9911796707
TMI Blog2021 (6) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... ormance by the other party. The default in paying against the schedule of payment after 18 months was contingent upon the release of the Additional Security by the Petitioner as also sale of apartments as per the Escrow Account receipts. But the sale of apartments itself was contingent upon the health of the real estate sector in recent times being severely affected by the Covid 19 pandemic and the ensuing lockdowns. Major decisions have been taken to protect industry from its effects, to inject economic stimulus and to revive the economy. On 24.03.2020 the minimum threshold of default was increased from ₹ 1 Lakh to ₹ 1 Crore, various provisions were modified/suspended, so that Companies facing financial stress due to the pandemic can be supported rather than be pushed into CIRP. Debts are being restructured as per Government guidelines. In the instant case, we are unable to come to a conclusion that the Respondent is insolvent. Its release of charges by the Vijaya Bank Consortium and issue of NOC showed that it had cleared all its dues. A look at the Respondent's long list of assets held by the Petitioner as security itself, with valuation of more than 800 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r known as Mantri Technology Constellations Pvt. Ltd.) (hereinafter as 'Respondent / Corporate Debtor') on the ground that it has committed default for an amount of ₹ 260,35,91,222 (Rupees Two Hundred and Sixty Crore Thirty Five Lakh Ninety One Thousand Two Hundred and Two only). 2. Brief facts of the case, which are relevant to the issue in question, are as follows: (1) M/s. LIC Housing Finance Limited ('Petitioner / Financial Creditor') is a Company incorporated on 19.06.1989 under the provisions of Companies Act, 1956 bearing CIN: L65922MH1989PLC052257 with its registered office situated at Bombay Life Building, 2nd Floor, 45/47, Veer Nariman Road, Mumbai - 400001. The Petitioner is a financial institution involved in providing long term finance to individuals for purchase or construction of house or flat for residential purpose / repair and renovation of existing flat/houses. It provides finance on existing property for business, personal needs etc. It also provides long term finance to persons engaged in the business of construction of houses or flats for residential purpose and to be sold by them. (2) M/s. Buoyant Technology Constellations Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor to the Financial Creditor are repaid in full. b. Corporate Guarantee dated 20.01.2017, in accordance to which the Guarantor M/s. Mantri Developers Private Limited has undertaken to secure the loan extended to the Corporate Debtor (Borrower) M/s. Mantri Technology Constellations Private Limited including interest, additional interest on principal, commitment charges, liquidated damages, costs, charges and all other monies that may be payable and remain unpaid to M/s. LIC Housing Finance Limited. c. Escrow Agreement 31.01.2017 entered into and executed between M/s. Mantri Technology Constellations Private Limited on the first part, M/s. LIC Housing Finance Limited and Punjab National Bank on the Third Part. This agreement provides that for the benefit of the Lender (Financial Creditor) the Borrower (Corporate Debtor) shall establish open and maintain an Escrow account for depositing the receivables with the designated branch of the Escrow agent as mentioned in the Schedule I annexed to the Escrow Agreement. (6) The disbursement schedule is as follows: (7) Further, as per the Memorandum of Deposit of Title Deeds executed on 27.02.2017 at Bangalore betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ya Bank being the lead banker. The consortium had funded to an extent of ₹ 185 crores and the financials were well laid and managed. With the all the permissions and sanctions including a building plan in place duly approved and authorized by all the Authorities, the work has been in great progress. (4) Due to the requirement for additional funding, the Petitioner herein came forward to clear off the loan of Vijaya Bank Consortium and sanction larger limits with all the assets and securities being shifted over in its favor. After confirming with various aspects and cluster of details, the Petitioner Bank agreed to take over the entire existing outstanding loan of Vijaya Bank Consortium and agreed to fund ₹ 250 crores (which was inclusive of the payment disbursed to the outstanding of Vijaya Bank Consortium). Thereafter, detailed loan Agreement dated 20.01.2017 was entered into between the Respondent and the Petitioner. A registered Memorandum of Deposit of Title Deeds dated 27.02.2017 was also executed in favor of the Petitioner. A General Undertaking Cum Indemnity dated 20.01.2017 was also executed by the Respondent in favor of the Petitioner. By this document it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would commence from the date the payments were made to the Vijaya Bank consortium to close their loan. Even the landlords also had issued a letter dated 21.01.2017 wherein giving NOC to the Petitioner to create liability on the developer's share against the financial assistance. (8) From the contents and covenants of the proposal submitted by the Respondent, sanction order issued by the Petitioner Bank, loan agreement, Memorandum of Deposit of title deeds or any other documents inter-se, there is no agreement for enforcement of security interest and nor such right to do so under the Securitization Act (SARFAESI) vests with the Petitioner organization. Further, the security created in favor of the Petitioner Financial Institution being the value of Developer's share in the entire project, their right to enforce will get accrued in them only upon formation of complete developers share. In other words, the right of bank to enforce against the pledged asset of Developer's share is clearly a contingent right upon the completion of the project since the Developer's share will be not accrue in the developer without the project being completed. In case of failure to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been a delay of