2021 (3) TMI 297 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - only contention of the corporate debtor is that since the applicant itself asked respondent to cancel the allotment and refund the principal amount, therefore the applicant ceased to exist as an allottee of the corporate debtor - existence of debt and default or not - HELD THAT - Since the amount has been raised from the applicant/allottee under a real estate project, not only the debt has a commercial effect of borrowing and comes within the scope of financial debt but also the applicant comes within the definition of financial creditor - Accordingly, the applicant 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 present application under section 7 of the Code for initiation of CIRP has been filed by the applicant/financial creditor in form 1 in terms of rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 accompanied with required information, documents and records as prescribed under the Rules. Existence of debt and default or not - HELD THAT - In the present case neither the possession of the flats has been given to the applicant nor the corporate debtor has returned even the amount collected from the applicant since the year 2014. It is pertinent to mention here that the corporate debtor in its reply has itself admitted that ₹ 2,48,88,466 is still due and payable to the applicant out of the amount paid by applicant for the said allotment. There is thus sufficient material on record to conclude that the respondent/corporate debtor has committed default in repayment of the financial debt - There is no denial of default and the amount of default exceeds much more than ₹ 1,00,000. Once there is a debt and default and the application is complete, the Adjudicating Authority is bound to admit the application preferred under section 7 of the Code. Though considerable period has since lapsed, the possession of the space has not been given to the applicant. Even the principal amount disbursed has not been repaid by the respondent/corporate debtor. It is accordingly reiterated that respondent/corporate debtor has committed default in repayment of the outstanding financial debt which exceeds the statutory limit of ₹ 1,00,000. Besides it is also seen that the application filed in form 1 under section 7 of the Code read with rule 4 of the Rules is complete and there is no infirmity in the same - application admitted - moratorium declared.

Issues Involved:
1. Whether the applicant qualifies as a "financial creditor" under the Insolvency and Bankruptcy Code, 2016.
2. Whether the debt claimed by the applicant is a "financial debt."
3. Whether the respondent has committed default in payment of the financial debt.
4. Whether the application for initiation of the Corporate Insolvency Resolution Process (CIRP) is complete and maintainable.
5. Appointment of the Interim Resolution Professional (IRP) and declaration of moratorium.

Issue-Wise Detailed Analysis:

1. Whether the applicant qualifies as a "financial creditor" under the Insolvency and Bankruptcy Code, 2016:
The Tribunal examined the definitions of "financial creditor" and "financial debt" as per sections 5(7) and 5(8) of the Code. It was noted that the Insolvency and Bankruptcy (Second Amendment) Act, 2018 clarified that amounts raised from an allottee under a real estate project are deemed to have the commercial effect of borrowing, thus qualifying as "financial debt." The Supreme Court in Pioneer Urban Land and Infrastructure Ltd. v. Union of India confirmed that real estate buyers are financial creditors. The Tribunal concluded that the applicant, being an allottee, qualifies as a financial creditor.

2. Whether the debt claimed by the applicant is a "financial debt":
The Tribunal noted that the applicant entered into a Space Buyer Agreement with the respondent for the purchase of commercial space and made a complete payment of ?10,53,76,287. The respondent failed to deliver possession within the stipulated time and agreed to buy back the premises for ?16,25,00,000 but defaulted on the payment. The Tribunal held that the amount raised from the applicant under the real estate project has the commercial effect of borrowing and thus qualifies as "financial debt."

3. Whether the respondent has committed default in payment of the financial debt:
The Tribunal observed that the respondent admitted to owing ?2,48,88,466 to the applicant and failed to repay the amount despite several communications. The Tribunal concluded that there was a clear default by the respondent in repaying the financial debt, which exceeded the statutory limit of ?1,00,000.

4. Whether the application for initiation of the Corporate Insolvency Resolution Process (CIRP) is complete and maintainable:
The Tribunal reviewed the application filed under section 7 of the Code in form 1, accompanied by the required information, documents, and records. It found the application to be complete and without any infirmities. The Tribunal noted that once there is a debt and default, and the application is complete, the Adjudicating Authority is bound to admit the application.

5. Appointment of the Interim Resolution Professional (IRP) and declaration of moratorium:
The Tribunal appointed Mr. Deepak Arora as the IRP and directed the applicant to deposit ?2,00,000 with the IRP to cover initial expenses. The Tribunal declared a moratorium as per section 14 of the Code, prohibiting actions such as the institution or continuation of suits, transferring assets, and recovering property from the corporate debtor. The IRP was directed to make a public announcement and perform all functions as per the Code.

Conclusion:
The Tribunal admitted the application under section 7 of the Insolvency and Bankruptcy Code, 2016, initiated the CIRP against the respondent, appointed Mr. Deepak Arora as the IRP, and declared a moratorium. The Tribunal directed the IRP to perform his duties with utmost dedication and in accordance with the provisions of the Code, Rules, and Regulations.

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