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TMI Blog2020 (9) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... ave any right of representation, participation or voting in a meeting of COC. In the absence of any financial creditor(s) in relation to a corporate debtor, proviso to Section 24(8) of the Code contemplates the COC to be constituted in such manner as may be specified. IBBI, being the Regulator has framed regulations to meet such an eventuality in terms of Regulation 16 of Insolvency and Bankruptcy Board of India(Insolvency Resolution Process of Corporate Persons) Regulations, 2016. With the above composition of members, the 1st COC seems to have been held as reflected from the minutes of the COC meeting held on 19.12.2019 which ultimately came to an end because of disturbance by the members based on the insistence of the IRP that the Section 12A withdrawal is to be considered as the Main Agenda which according to him is to get precedence in view of the order of this Tribunal passed on 11.12.2019 in a Miscellaneous Application filed in MA No. 1505 of 2019 even before the constitution of the COC cannot be made at the instance of the operational creditor who initiated the proceedings in the first place - The power of revision provided to the IRP/RP it must be noted is not only conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duties to the professionals. This creates the positive externality of better utilization of judicial time. The worse the performance of IPs, the more the adjudicator may need to personally supervise the process, which in turn may cause inordinate delays. Consumers in a well functioning market for IPs are likely to have greater trust in the overall insolvency resolution system. On the other hand, poor quality, services and recurring instances of malpractice and fraud, erode consumer trust. Since Form FA has also been filed vide filing dated 28th January 2020 having Diary No. 624 of 2020 and as the fees and costs of the IRP has been fully provided for to his satisfaction, no specific order is necessary in this regard. In the circumstances the CIRP initiated by this Tribunal vide order dated 13.11.2019 stands withdrawn, the powers of the Board of Directors which stood suspended is restored and the management and affairs of the Corporate Debtor is directed to be handed over to them by the IRP including the possession and control of books and assets of the Corporate Debtor, if any taken during the CIRP period. - MA/67/2020 in IBA/222/2019, MA/82/2020 in MA/67/2020 in IBA/222/2019, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in effect all the other applications, are taken up first: a) That CIRP in relation to the Corporate Debtor was initiated on 13.11.2019 and the applicant was appointed as the IRP. Presently the Corporate Debtor is maintained as a 'going concern' having three real estate projects on hand, namely GLO DUGAR PROJECT being carried at Perumbakkam, Chennai having 97 flats/apartments fully constructed with 75% of home buyers occupying the flats allotted, SKY DUGAR PROJECT situated at Ayanmbakkam, Chennai as the project site, with 237 flats/apartments with 65% of the home buyers occupying the flats allotted and LAKE DUGAR PROJECT situated at Ambattur-Puzhal Road with the approval for 408 flats/apartments with 80% of the construction completed. b) That soon after the initiation of CIRP by this Tribunal, the Operational Creditor, namely Prism Johnson Limited, Hyderabad, before the constitution of the COC, had filed an application in Miscellaneous Application No. MA/1505 of 2019, however this Tribunal had given a direction for the COC to consider the same under Section 12A of IBC after its constitution which was duly communicated to the COC after its constitution in the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Form B Operational Creditor 23,66,124 2 4 Rahul Cables, Chennai - 600101 Email: accounts l@rahulcables,in Form B Operational Creditor 2,00,000 2 5 Eco Services India Private Limited Chennai- 600032 Email: [email protected] Form B Operational Creditor 5,04,000 2 6. Bright Electricals, Chennai 600 101 Email: [email protected] Form B Operational Creditor 27,22,581 5 7. Kailash Company, Chennai 600 079 Email: [email protected] Form B Operational Creditor 34,40,975 5 8. Aasman Interiors, Chennai -600118 Email :[email protected] Form B Operational Creditor 18,32,943 5 Total Amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate documents were not provided and further the Hon'ble NCLAT in its decision dated 25.11.2019 has held that in any case the claim of the said entity as time barred debt in its own case referred in the earlier paragraph and also the books of the corporate debtor reflecting that sums are payable by the said entity to the Corporate Debtor and the dispute being referred to the Arbitrator appointed by the Hon'ble High Court of Madras, again an issue has arisen in relation to the claim of the said Sree Sankeswara Foundations and Investments and thereby as to its status in the COC. iii) In relation to Kanchanjanga Securities Company Pvt. Ltd. and the claim submitted by it in Form C as a financial creditor that as per the books of the Corporate Debtor it is the said entity which owes money to the Corporate Debtor and hence it becomes the Financial Debtor and not as a Financial Creditor as claimed. Further, it is also averred that the dispute between the said entity and the Corporate Debtor has been referred to the Arbitrator appointed by the Hon'ble High Court in O.P. No. 305 of 2019 which was not disclosed by the claimant while submitting Form C and have also not co-operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, a partnership firm aggrieved by