2020 (9) TMI 996 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - alleged default on the part of the corporate debtor in settling an amount towards the assured returns as promised by the corporate debtor - existence of debt becoming due or not - major point raised by the corporate debtor is that the debt has not yet become due as per the conditions of MOU executed between the parties - HELD THAT - A perusal of the clause of MOU signed between the parties on 1st February, 2014 reveals that the assured return shall be payable only upon execution of the Unit Buyer's Agreement on the Company's standard format. The financial creditors have not shown any proof to establish the fact that they have got the Unit Buyer's Agreement duly executed by both the parties. As a result of failure to produce the duly signed Unit Buyer's Agreement, it is considered that the debt has not yet become due. Petition dismissed.

Issues Involved:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of IBC 2016.
2. Alleged default by the corporate debtor in settling assured returns.
3. Validity and execution of the Unit Buyer’s Agreement.
4. Corporate debtor’s right to withdraw the assured return scheme.
5. Applicability of force majeure and market conditions as a defense.

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of IBC 2016:

The petitioners, financial creditors, sought to initiate CIRP against the corporate debtor for an alleged default in settling an amount of ?97,56,774/- including interest towards assured returns. The financial creditors had purchased units under an "assured return scheme" where the corporate debtor was required to pay a monthly assured return until the unit's completion and possession.

2. Alleged default by the corporate debtor in settling assured returns:

The financial creditors claimed that the corporate debtor was erratic in paying assured returns and had stopped payments after December 2017. They argued that the corporate debtor failed to provide a timeline for project completion and avoided payments despite repeated assurances and discussions about refunding the entire amount with compensation.

3. Validity and execution of the Unit Buyer’s Agreement:

The corporate debtor contended that the application was not maintainable as the financial creditors had not executed the Unit Buyer’s Agreement, a condition precedent for the payment of assured returns as per the Memorandum of Understanding (MOU). Clause 7 of the MOU specified that assured returns were payable only upon the execution of the Unit Buyer’s Agreement. The corporate debtor argued that the absence of this agreement meant the debt had not become due.

4. Corporate debtor’s right to withdraw the assured return scheme:

The corporate debtor also argued that it had the right to withdraw the assured return scheme as per Clause 10 of the MOU, which allowed the company to modify, amend, or withdraw the scheme at its discretion. The corporate debtor claimed it had withdrawn the scheme from January 2018 due to adverse market conditions, thereby nullifying any claims for assured returns beyond December 2017.

5. Applicability of force majeure and market conditions as a defense:

The corporate debtor cited a downturn in the real estate market, including issues like land acquisition problems and environmental regulations, as reasons for its inability to continue paying assured returns. The financial creditors countered that market conditions could not excuse non-fulfillment of contractual obligations and that the corporate debtor's defense was an afterthought.

Judgment:

The Tribunal examined the documents and arguments from both sides. It noted that the financial creditors failed to produce proof of a duly executed Unit Buyer’s Agreement, a condition for the assured returns to become due. Consequently, the Tribunal concluded that the debt had not yet become due and dismissed the petition with no costs.

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