2020 (2) TMI 637 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - pre-existing debt and dispute or not - HELD THAT - After a reading of section 7 of the Code along with Rule 4(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, we are satisfied that a default has occurred and the application under sub-section 2 of Section 7 is complete. The IRP proposed does not have any disciplinary proceedings pending against him - this petition is admitted and Mr. Amit Agarwal is appointed as an Interim Resolution Professional. Application admitted - moratorium declared.

Summary

Issues Involved:
1. Determination of the petitioner's status as a financial creditor.
2. Compliance with the terms of the agreement and the delay in possession.
3. Arguments raised by the respondent to resist the petition.
4. Applicability of Section 7 of the Insolvency and Bankruptcy Code (IBC).
5. Appointment of Interim Resolution Professional (IRP) and declaration of moratorium.

Detailed Analysis:

1. Determination of the Petitioner's Status as a Financial Creditor:
The petitioner, an allottee of a real estate project, filed the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, claiming to be a financial creditor. The tribunal confirmed the petitioner's status as a financial creditor per Section 5(8)(f) of the Code and the explanation inserted by the Second Amendment Act, 2018. The Supreme Court's judgment in Pioneer Urban Land & Infrastructure Ltd. v. Union of India validated this amendment, leaving no doubt about the petitioner's status.

2. Compliance with the Terms of the Agreement and the Delay in Possession:
The petitioner booked a commercial space and executed an agreement with the respondent on 10.03.2011. As per clause 6(d) of the agreement, the respondent was to hand over possession by December 2012, with a grace period of three months. Failure to do so entitled the petitioner to interest at 20.5% per annum and the option to terminate the agreement and claim a refund with interest. Despite multiple requests, the respondent failed to deliver possession or pay the agreed interest, leading to a default amount of ?8,43,57,228/- by 31.08.2018.

3. Arguments Raised by the Respondent to Resist the Petition:
The respondent raised several arguments:
- The delay was due to the refusal of the occupation certificate by the Director Town & Country Planning Department.
- The project was monitored by Haryana Real Estate Regulatory Authority (RERA), which set new completion dates.
- RERA's order stated that refunds would jeopardize the project's completion.
- The project was 80-85% complete, with significant investments and receivables.
- The delay was due to non-payment by other allottees.
- The respondent had cleared significant financial liabilities.
- The petitioners were speculative investors, not genuine buyers.

4. Applicability of Section 7 of the Insolvency and Bankruptcy Code (IBC):
The tribunal found that the petitioner had established a case for triggering the Corporate Insolvency Resolution Process (CIRP). The tribunal noted the long delay in possession, the respondent's inability to fulfill its obligations, and the petitioner's loss of faith in the corporate debtor. The tribunal referred to the Supreme Court's observations in Pioneer Urban Land & Infrastructure Ltd. v. Union of India, emphasizing that the Code is not a debt recovery mechanism but aims to resolve insolvency issues.

5. Appointment of Interim Resolution Professional (IRP) and Declaration of Moratorium:
The tribunal appointed Mr. Amit Agarwal as the Interim Resolution Professional and declared a moratorium under Section 14 of the Code. The IRP was directed to make a public announcement regarding the admission of the application. The tribunal also instructed the financial creditors to deposit ?2 lacs with the IRP for expenses and directed the ex-management to provide necessary documents and information to the IRP. The order was to be communicated to relevant parties, including the Registrar of Companies and the Ministry of Corporate Affairs.

Conclusion:
The tribunal admitted the petition, initiated the CIRP, and appointed an IRP, emphasizing the need for a new management to fulfill the obligations under the agreement. The tribunal's decision was based on the significant delay in possession, the respondent's failure to comply with the agreement, and the petitioner's established status as a financial creditor.