2020 (8) TMI 696 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP process - allegation that the Respondents (Allottees) are themselves being defaulter - no default by the Corporate Debtor - HELD THAT - In view of the fact that part of the infrastructure (Apartments/Flats) has already been completed the allottees (Financial Creditors) were the main beneficiaries of the infrastructure have already reached settlement with the Promoter and the fact that the Promoter as an outsider financial creditor has agreed to invest the amount not from the account of the Corporate Debtor but from other sources to keep the infrastructure as a going concern. In exercise of inherent powers conferred under Rule 11 of the NCLAT Rules 2016 following order is passed i. Rajesh Goyal (Promoter) is directed to cooperate with the Interim Resolution Professional and disburse amount (apart from the amount already disbursed) from outside as Lender (financial creditor) not as Promoter to ensure that the project is completed within the time frame as given by him. The disbursement of amount which has been made by Rajesh Goyal. and the amount as will be generated from dues of the Allottees (Financial Creditors) during the Corporate Insolvency Resolution should be deposited in the account of the Company (Corporate Debtor) to keep the Company a going concern. The amount can be utilized only by issuance of cheque signed by the authorised person of the Company (Corporate Debtor) with counter signature by the Interim Resolution Professional. The Bank in which the Corporate Debtor (Company) has account the amount should be deposited only for the purpose of completion of the Project. Banks will allow the cheques for encashment only with the counter signature of the Interim Resolution Professional. ii. The flats/apartments should be completed in all aspect by 30th June 2020. All internal fit outs for electricity water connection should be completed by 30th July 2020. The allottees are directed to deposit their balance amount and pay 90% without penal interest if not deposited by 15th March 2020. The Allottees in whose favour possession has been offered and clearance has been given by the competent authority are bound to pay the cost for registration and directed to deposit registration cost to get the flats/apartments registered after paying all the balance amount in terms of the agreement. iii. Common area such as Swimming Pool Club House etc. as per the agreement be also completed by 30th August 2020. The allottees are allowed to form Residents Welfare Association and get it registered to empower them to claim the common areas. iv. Rajesh Goyal will return the amount to the allottees who already sought for within the time frame i.e. 30% of the principal amount within 90 days and rest 70% of the principal amount within 180 days. The interest be paid to them in the manner as detailed above by 30 th August 2020. The Financial Institutions/ Banks and Operational Creditors if any should be paid simultaneously within the period of 180 days. v. All these processes should be completed by 30th August 2020. If it completed the Corporate Insolvency Resolution Process be closed after intimating it to the Adjudicating Authority (National Company Law Tribunal). The resolution cost including fee of the Interim Resolution Professional will be borne by the Promoter. Only after getting the certificate of completion from the Interim Resolution Professional/ Resolution Professional and approval of the Adjudicating Authority (National Company Law Tribunal) unsold flats/ apartments etc. be handed over to the Promoter. vi. It is made clear that even during the Corporate Insolvency Resolution Process the Interim Resolution Professional can also sell the unsold flats/apartments by way of a Tripartite Agreement between the Purchaser Interim Resolution Professional/Resolution Professional and Promoter (Rajesh Goyal). The proceeds as may be generated from such sale should be utilized for completion of the project payment to Financial Institutions/Banks Operational Creditors and interest as is payable to the allottees whose principal amount is to be refunded. Once the project is completed the Interim Resolution Professional will move application before the Adjudicating Authority (National Company Law Tribunal) with the report of completion and ask for disposal of application under Section 7 of the I B Code filed by Ms. Babita Gupta Mr. Manoj Kumar Gupta and Ms. Sweta Gupta (Allottees Financial Creditors). vii. However if the Promoter fails to comply with the undertaking and fails to invest as financial creditor or do not cooperate with the Interim Resolution Professional/Resolution Professional the Adjudicating Authority (National Company Law Tribunal) will complete the Insolvency Resolution Process. Appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the initiation of the corporate insolvency resolution process (CIRP) against the Corporate Debtor was justified under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code).
• Whether the application under Section 7 of the I&B Code was premature due to the alleged non-default by the Corporate Debtor.
• How should the CIRP be conducted for real estate companies, particularly in cases where the allottees are financial creditors?
• What role can promoters play in the CIRP to ensure the completion of real estate projects?
• How should the financial claims of allottees and other creditors be balanced during the CIRP?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for Initiation of CIRP

• Relevant Legal Framework and Precedents: Section 7 of the I&B Code allows financial creditors to initiate CIRP against a corporate debtor upon default. The Supreme Court's decision in "Pioneer Urban Land and Infrastructure Limited v. Union of India" affirmed that homebuyers are financial creditors under the I&B Code.
• Court's Interpretation and Reasoning: The court considered whether the Corporate Debtor defaulted in its obligations to the allottees, who are financial creditors. The court referenced the "Pioneer Urban" case to affirm the status of allottees as financial creditors.
• Key Evidence and Findings: The court noted that the project was significantly incomplete, and the allottees had not received possession of their units, indicating a default.
• Application of Law to Facts: The court applied Section 7 of the I&B Code, considering the financial creditors' claims and the project's status, to justify the initiation of CIRP.
• Treatment of Competing Arguments: The appellant argued that the project was near completion and that the application was premature. However, the court found that the default persisted, justifying the CIRP.
• Conclusions: The court upheld the initiation of CIRP, finding the application under Section 7 justified.

Issue 2: Conduct of CIRP for Real Estate Companies

• Relevant Legal Framework and Precedents: The court referenced the "Flat Buyers Association Winter Hills-77, Gurgaon v. Umang Realtech Pvt. Ltd." case, which addressed CIRP in real estate contexts.
• Court's Interpretation and Reasoning: The court emphasized a "Reverse Corporate Insolvency Resolution Process" tailored for real estate projects, focusing on project-specific resolution rather than company-wide liquidation.
• Key Evidence and Findings: The court considered the project's completion status and the financial arrangements proposed by the promoter to continue the project.
• Application of Law to Facts: The court applied the principles from the "Winter Hills" case to allow the promoter to act as a financial creditor, ensuring project completion.
• Treatment of Competing Arguments: The court balanced the interests of allottees and financial institutions, ensuring that project completion was prioritized.
• Conclusions: The court adopted a project-specific approach, allowing the promoter to finance the project as an outsider financial creditor.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The resolution can be taken even during the 'corporate insolvency resolution process', if any 'Promoter' as investor agrees to invest the money for keeping the company as a going concern and complete the project within the time frame."
• Core Principles Established: The judgment establishes the principle of a "Reverse Corporate Insolvency Resolution Process" for real estate companies, focusing on project-specific resolutions and allowing promoters to finance projects as financial creditors.
• Final Determinations on Each Issue:
  
  • The initiation of CIRP was justified under Section 7 of the I&B Code.
  • A project-specific approach was adopted for the CIRP of the real estate company, allowing the promoter to finance the project and complete it within a specified timeframe.
  • The court provided a structured plan for project completion, financial arrangements, and the treatment of claims by allottees and other creditors.