the action of the COC in seeking for the withdrawal under Section 12A of IBC, 2016 without its consent, its being a part of the COC as a financial creditor and further having been allowed to also attend in the said capacity in the 1st COC held on 19.12.2019, however subsequently the respondent in the application, namely the IRP without any locus, suo motu has removed the name of the applicant, namely Sree Sankeswara Foundations and Investments from the Committee of Creditors and the said unilateral action is not in accordance with the provisions of IBC, 2016 and in the circumstances requires serious investigation on the part of the conduct of the IRP and in the circumstances, inter-alia has sought for the removal of the respondent from the position of the IRP and in his stead appoint a new resolution professional, refer to IBBI in relation to the conduct of the IRP for appropriate disciplinary action to be taken and also to conduct a forensic audit or special audit in relation to the books of accounts of the corporate debtor. From the averments contained in the application it is seen that pursuant to the initiation of CIRP in relation to the Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8/2020 opposing the premature withdrawal as well to take cognizance of the acts of the IRP and suitably deal with the same. 5. MA 82 of 2020 in MA No. 67 of 2020 is an application filed by M/s. Gurudev Foundations Pvt. Ltd., again, aggrieved by the actions of the IRP almost based on similar set of facts as that of the applicant in MA-68 of 2020 as noted above and thereby seeking to get itself impleaded in the application seeking for withdrawal as filed by IRP under Section 12A of IBC, 2016. It is averred in the impleading application that the applicant is having an arbitration award given in its favour, even prior to the initiation of the CIRP. The applicant it is averred that pursuant to calling for the claims by the IRP, the applicant had file the claim in Form - B as operational creditor on 23.11.2019 and after verifying the documents, the claim came to be admitted by the IRP as an operational creditor which was also duly communicated vide e-mail dated 29.11.2019. However, subsequently vide e-mail communications dated 03.12.2019 and 10.12.2019 the IRP without rejecting the claim, had sought from the applicant for the claim to be submitted by the applicant as a Financial Credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /222/2019 it is an application filed by one of the home buyers of the Corporate Debtor, namely an individual by the name of Mr P. Velmurugan on the basis that the Corporate Debtor being primarily engaged in real estate development and alleging that the claim arises out of debt to be paid by the corporate debtor incurred due to non-completion of the project in time in SKY DUGAR , based on the strength of documents annexed along with the claim filed in Form C with the respondent IRP for a sum of ₹ 1,01,31,511/- and also seeking for declaration that the applicant is eligible to join the COC taking into consideration the provisions of Section 21 of IBC, 2016. The claim, it is averred was filed with the IRP on 05.12.2019 and in the circumstances to take cognizance of the claim filed and to restrain the respondent IRP from premature withdrawal of the application under Section 12A of IBC, 2016. 8. In opposition to the applications filed against MA/67/2020 seeking for withdrawal by the IRP, while in relation to the applications filed by two of the objectors, namely M/s. Sree Sankeswara Foundations and Investments and M/s. Gurudev Foundations Pvt. Ltd., the stand taken by the IRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P Velmurugan failing which his claim Form C submitted on 01.12.2019 is a false claim and not tenable as mentioned in the above paragraphs as per Sections 5(8) and 5(7) of IBC 2016. Thus, in view of the completion of flat which became ready for occupation but not taken up, it is the contention of the IRP that the application filed in MA No. 1428 of 2019 is liable to be dismissed as the claim filed in Form C is not tenable and being against the provisions of Section 5(8) and 5(7) of IBC, 2016. 9. From the applications filed by the IRP, as well as other applicants, it is quite evident that while the IRP is seeking for withdrawal of the CIRP initiated against the Corporate Debtor taking into consideration the provisions of Section 12A of IBC 2016 based on the resolution passed by the COC in its meeting held on 14.01.2020 comprising of 8 operational creditors as listed in paragraph 3 supra, in the absence of any financial creditors according to the IRP, the resolution for withdrawal as passed by the COC under Section 12A of IBC, 2016 on 14.01.2020 is being vehemently opposed by the objectors/other applicants, save the IRP that the constitution of the 2nd COC in effect is illegal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peculiar situation which arose in Jaypee Infratech Ltd. matter and those matters similarly placed due to large scale absentations in voting on the part of Home Buyers or to give voting instructions to their Authorized Representative, all of which had already been dealt with in detail by one of us (namely R. Varadharajan) while sitting in the Reference Bench in the matter of IDBI Bank Ltd. vs. Jaypee Infratech Ltd. in CA No. 223/ALD/2018 dated 24.05.2019 which went up to the highest court of the land and not disturbed. Be that as it may, the decision of the Hon'ble Supreme Court laid down in Swiss Ribbon's case and followed in Jaypee Infratech Limited's case by a reference Bench of this Tribunal namely NCLT, and subsequently followed up with the Amendment Act of 2019 passed thereafter has not in