2019 (9) TMI 1570 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - home buyers - dues of home buyers i.e. Real Estate (Residential) - Financial debt or not - existence of debt and dispute or not - Section 5(8) (f) of I B Code - HELD 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 at Clause 8(f), 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, 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. The Corporate Debtor has committed default in repayment of the outstanding financial debt which exceeds the statutory limit of rupees One Lakh. Thus, the application warrants admission as it is complete in all respects. This Bench orders restoration of the name of the Corporate Debtor Company in the Register of RoC - Application admitted - moratorium declared.

Summary

Issues:
Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 by a Financial Creditor for initiation of Corporate Insolvency Resolution Process against a Corporate Debtor.

Analysis:
The Financial Creditor filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process against the Respondent Company, a Corporate Debtor. The Corporate Debtor, a real estate company, had failed to repay the financial debt owed to the Financial Creditor, which included the principal amount and interest. The Financial Creditor had made payments towards booking a residential unit in a project developed by the Corporate Debtor. Despite multiple attempts to seek repayment and return of the amount, the Corporate Debtor did not fulfill its obligations. The Financial Creditor invoked the Code as per the amended definition of 'Financial Debt,' which now includes dues of home buyers, making them eligible to initiate insolvency proceedings against defaulting builders or developers.

The Tribunal noted that the Corporate Debtor had committed default in repayment of the outstanding financial debt, exceeding the statutory limit. As the Corporate Debtor did not appear during the proceedings, it was proceeded against ex-parte. The Tribunal referred to a judgment by the NCLAT regarding restoration of the name of a struck-off company for the purpose of initiating Corporate Insolvency Resolution Process. In line with this judgment, the Tribunal ordered the restoration of the name of the Corporate Debtor in the Register of RoC, with expenses to be reimbursed by the Committee of Creditors.

The Tribunal admitted the application, appointed an Interim Resolution Professional, and declared a moratorium under Section 14 of the Code. The moratorium imposed various restrictions on actions against the Corporate Debtor's assets. Exceptions to the moratorium were specified, including essential supplies to the Corporate Debtor. The Interim Resolution Professional was directed to perform his functions diligently, following the provisions of the Code and maintaining integrity. The Financial Creditor was instructed to deposit a sum with the Interim Resolution Professional to cover expenses, subject to adjustment by the Committee of Creditors.

The Registry was directed to communicate the order to relevant parties promptly. The judgment emphasized the importance of cooperation from all involved parties and adherence to the legal obligations outlined in the Code for effective resolution of the Corporate Debtor's insolvency.