2024 (12) TMI 1315 - AT - IBC

Admission of Application u/s 7 of the Insolvency and Bankruptcy Code, 2016 - non-fulfillment of the threshold requirement of 100 allottees - Existence of debt and default on the part of the Corporate Debtors in delivering the units within 36 months with grace period of 12 months or not - Existence of privity of contract between the land owning Company and the allottees or not. Non-fulfillment of the threshold requirement of 100 allottees - HELD THAT - The effect and consequence of the order, rejecting the Application to initiate criminal proceedings against the Financial Creditors in a class, cannot be bypassed by the Appellant(s) by filing First Information Report or complaints against Financial Creditors. Any Status Report submitted in such criminal proceedings can have no bearing on proceedings, which was taken by Financial Creditors in a class under Section 7. Reliance on Status Report submitted by Appellant(s) in a criminal proceeding can have no bearing while deciding Section 7 Application. The said Status Report is not an evidence on which it can be pronounced that threshold of 100 allottees was not complete in filing of Section 7 Application. Thus, the submission raised by the Appellant(s) that threshold of 100 is not complete has no legs to stand and has to be rejected. Existence of debt and default on the part of the Corporate Debtors in delivering the units within 36 months with grace period of 12 months or not - HELD THAT - The unit holders have been waiting for their units for last more than a decade and the amount, was paid in the year 2012 by the allottees, the Appellant cannot be absolved by permitting them to deposit the amount with meagre interest, which was received in the year 2012. The findings recorded by the Adjudicating Authority regarding debt and default and Application filed by the Corporate Debtors itself being IA Nos. 293 and 2497 of 2024 proves beyond doubt that debt and default is admitted on the part of the Corporate Debtor. Civil Suit has been filed before the District Court Gautam Budh Nagar in the year 2017 and the Writ Petition No.1553/2019 has been filed before the Allahabad high Court in the year 2019. Other Writ Petitions filed by Sammiti were in the year 2019 and 2020. The Project was launched in the year 2012, in which year the amounts were collected from the allottees. Litigation which commenced in the year 2019 and 2020, cannot be a ground to absolve the Corporate Debtor from its responsibility and obligation to complete the Project within the time as contemplated in the Builder Buyers Agreement with the allottees. The fact that litigations are pending with regard to two of the Khasras, which is also included in the Project land, cannot be a ground to absolve the Corporate Debtor from its obligation, nor that can be a reason for not completing the Project - thus, on the ground that litigations filed by the Corporate Debtor for resolution of the issue with respect to title of land are pending, cannot be a ground to reject Section 7 Application, which was filed by the Financial Creditors in a class for initiating CIRP against the Corporate Debtor. Existence of privity of contract between the land owning Company and the allottees or not - HELD THAT - All the three Corporate Debtors had joined hands to develop the Project. The Corporate Debtors being closely connected with the construction and implementation of the Project, it is not open for the land owning Company to say that there is no financial debt. There are no substance in submission of the learned Counsel for the Appellant that there being no privity of contract between the land owning Company and the allottees, there is no liability on the land owning Company towards the Project - This Tribunal in Gp. Capt Atul Jain (Retd.) vs. Tripathi Hospital Pvt. Ltd. Ors. 2023 (7) TMI 1242 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI also came to the conclusion that there was no evidence of any direct transaction to have taken place between the Appellant and the Corporate Debtor and the insolvency resolution can be triggered where there is a financial debt owed to a person. It was held that Appellant was not able to prove that he is a Financial Creditors. This Tribunal affirmed the judgment of the Adjudicating Authority rejecting Section 7 Application. The above judgment does not in any manner help the Appellant in the facts of the present case. Conclusion - The present is a case of clear default of Appellant in not completing the Project and handing over the units within the time - The challenge in the Appeal is order of the Adjudicating Authority passed in Section 7 Application, which was initiated by allottees of the Corporate Debtors, there are no sufficient ground to interfere with the order passed by Adjudicating Authority under Section 7. It is not for this Tribunal to consider the mode and manner for completion of the Project at this stage. The steps shall be taken by Resolution Professional for completion of the Project in accordance with insolvency resolution process as per the IBC and Regulations. There are no good ground to interfere with the impugned order - In result, the Appeal is dismissed.

Summary

Issues Involved:
1. Maintainability of the Section 7 Application under IBC due to alleged non-fulfillment of the threshold requirement of 100 allottees.
2. Allegations of forged and fabricated affidavits filed by the Financial Creditors.
3. Joint application against three Corporate Debtors and privity of contract.
4. Force majeure as a defense for non-completion of the project.
5. Settlement proposals and their rejection by Financial Creditors.
6. Allegations of fraud and initiation of criminal proceedings against Financial Creditors.
7. Impact of pending litigations on the project completion.

Detailed Analysis:

1. Maintainability of Section 7 Application:
The primary issue was whether the Section 7 Application filed by 115 unit holders met the threshold requirement under IBC, which mandates either 100 allottees or 10% of the total allottees. The Appellants contended that several affidavits were forged, reducing the count below the threshold. However, the Adjudicating Authority and subsequent appeals, including the Supreme Court, upheld the maintainability of the application, concluding that the threshold was met. The Supreme Court directed the NCLT to expedite the disposal of the application.

2. Allegations of Forged Affidavits:
The Appellants alleged that some affidavits accompanying the Section 7 Application were forged. An FIR was registered, and a Status Report suggested that 20 affidavits were forged. However, the Adjudicating Authority dismissed these allegations, noting that such claims were an attempt to delay proceedings. The Tribunal also dismissed appeals challenging this dismissal, emphasizing that the Status Report from the criminal proceedings could not affect the Section 7 Application.

3. Joint Application Against Three Corporate Debtors:
The Appellants argued against the maintainability of a joint application under Section 7 against three separate entities, claiming no privity of contract with some Financial Creditors. The Tribunal, however, found that all three entities were intrinsically linked to the project and necessary for its resolution. The joint application was deemed maintainable as all entities were involved in the project's development.

4. Force Majeure Defense:
The Appellants claimed that force majeure events, including land title disputes and project deregistration by UP RERA, prevented project completion. The Adjudicating Authority rejected this defense, citing that the deregistration resulted from the Appellants' mismanagement. The Tribunal agreed, noting that the force majeure claim was unsustainable and an afterthought.

5. Settlement Proposals:
The Appellants proposed settlements, including refunding 70% of the principal amount, which were rejected by the Financial Creditors. The Tribunal noted that the settlement offers were inadequate, and the Financial Creditors preferred insolvency proceedings to recover their units. The Tribunal upheld the Adjudicating Authority's decision to proceed with the insolvency process.

6. Fraud Allegations and Criminal Proceedings:
The Appellants sought to initiate criminal proceedings against the Financial Creditors for alleged fraud. The Adjudicating Authority dismissed these applications, and the Tribunal upheld this dismissal, emphasizing that the insolvency proceedings should not be influenced by external criminal allegations.

7. Impact of Pending Litigations:
The Appellants argued that ongoing litigations regarding land title disputes hindered project completion. The Tribunal noted that these litigations began long after the project's launch and could not justify the failure to deliver units as per the Builder Buyers Agreement. The Tribunal concluded that pending litigations were not a valid ground to reject the Section 7 Application.

Conclusion:
The Tribunal dismissed the appeals, affirming the Adjudicating Authority's decision to admit the Section 7 Application. The Tribunal found no merit in the Appellants' arguments regarding the threshold, alleged fraud, or force majeure. It emphasized the need for insolvency resolution to ensure project completion and unit delivery to the Financial Creditors. The Tribunal directed that the insolvency process proceed in accordance with IBC regulations.