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

Issues Involved:
1. Application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Allegations of default by the Corporate Debtor.
3. Financial status and completion timeline of the project.
4. Expenditure incurred by the Corporate Debtor.
5. Precedent cases and their relevance.
6. Voting rights and decision-making by the allottees.
7. Reverse Corporate Insolvency Resolution Process.
8. Agreement and cooperation between Promoter and Interim Resolution Professional.
9. Timeframe for project completion and refund to allottees.
10. Payment to financial institutions and operational creditors.

Detailed Analysis:

1. Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:

Ms. Babita Gupta, Mr. Manoj Kumar Gupta, and Ms. Sweta Gupta (Allottees – Financial Creditors) moved an application under Section 7 of the ‘Insolvency and Bankruptcy Code, 2016 (‘I&B Code’, for short) for initiation of ‘corporate insolvency resolution process’ against ‘Rajesh Projects (India) Private Limited (Corporate Debtor), an infrastructure Company.

The Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi by impugned order date 19th September, 2019 admitted the application.

2. Allegations of default by the Corporate Debtor:

Mr. Rajesh Goyal (Promoter) has preferred this appeal on one of the ground that the Respondents (Allottees) themselves being defaulter and in view of the decision of the Hon’ble Supreme Court in ‘Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors. – ‘[(2019) SCC OnLine SC 1005]’, the application was fit to be dismissed. It was also submitted that there was no ‘default’ by the ‘Corporate Debtor’ in terms of the agreement, therefore, the application under Section 7 of the ‘I&B Code’ was pre-mature.

3. Financial status and completion timeline of the project:

The Appellant highlighted the present project status in the appeal to suggest that the 9 (nine) towers of the project is on the verge of completion and stated as under:

“At present, as far as the physical structure is concerned, the construction of the said Project has reached up to 75% (Seventy-Five Percent). The Corporate Debtor has developed 1,920 flats in 9 towers in Phase-1 comprising of Towers A, B, C, D, E, F, G, H & M. The bulk of sales and allottees relate to these towers.

The super structure of these nine towers is already complete and the finishing work is under progress. The internal and external plaster work, staircase railing balcony railing, internal doorframes, internal electrical conducting work, of 7 towers is complete. In some of the towers lift installations work is also near complete representing 8 lifts.

In Common Areas, external services like rainwater harvesting, sewage line, drainage line are in advanced stage. Civil Structure work of club and community area is also nearly complete and finishing work will be started soon.

At best, it is the submission of the Appellant that it will need 6 – 9 months to complete the Project and apply for the Completion/Occupation Certificate.

4. Expenditure incurred by the Corporate Debtor:

As far as the financials are concerned, the Corporate Debtor as on date has sold/booked around 1,650 units and received approximately ? 595.75 crores (excluding Taxes) against such bookings. Against this sum of money received, the Corporate Debtor has spent more than 600 crores on construction, licenses, marketing as per the following details. While these collections and expenses have been incurred over the last 6 odd years, the consolidated figures, based on the unaudited accounts for the Financial Year 2018-19 are as under:

It has also been pleaded that the ‘Corporate Debtor’ spent more amount than the amount collected from the ‘Financial Creditor’ for the said project and in fact the expenses were made in terms of the requirements as prescribed under RERA, which reads as under:

“A bare perusal of the above clearly shows that Corporate Debtor has spent on the Project more than the amount collected from the customers and no monies has been paid to any promoter, director or transferred to any other Associate Company, sister concern and the said funds have been used solely for the purpose of the completion and construction of the said Project.

5. Precedent cases and their relevance:

Similar issue was fell for consideration before this Appellate Tribunal in ‘Flat Buyers Association Winter Hills-77, Gurgaon vs. Umang Realtech Pvt. Ltd. through IRP & Ors.’ in ‘Company Appeal (AT) (Insolvency) No. 926 of 2019’. In the said case, this Appellate Tribunal in the judgment dated 4th February, 2020 noticed the problems as arises in the ‘corporate insolvency resolution process’ of infrastructure companies constructing Apartments/Flats for the allottees. It was noticed that the allottees were not agreed to invest more amount or to finance to keep the ‘Corporate Debtor’ (Umang Realtech Pvt. Ltd. (through IRP) as a going concern.

6. Voting rights and decision-making by the allottees:

In this Appeal, the ‘Interim Resolution Professional’ was directed to collate the claims and on the basis of voting share of the allottees to find out whether the allottees agrees with the proposal for investment by Promoter – as an outsider ‘Financial Creditor’ and to allow this to co-operate with ‘Insolvency Resolution Professional’ to complete the project and allottee, if any, who wants the refund.