any way watered down in any manner the high threshold limit of voting share of 90% of the CoC fixed under Section 12A of IBC, 2016 to be obtained, i.e. requiring almost all financial creditors, in the instant case the Operational Creditors according to the IRP in the absence of any financial creditors, to have to put their heads together to allow such withdrawal ipso facto becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a(Insolvency Resolution Process of Corporate Persons) Regulations, 2016 for brevity hereinafter called as IRCP Regulations which reads as follows: 16. Committee with only operational creditors. (1) Where the corporate debtor has no financial debt or where all financial creditors are related parties of the corporate debtor, the committee shall be set up in accordance with this Regulation. (2) The committee formed under this Regulation shall consist of members as under - (a) eighteen largest operational creditors by value: Provided that if the number of operational creditors is less than eighteen, the committee shall include all such operational creditors; (b) one representative elected by all workmen other than those workmen included under sub-clause (a); and (c) one representative elected by all employees other than those employees included under sub-clause (a). (3) A member of the committee formed under this Regulation shall have voting rights in proportion of the debt due to such creditor or debt represented by such representative, as the case may be, to the total debt. Explanation - For the purposes of this sub-regulation, 'total debt' is the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to the constitution of the COC and the report filed by the IRP before this Tribunal with a view to ascertain the compliance by the IRP with respect to the CIRP process after initiation of the CIRP on 13.11.2019 as provided under IBC, 2016 read with IRCP Regulations, 2016. S. No. Creditor's Name Form Submitted and type of Creditor claimed in the Form Claim Form Received Total Claim amount (Rs.) Principle/Invoice (Rs.) Interest Others Date of receipt of claim Remarks 1 Gurudev Foundations Pvt. Ltd. Chennai -600 079 Form - B Operational Creditor 71595989 71595989 0 0 23.11.2019 Actually Financial Creditor - Land Owner Joint Promoter -Arbitration award da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 even before the constitution of the COC cannot be made at the instance of the operational creditor who initiated the proceedings in the first place . We fully understand that the IRP is required to act under immense time pressure as the 1st COC is required to be completed within a period of 30 days and within which he has to perform the duties as provided of him under IBC, 2016 including those prescribed under Section 18 of the Code, for all of which co-operation of the Corporate Debtor and its personnel as well as the claimants who have lodged their claims are required, all of which are taken for granted being an ideal situation contemplated under the law, however experiences with the implementation of the law suggests that the conditions are not so idealistic as invariably the IRP is not even being handed over with the books of accounts and records of a corporate debtor by its management and personnel, leave alone taking possession of the assets, which leads the IRP to classify the claims in accordance with documents filed in support of the claim by the creditors and of his best estimate. A combined reading of Regulation 7 to Regulation 14 falling under Chapter IV of IRCP Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classified as a creditor who can form part of the COC on and from the said date. This act of the IRP necessarily results in the change in the constitution of the COC. It is also required to be seen that under Regulation 14(1) as extracted above, again there is a scope for change in the constitution of the COC, if the IRP according to his best estimate comes to a decision that a particular claimant can be admitted to the COC, but subsequently upon obtaining additional information, which may come from any source, shall revise the amounts of claim admitted including the estimates of claim as soon as practicable. The power of revision provided to the IRP/RP it must be noted is not only confined when the claim came to be admitted on best estimate as provided under Regulation 14(1), but is also available to claims admitted even other wise as well, as the term which has been used in Regulation 14(2) is to the effect that shall revise the amounts, including the estimates of claim made under sub-regulation(1) Thus from the above regulations it is seen that the IRP is having a power to re-constitute the COC based on his decisions, including by way of addition of claims as well as by revisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the above said entity as an 'operational creditor' stood rejected by Bench II of Chennai Bench of this Tribunal vide order dated 01.04.2019 in its own matter against the corporate debtor herein in IBA/236/2019 and the material portion of the said order reads as follows after discussion of facts:- 4. On reading the averments and hearing the submissions of either side, we are given to understand that it is an agreement entered into between the parties for development of a property way back in the year 2012, not falling under any of the kinds of debt defined u/s clause 21 of section 5 of the Code, therefore it cannot be treated as creditor-debtor relationship between the parties and this Joint Development Agreement no way indicates that the applicant is entitled to a claim against the developer falling within the purview of operational credit , hence forth we are of the considered view that no debt payable to the applicant is in existence. 