcy Code, 2016. Upholding the dismissal of two insolvency applications filed by Airwil JKM Infrastructure Pvt. Ltd. and JKM Infrastructure Pvt. Ltd., the tribunal concluded that the money was paid as part of a collaborative land development arrangement and not as a loan or financial assistance.
A bench of Chairperson Justice Ashok Bhushan and Member (Technical) Barun Mitra observed that the transaction underlying the MoU was meant for joint development of land rather than for lending. The tribunal noted that the developer had paid advances to enable the landowner to acquire the adjoining Plot No. 10 for amalgamation with four existing plots already owned by Cadillac Infotech Pvt. Ltd. in Sector 135, Noida. The NCLAT emphasised that the acquisition of Plot No. 10 was “integral part of the project” and that the amounts paid by the developer were intended to facilitate the subsequent development of an IT project on the combined land parcel.
The dispute traces back to the MoU dated 7 August 2013, under which Airwil JKM Infrastructure, the developer, agreed to pay ₹15 crore to Cadillac Infotech, the owner of four plots, to enable purchase and amalgamation of Plot No. 10 with Plots 1, 2, 11 and 12. The MoU provided profit-sharing ratios of 46.25% to the owner and 53.75% to the developer in the built-up area to be generated from the project. The developer paid ₹12.50 crore, and its group company JKM Infrastructure paid ₹2.70 crore pursuant to the MoU. The amalgamation was completed only in July 2014, leading to delays in executing a formal development agreement.
A Property Development Agreement (PDA) was eventually executed on 6 September 2014, not with the appellants but with another group company of the developer, Airwil JKM Infracon Pvt. Ltd. This PDA was terminated in 2015, triggering arbitration before the Delhi High Court, which culminated in an award dated 16 October 2018. The arbitrator directed refund of the amounts paid and also directed the handing over of possession of the plots, subject to conditions. The Delhi High Court, by judgment dated 29 November 2021, partially upheld the award, and appeals against that decision remain pending.
Relying on the non-repayment of the amounts advanced, Airwil JKM Infrastructure and JKM Infrastructure initiated separate applications under Section 7 of the IBC, contending that the money was refundable under the MoU and that the corporate debtor’s failure to return the funds constituted financial default. It was argued that since the MoU obligated refund if amalgamation did not occur within time, the amounts carried the commercial effect of a borrowing and therefore fell within the ambit of Section 5(8)(f) of the Code.
Cadillac Infotech, however, maintained that the payments were not loans but contributions made in pursuance of a joint venture for project development. It contended that the MoU envisaged reciprocal obligations for construction, permissions, marketing and maintenance, and profit sharing, making the relationship one of collaboration rather than financing. The respondent further pointed out that the developer had already filed a commercial suit before the Delhi High Court for recovery of the same amounts, demonstrating that the IBC proceedings were an attempt to treat the insolvency forum as a debt recovery mechanism.
In determining the nature of the transaction, the NCLAT reiterated that the “real nature of the transaction” must prevail over the label attached by the parties. Referring to the clauses of the MoU, the bench stated that the amount provided by the developer “was towards the project of development in which ultimately the owner and developer has to receive their percentage of share in entire saleable built-up area and share in the covered and open parking space…”. It further noted that the developer was required to exclusively bear the costs of development and obtain permissions, approvals and sanctions to construct the IT project.
Holding that the advances were not disbursed “against consideration for the time value of money,” the appellate tribunal concluded that the transaction could not be characterised as a financial debt. The order stated that “the real nature of transaction is more akin to a joint venture or development agreement rather than a pure financial lending arrangement.”
The NCLAT dismissed both appeals, affirming the NCLT’s finding that the advances paid under the land development MoU did not constitute financial debt and therefore could not trigger corporate insolvency resolution proceedings. At the same time, the tribunal clarified that the dismissal of the CIRP pleas does not affect the appellants’ right to pursue their pending commercial suit before the Delhi High Court for recovery of the amounts paid.
Appearance
For Appellant: Advocates Gaurav Mitra, Abhinav Mukhi, Shantanu Tomar and Aishwarya Modi
For Respondents: Senior Advocates Pooja Mehra Sehgal with Advocates Bani Dikshit Aditya Puri,Dhruva Vig, Uddhav Khanna, Nivesh Dixit and Ankit Mittal
Cause Title: Airwill JKM Infrastructure Pvt. Ltd V. Cadillac Infotech Pvt. Ltd & JKM Infrastructure Pvt. Ltd V. Cadillac Infotech Pvt. Ltd.
Case No: Company Appeal (AT) (Insolvency) No. 1187 of 2025 & Company Appeal (AT) (Insolvency) No. 1188 of 2025
Coram: Chairperson Justice Ashok Bhushan, Member (Technical) Barun Mitra