The ‘Interim Resolution Professional’ after conducted the voting of the allottees (Financial Creditors) and the voting share and the decision has been recorded as under:

“12. That the detail of total number of allottees entitled for proposal and exercised their option is as under:

13. That after the end of offer period, the detail of decision of the allottees on the aforesaid proposal is as under:

7. Reverse Corporate Insolvency Resolution Process:

In “Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors. (2019 SCC OnLine SC 1478)”, Hon’ble Supreme Court observed as follows:

“90. In Swiss Ribbons (supra) this Court was at pains to point out, referring, inter alia, to various American decisions in paras 17 to 24, that the legislature must be given free play in the joints when it comes to economic legislation. Apart from the presumption of constitutionality which arises in such cases, the legislative judgment in economic choices must be given a certain degree of deference by the courts. In para 120 of the said judgment, this Court held:

In view of the observation of the Hon’ble Supreme Court, we experimented as to whether during the Corporate Insolvency Resolution Process the resolution can reach finality without approval of the third party resolution plan.”

8. Agreement and cooperation between Promoter and Interim Resolution Professional:

One of the Promoter – ‘Uppal Housing Pvt. Ltd.’/ Intervenor agreed to remain outside the Corporate Insolvency Resolution Process but intended to play role of a Lender (Financial Creditor) to ensure that the Corporate Insolvency Resolution Process reaches success and the allottees take possession of their flats/apartments during the Corporate Insolvency Resolution Process without any third party intervention. The Flat Buyers Association of Winter Hill – 77 Gurgaon also accepted the aforesaid proposal. It is informed that ‘JM Financial Credit Solutions Ltd’ one of the financial institution has also agreed to cooperate in terms of agreement with the condition that they will get 30% of the amount paid by the allottees at the time of the registration of the flat/apartment.

9. Timeframe for project completion and refund to allottees:

Mr. Rajesh Goyal (Promoter) who appear in person accepted that the Promoter will make investment as ‘Financial Creditor’ to keep the ‘Corporate Debtor’ (company) as a going concern. ‘Summary of sources of funds and time period’ to infuse such investment shown as under:

A time-frame for refund to the allottees has been shown based on the agreement reached with the allottees who are seeking refund, as shown hereunder:

The second party under the direct supervision of the first party will be refund the money to third party/ allottee/ buyer within an outer time period of 180 days per following schedule:-

10. Payment to financial institutions and operational creditors:

Mr. Rajesh Goyal (Promoter) also agrees to pay to all the ‘Financial Institutions’ such as ‘Allahabad Bank’, ‘Punjab National Bank’ and ‘Indiabulls’ etc. The dues of all the ‘Financial Institutions’ and time of payment has been shown as under:

“The dues of financial institutions (Principal only), as existing on the day of declaration of the account as NPA or 19th September, 2019 the date on which the insolvency petition against the corporate debtor was admitted as the case may be, shall be paid in the following time frame:

Learned counsel for the “Indiabulls’ submitted that an amount of ? 35.80 Crores has wrongly shown and due amount is ? 42 Crores.

Mr. Rajesh Goyal (Promoter) submitted that any amount as may be determined by the ‘Interim Resolution Professional’ will be paid to the ‘Financial Institutions’ including Banks, ‘Indiabulls’ and the ‘Operational Creditors’, if any.

Final Order:

In view of the facts as referred to above and before passing any direction, it is desirable to quote certain observations and finding as given by this Appellate Tribunal in “Flat Buyers Association Winter Hills - 77, Gurgaon’ :

In Corporate Insolvency Resolution Process against a real estate, if allottees (Financial Creditors) or Financial Institutions/Banks (Other Financial Creditors) or Operational Creditors of one project initiated Corporate Insolvency Resolution Process against the Corporate Debtor (real estate company), it is confined to the particular project, it cannot affect any other project(s) of the same real estate company (Corporate Debtor) in other places where separate plan(s) are approved by different authorities, land and its owner may be different and mainly the allottees (financial creditors), financial institutions (financial creditors, operational creditors are different for such separate project. Therefore, all the asset of the company (Corporate Debtor) are not to be maximized. The asset of the company (Corporate Debtor – real estate) of that particular project is to be maximized for balancing the creditors such as allottees, financial institutions and operational creditors of that particular project. Corporate Insolvency Resolution Process should be project basis, as per approved plan by the Competent Authority. Any other allottees (financial creditors) or financial institutions/ banks (other financial creditors) or operational creditors of other project cannot file a claim before the Interim Resolution Professional of other project and such claim cannot be entertained.

So, we hold that Corporate Insolvency Resolution Process against a real estate company (Corporate Debtor) is limited to a project as per approved