5. Another supplementary point is, this Joint Development Agreement was executed in the year 2012, ever since no acknowledgement from the developer side disclosing that the developer is under obligation to pay to the applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turned by this Tribunal on the ground that the 'debt' is barred by limitation then irrespective of the nature of debt, whether it be 'financial debt' or 'operational debt', the finding holds its position and in the circumstances the exclusion of M/s. Sree Sankeswara Foundations and Investments from the 2nd COC by the IRP, even though admitted and allowed to participate in the 1st COC cannot be questioned in light of Regulation 14 of IRCP Regulations, 2016. ii) Gurudev Foundations Limited:- In relation to the above entity it is seen that the claim originally had been filed in Form B as an 'Operational Creditor' with the IRP. Even though the claim is seen to have been admitted as such, from the report of the constitution of the COC as extracted in paragraph 14 supra filed by the IRP before this Tribunal, the IRP had made an observation as reflected in the 'remarks' column of the said report had remarked that Gurudev Foundations Limited is required to be considered as a 'Financial Creditor'. Following it up with it is the averment of the said entity that the IRP directed it to file as a 'financial creditor' which was also c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty falling within the confines of definition of a related party under Section 5(24) of IBC, 2016 and we are equally persuaded by the decision and if all the above three parties, namely M/s. Sree Sankeswara Foundations and Investments, Gurudev Foundations Limited and Kanchanjanga Securities Company Pvt. Ltd. are to be treated as a 'related party' cannot be allowed either to be represented, participate or vote in a meeting of COC, be it a COC consisting of financial creditors or operational creditors as the case may be taking into consideration the 1st proviso to Section 21 of IBC, 2016 read with Regulation 16(4) of IRCP Regulations, 2016. This Tribunal is now confronted to deal with only the opposition as raised by a Home Buyer opposing the application seeking for withdrawal, namely one Mr P. Velmurugan. In his case it is the submission of the Ld. IRP that the claim is yet to be admitted inter alia as additional documents have been sought for and lack of disclosures in the claim form submitted and in the circumstances cannot be treated as a part of the COC. From the facts disclosed in the application filed by Mr. P. Velmurugan in MA No. 1428 of 2019 along with the respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 plan by the Competent Authority and not other projects which are separate at other places for which separate plans approved. For example - in this case the Winter Hill - 77 Gurgaon Project of the 'Corporate Debtor' has been place of Corporate Insolvency Resolution Process. If the same real estate company (Corporate Debtor herein) has any other project in another town such as Delhi or Kerala or Mumbai, they cannot be clubbed together nor the asset of the Corporate Debtor (Company) for such other projects can be maximised. 22. Further, a 'Secured Creditor' such as 'financial institutions/banks& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er can also point out that the insolvency resolution process under the Code has been invoked fraudulently, with malicious intent, or for any purpose other than the resolution of insolvency. This the real estate developer may do by pointing out, for example, that the allottee who has knocked at the doors of the NCLT is a speculative investor and not a person who is genuinely interested in purchasing a flat/apartment. They can also point out that in a real estate market which is falling, the allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it. Given the above, it is clear that it is very difficult to accede to the Petitioners' contention that a wholly one-sided and futile hearing will take place before the NCLT by trigger-happy allottees who would be able to ignite the process of removal of the management of the real estate project and/or lead the corporate debtor to its death. Thus, in relation to an yet to be admitted and as yet not being part of the COC, the applicant-claimant cannot seek to oppose the reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration that the 'Corporate Debtor' is an Infrastructure Housing Company on which a large number of allottees are dependent and if the 'Corporate Debtor' goes on 'Corporate Insolvency Resolution Process', then it may delay the completion, we in exercise of powers conferred under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 accept the settlement reached between the parties and allow Mr. Rajeev Shetty to withdraw the application under Section 9. 20. However in the instant case it is to be seen that the Corporate Debtor who is also engaged in the real estate sector and as compared to the facts in Company Appeal (AT) (Insolvency) 1501 of 2019 is better placed herein as even before the constitution of the COC, an application seeking for withdrawal had been filed in M.A. No. 1505 of 2019. In the circumstances in the fitness of things and also taking into consideration the decision of the COC in its 2nd meeting held on 14.01.2020 wherein the resolution was passed unanimously by the reconstituted members of the COC and after the IRP had rightly excluded exercising his power of revision as contained in Chapter IV of IRCP Regulations, 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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