2021 (7) TMI 580 - AT - Insolvency and Bankruptcy

Maintainability of application - CIRP is initiated - amount claimed to be in default were deposits made by flat owners with the Developer - while CIRP was pending, the Respondent No. 1 filed proceedings under Section 7 of IBC for the amounts deposited in terms of the agreement to sell, with the Developer - HELD THAT - It is clear that the Sale Agreement executed between the Developer M/s Avaani Projects and Infrastructure Ltd. and the main land owner M/s Electrical Manufacturing Company Ltd. and the Corporate Debtor as Maintenance Company were to render common service and upkeep till the Association/Society of the flat owners was formed. The Corporate Debtor was to look after the maintenance till three years of the Deed of Conveyance by the respective purchasers with the Developer and Maintenance Company or so soon after completion of construction of Phase II of Avani Oxford whichever was later. The Appeal has also put on record that Avani Oxford Project received Completion Certification on 21st March, 2016. The application under Section 7 of IBC (Page 39 of the Appeal) is dated 21st November, 2019. Record shows that the Financial Creditors also moved the National Consumer Disputes Redressal Commission in July, 2016 in which orders were passed and even written submissions were filed by the Developer and that the Financial Creditors were pursuing their remedies. The Balance Sheets of the Corporate Debtor have also been filed - The Respondent No. 1 Company of Flat Purchasers has been trying to get back the money deposited by Flat Buyers themselves. They have also pursued rights in Consumer Forum - there is no substance in the claim made by the Appellant that the debt is time barred. Admittedly, the amounts were collected by the Developer and kept with its subsidiary, the Corporate Debtor, for the purpose of maintenance till the Association/ Society or Holding Organization (i.e. Respondent No. 1) gets established to hand over the amounts to the body of the flat owners. Section 5(8)(f) Explanation makes it clear that any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing. The claim made by Respondent No. 1 is accepted that it is the Financial Debt . There is Financial Debt due and in default of amount more than threshold stated in Section 4 of IBC. There is any error in the impugned order vide which the CIRP was initiated. Appeal dismissed.

Summary

Issues:
Admission of application under Section 7 of Insolvency and Bankruptcy Code, 2016; Nature of debt claimed; Maintainability of the application under Section 7; Default date determination; Financial creditor status; Debt due and default confirmation.

Admission of Application under Section 7:
The appeal was filed against an order admitting an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, by the Adjudicating Authority. The application was filed by a corporate association claiming a debt of ?5,64,72,615.80 against the Corporate Debtor, initiating the Corporate Insolvency Resolution Process (CIRP).

Nature of Debt Claimed:
The debt claimed in the application was related to deposits made by flat owners towards maintenance and sinking fund with the Developer, which were subsequently transferred to the Corporate Debtor. The argument revolved around whether this amount constituted a financial debt under the IBC.

Maintainability of Application under Section 7:
The Appellant challenged the maintainability of the Section 7 application, contending that the claim should have been pursued against the Developer in a separate CIRP. The Appellant argued that the debt was not financial in nature and that the application was not maintainable against the Corporate Debtor.

Default Date Determination:
The dispute also involved the determination of the default date, with the Respondent claiming default to be on 21st March, 2016, based on the completion of a specific phase of the residential complex. The Appellant argued that the claim should have been pursued in the CIRP against the Developer.

Financial Creditor Status:
The Respondent claimed to be a financial creditor based on the provisions of the Agreement and the amounts collected from flat purchasers. The Respondent argued that the debt was admitted in the Corporate Debtor's balance sheets for the relevant years, establishing the financial creditor status.

Debt Due and Default Confirmation:
After considering the arguments from both sides and examining the records, the Tribunal concluded that the debt claimed was indeed a financial debt falling within the purview of the IBC. The Tribunal found no error in the impugned order initiating the CIRP against the Corporate Debtor, confirming the debt due and default status.

Conclusion:
The appeal was dismissed, with the Tribunal ruling in favor of the Respondent, confirming the admission of the application under Section 7 and upholding the financial creditor status and debt due and default of the claimed amount. The Tribunal found no merit in the Appellant's arguments and determined that the debt was not time-barred, thereby dismissing the appeal without costs.