2019 (8) TMI 1595 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute or not - Financial Creditor - Financial Debt - format of the application - HELD THAT - It is evident from the record that the application has been filed on the proforma prescribed under Rule 4(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Section 7 of the Code. We are satisfied that a default amounting to lacs of rupees has occurred. As per requirement of Section 4 of the Code if default amount is one lac or more then the CIR Process would be issued. The application under sub section 2 of Section 7 is complete; and no disciplinary proceedings are pending against the proposed Interim Resolution Professional. Financial Creditor - HELD THAT - It is pertinent to mention here that clause (8) of Section 5 of the Code 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 is deemed to be an amount having the commercial effect of a borrowing and thus is covered by the definition of 'Financial Debt' under the Code. Definition of 'Financial Debt' has been amended to specifically include dues of home buyers i.e. Real Estate (Residential). The amendment also recognizes home buyers as Financial Creditor . Accordingly, the home buyers can initiate Corporate Insolvency Resolution Process against defaulting builder or developer, as Financial Creditor in terms of Explanation to Section 5(8)(f) of the Code with effect from 06.06.2018. Therefore, the submission made to the contrary by respondent would not require any serious consideration. It is true that the proceedings under the Code are not in the nature of recovery. In the present application the Financial Creditor is seeking initiation of Corporate Insolvency Resolution Process by making prayer that all the Financial Creditor, Operational Creditor and others may raise their claims and if Corporate Financial Restructuring is possible then within the stipulated period it may be explored failing which the due process of law is to take its course. Therefore, by initiation of Corporate Insolvency Resolution Process the Financial Creditor is only highlighting the default committed by the Corporate Debtor with respect to its inability to pay. The same is required to be remedied. Therefore, it cannot be concluded that the filing of the present petition would amount to recovery of the debts by the Financial Creditor. Existence of debt and default or not - HELD THAT - The applicant-financial creditor had disbursed the money to the respondent corporate debtor as consideration for purchase of a residential apartment. Though a considerable long period has lapsed even the principal amount disbursed has not been repaid by the respondent corporate debtor as per the provision of the Apartment Buyer's Agreement. It is accordingly held that respondent corporate debtor has committed default in repayment of the outstanding financial debt which exceeds the statutory limit of rupees one Lakh. The application warrant admission as it is complete in all respects - Application admitted - moratorium declared.

Summary

Issues Involved:
1. Whether the applicants qualify as 'financial creditors' under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Whether there was a default by the Corporate Debtor in delivering possession of the apartment.
3. Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 is maintainable.
4. Whether the Tribunal has the jurisdiction to adjudicate the matter.
5. Whether the Corporate Debtor's defenses regarding force majeure and payment defaults by the applicants are valid.
6. Whether the relief sought by the applicants is beyond the terms of the Apartment Buyer Agreement.
7. Whether the initiation of Corporate Insolvency Resolution Process (CIRP) is a recovery mechanism.

Detailed Analysis:

1. Qualification as 'Financial Creditors':
The applicants, Mrs. Rachna Singh and Mr. Ajay Singh, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, claiming to be 'financial creditors' and seeking initiation of Corporate Insolvency Resolution Process against M/s. Umang Realtech Private Limited. The Tribunal noted that the applicants had made a booking in a residential project and had paid a significant amount towards the purchase of an apartment. The Tribunal referred to the amendment in clause (8) of Section 5 of the Code, which includes amounts raised from an allottee under a real estate project as 'financial debt.' Thus, the applicants qualify as 'financial creditors.'

2. Default by the Corporate Debtor:
The Tribunal examined the terms of the Apartment Buyer Agreement, which stipulated that the Corporate Debtor was to complete construction and apply for the completion certificate by 31.12.2015, with a grace period of six months. The Tribunal found that the Corporate Debtor failed to deliver possession within the stipulated time, and the project was still incomplete. The Tribunal rejected the Corporate Debtor's argument that the agreement was still in operation and that no default had occurred. The Tribunal held that there was a fundamental breach of the agreement by the Corporate Debtor.

3. Maintainability of the Application:
The Tribunal reviewed the provisions of Section 7(2) and Section 7(5) of the Code, which require the application to be in the prescribed form and manner and to be complete. The Tribunal found that the application was filed in the prescribed proforma and was complete. The Tribunal was satisfied that a default had occurred, and the application was maintainable.

4. Jurisdiction:
The Tribunal noted that the registered office of the Corporate Debtor is situated in Delhi, and therefore, it has territorial jurisdiction as per the provisions of sub-section (1) of Section 60 of the Code.

5. Defenses by the Corporate Debtor:
The Corporate Debtor argued that there was no willful default and cited force majeure factors as reasons for the delay. The Corporate Debtor also claimed that the applicants had defaulted in making timely payments. The Tribunal rejected these defenses, stating that the delay in delivering possession was extraordinary and unreasonable. The Tribunal emphasized that the principles of reasonableness are implied in such contracts, and the Corporate Debtor could not exclude its obligation to deliver possession within a reasonable period.

6. Relief Beyond Terms of Agreement:
The Corporate Debtor contended that the relief sought by the applicants was beyond the terms of the Apartment Buyer Agreement and that the Tribunal could not modify the terms of a valid contract. The Tribunal rejected this argument, stating that the obligation to deliver possession within a reasonable period could not be excluded by any terms or clauses of the agreement.

7. CIRP as Recovery Mechanism:
The Tribunal clarified that the proceedings under the Code are not in the nature of recovery. The initiation of CIRP highlights the default committed by the Corporate Debtor and seeks to remedy the inability to pay. The Tribunal held that the filing of the petition did not amount to recovery of debts by the financial creditor.

Conclusion:
The Tribunal admitted the application under Section 7 of the Code, appointed Mr. Manish Kumar Gupta as the Interim Resolution Professional, and declared a moratorium in terms of Section 14 of the Code. The Tribunal directed the Interim Resolution Professional to make a public announcement regarding the admission of the application and to perform his functions as contemplated by the Code. The Tribunal also directed the financial creditor to deposit a sum of ?2 lacs with the Interim Resolution Professional to meet the expenses of performing his functions.