2019 (10) TMI 1440 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Financial Creditors/home buyers - considerable delay being caused by the CD in completion of the project and being faced with uncertainty of the Project - demand for refund of entire amount paid by the FCS along with the interest - existence of a 'financial debt' and a 'default' was admitted - extension of time was granted to Corporate Debtor to complete the project - maintainability of complaint under RERA - Time limitation - HELD THAT - The admission of an application under the IBC results in the commencement of the corporate insolvency resolution process while a complaint under RERA could result in the adjudicating authorities imposing penalties on the promoter and an order for return of money to the home buyer with interest and compensation. The FCS have rightly argued that the period of default has commenced from the date when the CD was required to deliver possession of the respective units. In the present case, the flat buyer agreements in respect of all the applicants were executed in the year 2013. Accordingly, as per the Recital 'C' of the Agreement, the CD was required to deliver possession of the respective units latest by the year 2016 inclusive of grace period. Thus, the period of default has commenced latest by June 2016 for the applicants and is still subsisting whereas the present application was filed in January 2019. The contention of the CD is that it has been granted time till 2021 to complete the said project. It is found that the argument is completely fallacious, in as much as the same would not absolve the CD of its liability to honor the commitment made to the applicants herein as per the builder buyer agreement for the purposes of the Code. Merely because the builder has been provided a different time-line for completion of the project to the RERA would not cut any ice because IBC override RERA and secondly the financial creditor is not a party to any such transaction. Moreover, there is contravention of Recital 'C' of the Agreement. It is settled principle of law that wherever time is the essence of a contract in such types of construction contracts, the builder is required to adhere to the date of delivery mentioned in the builder-buyer agreement despite the presence of similar reservations in the contract. Learned Counsel for the applicant has rightly argued that all requirements of Section 7 of IBC for initiation of Corporate Insolvency Resolution Process (CIRP) by a FC stand fulfilled - There is overwhelming evidence to prove default. The Applicant has specified the name of the resolution professional (IRP) and has annexed Form 2, the consent of the proposed IRP to the application accordingly. This Tribunal finds that this is a fit case to be admitted in terms of Section 7 of IBC and thereby initiate CIRP as against the CD - Application admitted - moratorium declared.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).
2. Existence of financial debt and default.
3. Delay in possession and its implications.
4. Application of force majeure clause.
5. Interaction between IBC and RERA.
6. Appointment of Interim Resolution Professional (IRP).
7. Moratorium under Section 14 of IBC.

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of IBC:
The application was filed under Section 7 of IBC, 2016, read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, for initiating CIRP against the Corporate Debtor (CD), M/s Horizon Concept Pvt. Ltd. The Financial Creditors (FCS) had made a booking in the project and entered into agreements with the CD, but the CD failed to deliver possession within the stipulated time.

2. Existence of Financial Debt and Default:
The tribunal noted that the CD had agreed to deliver possession within 36 months from the agreement date, with a grace period of 180 days. The CD failed to deliver possession, thus admitting the existence of a 'financial debt' and a 'default'. The total amount due as on 6.12.2018 was ?72,19,848/-, including principal and interest.

3. Delay in Possession and Its Implications:
The tribunal observed that the CD had failed to deliver possession by the agreed date, causing frustration of the purpose of the agreement. The CD's argument that it had time till 2021 to complete the project was rejected, as it did not absolve the CD of its liability to honor the original commitment. The tribunal emphasized that time is the essence of the contract in such construction agreements.

4. Application of Force Majeure Clause:
The CD claimed delays due to force majeure events, including interference by the NOIDA Authority and legal proceedings. However, the tribunal found that despite these claims, the CD had not completed the project and thus could not rely on the force majeure clause to absolve itself of liability.

5. Interaction Between IBC and RERA:
The tribunal clarified that both IBC and RERA operate in different fields. While RERA regulates and promotes the real estate sector, IBC consolidates insolvency and bankruptcy laws. Section 238 of IBC, which has a non-obstante clause, prevails over RERA. Thus, the admission of the application under IBC results in the commencement of CIRP, overriding any RERA provisions.

6. Appointment of Interim Resolution Professional (IRP):
The tribunal appointed Mr. Manish Gupta as the IRP, noting that he had provided written consent and was eligible for the role. The IRP is required to act in accordance with IBC provisions and the attendant rules.

7. Moratorium under Section 14 of IBC:
The tribunal declared a moratorium on the CD, prohibiting the institution or continuation of suits, transferring or disposing of assets, foreclosing or enforcing security interests, and recovering property occupied by the CD. The moratorium will last until the completion of the CIRP, or until an order for liquidation or approval of a resolution plan is passed.

Conclusion:
The application for initiating CIRP against the CD was admitted, and the tribunal directed the suspension of the CD's Board of Directors and communication of the order to relevant parties, including the Insolvency and Bankruptcy Board of India (IBBI). The tribunal emphasized the importance of adhering to contractual timelines and the overriding nature of IBC over other laws like RERA.