Landowners’ dilemma under Insolvency and Bankruptcy Code

financialexpress.com:

Typically, for development of immoveable property, landowners and developers execute a development agreement wherein the developer is made liable to ensure the construction and development of property and the landowner, in consideration for granting the land to the developer for construction thereon, may be entitled to sharing of profits or built-up area in the constructed property.

It may be noted that in the event profit sharing basis has been agreed between the developer and the landowner, sharing of such profits is done pursuant to the sale of such units. While home-buyers/allottees under the Real Estate Regulation and Development Act, 2016 (“RERA”) have been granted the status of financial creditors for the purposes of Insolvency and Bankruptcy Code, 2016 (“Code”), the implementation of the Code is still evolving with each passing day and courts have failed to recognise the rights of landowners (vis-à-vis development agreements) as creditors under the Code.

In the case of Mrs. Jesleen Kaur Papneja v. Raheja Developers Limited, a joint development agreement was executed between the developer and the landowner wherein the developer had agreed to develop the land and share profits with the landowner in the ratio agreed under the agreements/memorandum of understanding executed between them. The Hon’ble National Company Law Tribunal, Principal Bench, New Delhi held inter-alia thatthe aforesaid transaction was not in the nature of operational debt. It was observed that there may be a variety of real estate development contracts under different names which can be entered upon which may have a component in the nature of a loan (like collaboration agreements, joint development agreements) the purpose of which is the mutual