2020 (8) TMI 577 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of dues - existence of debt and default or not - HELD THAT - Admittedly, the 1st Respondent defaulted to pay amount. The project was affected by force majeure due to imposition of ban by the National Green Tribunal by order dated 17th September, 2013 restraining the different projects which are within 10 Km from the Okhla Bird Sanctuary including NCR areas. The Flat Owners Agreement relates to development of the project in Eco City in Sector-75, Noida. Apart from the fact that there are force majeure due to which the Corporate Debtor could not complete the project, it is found that the 1st Respondent knocked the doors of the RERA and instead of waiting there, moved application under Section 7 not for Insolvency Resolution to get the Flat/ Apartment or liquidation, but for refund of the amount already paid. Also, the Settlement Agreement has been reached by the 1st Respondent on 24th October, 2019. The application under Section 7 was fit to be rejected - Appellant is directed to adhere to the Terms of Settlement . The Interim Resolution Professional is entitled for fees and costs, as it is not determined in the Agreement - the Corporate Debtor (company) is released from all the rigours of Moratorium and is allowed to function through its Board of Directors from immediate effect - Appeal allowed.

Issues Involved:
1. Admissibility of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Existence of financial debt and default by the Corporate Debtor.
3. Impact of force majeure events on the completion of the project.
4. Obligations and rights of the allottee under the Real Estate (Regulation and Development) Act (RERA), 2016.
5. Settlement agreement between the parties during the pendency of the appeal.
6. Directions regarding the release of the Corporate Debtor from moratorium and functioning of the Board of Directors.

Detailed Analysis:

1. Admissibility of the Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The application was filed by an allottee (Financial Creditor) under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor, an infrastructure company. The Adjudicating Authority admitted the application based on the existence of financial debt and non-delivery of possession within the prescribed time. However, during the appeal, it was noted that the application was fit to be rejected as the first respondent had already approached RERA and the matter was settled.

2. Existence of Financial Debt and Default by the Corporate Debtor:
The financial debt arose from a Flat Buyer Agreement executed between the first respondent and the Corporate Debtor. The agreed project price was ?54,16,250/-, and the first respondent had paid ?44,10,784/-. The Corporate Debtor failed to deliver possession by December 2014, leading to a default. The Adjudicating Authority acknowledged the existence of financial debt and default, admitting the application.

3. Impact of Force Majeure Events on the Completion of the Project:
The Corporate Debtor argued that the project was delayed due to force majeure events, including a ban by the National Green Tribunal and an interim order by the Allahabad High Court. These events were beyond the control of the Corporate Debtor and led to significant delays in the project. The Tribunal recognized these force majeure events as legitimate causes for the delay.

4. Obligations and Rights of the Allottee under RERA, 2016:
The Tribunal referred to the rights and duties of allottees under Section 19 of RERA, which include the right to claim possession, refund, and compensation if the promoter fails to deliver possession as per the agreement. The first respondent, instead of waiting for the RERA proceedings, moved an application under Section 7 of the Insolvency and Bankruptcy Code for a refund, which was deemed inappropriate by the Tribunal.

5. Settlement Agreement between the Parties during the Pendency of the Appeal:
During the appeal, the parties reached a settlement agreement on 24th October 2019. The Tribunal acknowledged the settlement and directed the parties to adhere to its terms. The settlement indicated that the application under Section 7 was not necessary, and the first respondent's claim could be resolved through the settlement.

6. Directions Regarding the Release of the Corporate Debtor from Moratorium and Functioning of the Board of Directors:
The Tribunal set aside the order dated 9th October 2019, dismissing the application under Section 7. The Corporate Debtor was released from the rigours of the moratorium and allowed to function through its Board of Directors. The Interim Resolution Professional was directed to hand over the assets and records to the Board of Directors. The Tribunal also directed the Adjudicating Authority to determine the fees and costs payable to the Interim Resolution Professional, which would be borne by the Corporate Debtor.

Conclusion:
The appeal was allowed, and the order admitting the application under Section 7 was set aside. The Corporate Debtor was directed to adhere to the terms of the settlement agreement, and the company was released from the moratorium, allowing it to function through its Board of Directors. The Tribunal emphasized the importance of considering force majeure events and the obligations under RERA in such cases.

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