2018 (11) TMI 1410 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - booking of three flats - buy-back agreement cum guarantee deed - application under Section 7 of the Code - Held that - Since the amount has been raised from the petitioner/allottee under a real estate project, not only the debt has a commercial effect of borrowings and come within the scope of financial debt but also the petitioner comes within the definition of financial creditor . - Therefore, petitioner 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. Dispute over the quantum of default, cannot be a ground for rejection of an application under Section 7 of the Code as the determination of quantum of financial debt is not within the domain of the Adjudicating Authority. In the present proceeding the Tribunal is not supposed to ascertain the quantum of amount of default or to pass a decree as to how much is actually due to the applicant financial creditor. The Code requires the adjudicating authority to only ascertain and record satisfaction in a summary adjudication as to the occurrence of default before admitting the application. Adjudicating Authority is only to ascertain the existence of a default and not the exact amount due. Whether respondent corporate debtor has committed default in payment of the financial debt - applicant being a home buyer comes within the definition of Financial Creditor. The material placed on record further confirms that applicant financial creditor had disbursed the money to the respondent corporate debtor as consideration for purchase of three flats. Though considerable long period has since lapsed 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 rupees one Lakh. Besides it is also seen that the application filed in Form - I under Section 7 of the Code read with Rule 4 of the Rules is complete and there is no infirmity in the same. Moreover the material on record reveals that there is no disciplinary proceeding pending against the proposed IRP. In the facts we are satisfied that the present application is complete and there has been a default in payment of the financial debt and that no disciplinary proceeding is pending against the proposed IRP and therefore, the applicant financial creditor is entitled to initiate Corporate Insolvency Resolution Process under Section 7 of the Code. Accordingly, in terms of Section 7(5)(a) of the Code, the present application is admitted.

Summary

Issues Involved:
1. Jurisdiction of the Tribunal.
2. Nature of the transaction between the parties.
3. Definition and applicability of "Financial Creditor" and "Financial Debt".
4. Existence of default by the Corporate Debtor.
5. Completeness and admissibility of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

Issue-wise Detailed Analysis:

1. Jurisdiction of the Tribunal:
The Tribunal established its jurisdiction over the matter as the registered office of the respondent corporate debtor is in Delhi, making it the Adjudicating Authority under sub-section (1) of Section 60 of the Code.

2. Nature of the Transaction Between the Parties:
The petitioner claimed to be a financial creditor who had booked three flats in the respondent's housing project and entered into Buy-Back Agreements cum Guarantee Deeds with the Corporate Debtor. The respondent contended that the transaction was a buyer-seller relationship, not a debtor-creditor relationship. The Tribunal noted that the petitioner had paid significant amounts for the flats and was assured guaranteed returns, which were not honored by the Corporate Debtor.

3. Definition and Applicability of "Financial Creditor" and "Financial Debt":
The Tribunal referred to Sections 5(7) and 5(8) of the Code, defining "Financial Creditor" and "Financial Debt". It emphasized the amendment to Section 5(8) by the Insolvency and Bankruptcy (Amendment) Ordinance, 2018, which included amounts raised from an allottee under a real estate project as having the commercial effect of a borrowing. The Tribunal concluded that the petitioner, being a home buyer, qualified as a "Financial Creditor" and the amounts paid for the flats constituted "Financial Debt".

4. Existence of Default by the Corporate Debtor:
The petitioner provided evidence of default, including the Buy-Back Agreements, bank statements, receipts, and cheques issued by the Corporate Debtor. The Corporate Debtor admitted non-payment of the principal amount but disputed the interest claimed. The Tribunal noted that the post-dated cheques were not encashed due to the Corporate Debtor's requests and false assurances. The Tribunal found sufficient material to conclude that the Corporate Debtor had defaulted in repaying the financial debt.

5. Completeness and Admissibility of the Application under Section 7 of the IBC:
The Tribunal reviewed the application filed under Section 7 of the Code and found it complete in all respects, with no disciplinary proceedings pending against the proposed Interim Resolution Professional (IRP). The Tribunal cited the Supreme Court's observation in "Innoventive Industries Ltd. Vs ICICI Bank and Ors" that once satisfied with the existence of default, the application must be admitted. The Tribunal was satisfied that the default had occurred, the application was complete, and no disciplinary proceedings were pending against the proposed IRP.

Conclusion:
The Tribunal admitted the application under Section 7 of the Code, appointed Mr. Ashok Kumar Juneja as the Interim Resolution Professional, directed a public announcement, and declared a moratorium in terms of Section 14 of the Code. The Tribunal emphasized the duties and obligations of the IRP and the personnel connected with the Corporate Debtor, ensuring compliance with the Code, Rules, and Regulations. The office was directed to communicate the order to the relevant parties and authorities.