2019 (7) TMI 1535 - Tri - Insolvency and Bankruptcy

Admissibility of application - initiation of CIRP - Corporate Debtor failed to make repayment of outstanding amount - Section 7 of the Insolvency and Bankruptcy Code, 2016 - default of debt or not - HELD THAT - Clause (8) has been amended by the Insolvency and Bankruptcy (amendment) Ordinance, 2018, with effect from 6th June, 2018. In view of the revised definition, any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing and thus will come within the definition of Financial Debt under the Code. Definition of Financial Debt has been amended to specifically include dues of homebuyers. Amendment Act recognizes homebuyers as Financial Creditor . Accordingly, the homebuyers can initiate Corporate Insolvency Resolution Process against defaulting builder or developer, as Financial Creditor in terms of Explanation to Section 5(8)(c) of the Code with effect from 06.06.2018. Since the amount has been raised from the petitioners/allottees under a real estate project, not only the debt has a commercial effect of borrowings and come within the scope of financial debt but also the petitioner comes within the definition of financial creditor - Therefore, petitioner being a financial creditor can invoke Corporate Insolvency Resolution Process under Section 7 of the code against the Respondent Corporate Debtor in case of default in repayment of financial debt. Whether Respondent Corporate Debtor has committed default in payment of the financial debt? - HELD THAT - In the present case Financial debt is outstanding since the year 2017. The Corporate Debtor has not denied the claim of Petitioner and the amount of default exceeds much more than 1 lakh. In view of Section 4 of the Code, the moment default is Rupees one lakh or more, the petition to trigger Corporate Insolvency Resolution Process under the Code is maintainable. There is sufficient material on record to conclude that Respondent Corporate Debtor has committed default in repayment of the financial debt. The present application is complete and there has been a default in payment of the financial debt and that no disciplinary proceeding is pending against the proposed IRP and therefore, the applicant financial creditor is entitled to initiate Corporate Insolvency Resolution Process under Section 7 of the Code - Application admitted - moratorium declared.

Summary

Issues Involved:
1. Territorial Jurisdiction
2. Appointment of Interim Resolution Professional (IRP)
3. Financial Creditor’s Claim and Default
4. Definition of Financial Creditor and Financial Debt
5. Default and Initiation of Corporate Insolvency Resolution Process (CIRP)
6. Moratorium and Duties of IRP

Issue-wise Detailed Analysis:

1. Territorial Jurisdiction:
The Tribunal established that it has territorial jurisdiction over the National Capital Territory (NCT) of Delhi, as the registered office of the Respondent Corporate Debtor, M/s Gaursons Sportswood Private Limited, is located in New Delhi.

2. Appointment of Interim Resolution Professional (IRP):
The Petitioners proposed Mr. Prabhjit Singh Soni as the IRP, who agreed to the appointment and provided the necessary declarations and disclosures as required under Section 7(3)(b) of the Insolvency and Bankruptcy Code, 2016 (the Code). The Tribunal found that no disciplinary proceedings were pending against him, thereby satisfying the requirements for his appointment.

3. Financial Creditor’s Claim and Default:
The Petitioner claimed that he booked a flat in the Corporate Debtor’s project and paid a substantial amount towards its purchase. The Corporate Debtor failed to deliver possession by the stipulated date and denied the Petitioner’s right to a refund under a buy-back scheme. The Petitioner alleged that the Corporate Debtor raised wrongful demands and failed to refund the amount paid along with the agreed interest. The Tribunal noted the supporting documents provided by the Petitioner, including the allotment letter, tripartite agreement, and bank statements.

4. Definition of Financial Creditor and Financial Debt:
The Tribunal referred to Sections 5(7) and 5(8) of the Code, which define "Financial Creditor" and "Financial Debt." The Code was amended to include amounts raised from allottees under real estate projects as financial debt. The Tribunal cited the case of Rajendra Kumar Saxena v. Earth Gracia Buildcon Pvt. Ltd., where it was held that allottees of real estate projects are treated as financial creditors. The Tribunal concluded that the Petitioner, being a homebuyer, qualifies as a financial creditor under the Code.

5. Default and Initiation of Corporate Insolvency Resolution Process (CIRP):
The Tribunal examined whether the Corporate Debtor committed a default in payment of the financial debt. The Corporate Debtor argued that the Petitioner failed to make timely payments and breached the terms of the agreement. However, the Tribunal found that the Petitioner had paid a significant amount, and the Corporate Debtor failed to deliver possession within the stipulated time, thereby entitling the Petitioner to a refund with interest. The Tribunal noted that the financial debt was outstanding since 2017, and the amount of default exceeded the statutory limit of one lakh rupees.

6. Moratorium and Duties of IRP:
The Tribunal admitted the application under Section 7(5)(a) of the Code, satisfied that a default had occurred, the application was complete, and no disciplinary proceedings were pending against the proposed IRP. The Tribunal declared a moratorium under Section 14 of the Code, imposing prohibitions on suits, asset transfers, and recovery actions against the Corporate Debtor. The IRP was directed to make a public announcement and perform duties as per Sections 15, 17, 18, 19, 20, and 21 of the Code. The Tribunal emphasized the legal obligation of the Corporate Debtor’s personnel to cooperate with the IRP and protect the value of the Corporate Debtor’s property.

Conclusion:
The Tribunal admitted the application for initiating CIRP against the Corporate Debtor, appointed Mr. Prabhjit Singh Soni as the IRP, declared a moratorium, and directed the IRP to perform his duties in accordance with the Code. The Tribunal also highlighted the need for the IRP to address any issues related to the claims made by financial creditors to avoid injustice to the Corporate Debtor.