obtaining few approvals which has caused delay of 6 to 8 months to complete the project. In a Real Estate Project, if approvals are delayed, further collection from customers are also delays which leads to delay in repayment. Release of the Additional Security was paramount for the Respondent to carry on. But the Petitioner committed a serious contractual error and disobedience by baselessly refusing to return the same on vague grounds. (12) Respondent received the letter from LICHFL dated 06.02.2019 asking to clear the outstanding dues of ₹ 66.48 crores. Subsequently, the Respondent met officials of Petitioner and explained various practical issues and also informed them vide letter dated 22.05.2019, stating that, they have completed the entire project barring certain finishing works and other external development / landscape etc., post which to apply for Fire CC, followed by seeking Occupancy Certificate from the local authority. Despite, LICHFL chose to initiate legal proceedings by committing serious breach of contract. (13) It is contended that the entire Real Estate Market affected very badly due to slowdown in the market and due to var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in terms of the reschedulements and restructuring agreements was under progress. They were also told that the action initiated under SARFAESI Act was an illegality in view of the bar under section 31(a) of the said Act and also of the fact that the entire matters were governed under the Indian Contract Act, due to repeated novation of agreements that were even acted upon by the parties. (17) It is contended that various acts of the Petitioner such as failure to make proper disbursements in time, leveling false allegations of default even when the payments were in order, wrongly classifying the Respondent's accounts as NPA, wrongly invoking SARFAESI provisions, etc., were clearly unlawful, as they were bound to follow the terms of legal contract. The respondent therefore, initiated a suit in OS No. 26493/2019 before the City Civil Court Bangalore and the Hon'ble Court was pleased to grant an interim order dated 19.11.2019 restraining the Petitioner from taking any coercive steps. The said order was in subsistence till 26.02.2020 till it was vacated on a legal ground. In a court held mediation proceedings, this Respondent also submitted proposal of settlement and sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the balance amount of ₹ 144 crores was disbursed towards the construction of the project. However apart from ₹ 144 crores, the Respondent has invested its own source of extra funds required to complete the project in all respects. Main Security is the entire project land and entire Apartments constructed thereon. The entire project even after its completion is virtually under the captive of the Petitioner as the Respondent cannot sell without the NOC of the Petitioner and the sale proceeds directly gets into their account via the escrow arrangement. Till the construction of all apartments are complete in all respects and it comes into existence, the contract is a contingent contract and the same cannot be enforced for any reasons. (22) It is also stated that the OC has been received for the Mantri Lithos project, which was developed on the lands approximately 6.5 Acres and the balance lands of 9.5 acres (out of total lands of 15 Acres, 31 Guntas) are yet to developed and the same are mortgaged with the Petitioner. Apart from these 9.5 Acres of lands, as per the Loan Sanction Letter and Loan Agreement executed, the Petitioner has agreed in writing that, the Addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid a sum of ₹ 330 crores to the Investors i.e., Xander group including interest ...etc., which itself is clear evident that, the Respondent company is in a position to clear the debt of all lenders of the entity and also return the investment to the Investors also. Hence, the Petitioner approve the reschedulement of loan keeping in mind the affect of COVID 19 Pandemic on the Real Estate Industry as a whole. (25) The matter is a contractual dispute and unlike the other banks where lending is purely interest based, the LICHFL being a Housing Finance Company, is conducting adverse to its objects. The lending was secured through escrow arrangement and the Petitioner is a party in the overall contract of construction and sale of units under its NOC. The dispute is rather contractual in nature. The loan is not unsecured and the recovery through securities is otherwise possible beyond doubt. Hence, the application is nothing but a one that would fall under section 65 of the Code. This Tribunal is being abused and the intention is a coercive recovery. Being aware of the financial status of this Respondent and having gone through their financial statement which clearly shows it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and unsold receivables of ₹ 120 crores, they are making payments only a meagre amount towards the repayment of Loan, which reflects that the Respondent wilfully defaulted in repaying the loan in order to defraud the Petitioner. (4) It is also stated that the Respondent has paid only a sum of ₹ 28 Crores till date out of principal amount of ₹ 250 Crores. The overdue amount as on 01.03.2021 is ₹ 282,48,86,647 including interest, out of which ₹ 222 Crores is outstanding towards Principal amount only. (5) Vide a Memo of Citations filed on 11.03.2021, the Petitioner has drawn attention to some decided cases on the issue. 5. The Respondent has also filed written submissions reiterating the averments made in their objections. It has further contended that since the Petition is filed during injunction order operating against LICHFL they should not take any coercive steps, and thus the instant Petition is contemptuous and the IBC proceedings may be dismissed and the Parties may be relegated to for an amicable settlement and resolution of difference via-media in terms of contemplation made under section 12A of the Commercial Courts Act, 2015. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lment of the amount of debt has become due and payable and is not repaid by the corporate debtor. The phrase 'debt has become due and payable' means that the debt is payable at the present moment. Whenever, as per the contract between the parties, debt is payable after a certain point of time or on the occurrence of a certain event, that is, it is contingent in nature, the debt becomes due only after the happening of that event and not immediately. Also, it is imperative that the agreement, basis which a debt or default is to be determined are acted upon by both sides, as the performance of the obligations by each party may be contingent upon the similar performance by the other party. 9. We find that in the process of raising the loan of ₹ 250 crore, the Petitioner and the Respondent have entered into several agreements, bilaterally and involving other parties as well, such as the Punjab National Bank, JDA partners, the parent company etc. They are briefly considered hereunder. (1) It is seen from the Loan Sanction Letter of 30.12.2016 placed at Annexure 2 of the CP, that as per its terms, the loan had a term of 36 months including the moratorium period of 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s earlier. Thus the first breach has occurred from the Petitioner's side. Since the default occurred after 36 months of the first disbursal, had the Additional Security been released the debt could have been cleared after disposing of those parcels of land or raising loans against the same. Thus, since the default was contingent upon the occurrence of this event, namely release of the Additional Security, the condition to which the Petitioner did not adhere, it could not be termed as default by the Respondent. (3) The two parties also entered into an Assignment Deed of Receivables dated 20.01.2017 as per which the Respondent was to assign all receivables generated from the sale of apartments/properties to the assignee, i.e. the Petitioner, till all the dues were cleared. Further, for recovery of debt, the Respondent (Assignor), the Petitioner (Lender) and Punjab National Bank (Escrow Agent) entered into an Escrow Agreement on 31.01.2017, a copy of which is placed at page 233 of the CP, Ann. 9 of the Petition. As per Clause III at page 3 of this Agreement, it was agreed that the receivables to be collected by the Assignor from all the concerned persons shall be directly be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery through the Escrow Account, after doing due diligence with regard to the total and periodical receivables from apartment sales, which are controlled by it, if the receipts are slow due to reasons beyond the Respondent's control, such as the slowdown in the economy, the same cannot become a reason for triggering an insolvency process against it. 10. We have said that the default in paying against the schedule of payment after 18 months was contingent upon the release of the Additional Security by the Petitioner as also sale of apartments as per the Escrow Account receipts. But the sale of apartments itself was contingent upon the health of the real estate sector in recent times being severely affected by the Covid 19 pandemic and the ensuing lockdowns. Major decisions have been taken to protect industry from its effects, to inject economic stimulus and to revive the economy. On 24.03.2020 the minimum threshold of default was increased from ₹ 1 Lakh to ₹ 1 Crore, various provisions were modified/suspended, so that Companies facing financial stress due to the pandemic can be supported rather than be pushed into CIRP. Debts are being restructured as per Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unhelpful, and such clauses in the Loan and Escrow Agreements need a relook. Moreover, pushing the Corporate Debtor into the rigours of an Insolvency Process would not lead to the fulfilment of the objectives of the Code. Even the RBI, to deal with hardships in the pandemic era, has come out with schemes for rescheduling debts allowing further 180 days for the same, in which several financial institutions are participating. 14. Another issue that needs to be addressed is as to whether the Corporate Debtor is unable to pay on account of having lost its substratum or because of the refusal of the Petitioner to release the additional security as also the temporary lull in the business due to the pandemic related lockdown. We may mention that in the case of Gujarat Urga Vikas Nigam vs. Amit Gupta and others the Hon'ble Supreme Court clarified that the NCLT has been created as a single forum to adjudicate disputes which arise solely from or relate to the insolvency of the Corporate Debtor. However it also sounded a note of caution that NCLT should ensure that it does not usurp the legitimate jurisdiction of other Courts, Tribunals and fora when the dispute is one which does not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These matters were still under discussion and consideration of the Petitioner when the Petition was filed. Even after this Petition being filed we notice that the Respondent has been making attempts to repay the debt and seek reschedulement. In its letter of 27.07.2020 to the Petitioner it has mentioned that its receipts were improving after receiving the OC from BBMP, and it sought a reschedulement of outstanding amount so as to complete the entire payment. In the same letter it has asked for release of the additional security and sought time of 12 months for the entire repayment, i.e. upto January 2022. In a letter from the Petitioner dated 08.09.2020 reference is made to these requests and various queries have been raised. This shows that the two sides have been in continuous touch to work out repayment issues. The Petitioner's response that the release of additional security would be considered after its account is updated, is against the terms of the Sanction Order. The Petitioner's contentions that the projected receivables was not as good as shown by it leading to the conclusion that it was trying to defraud the Petitioner, does appear to be acceptable in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Creditor has issued NOCs to register the sale deeds in favour of customers by the Corporate Debtor and also to handover the possession of the Apartments to the customers. 20. As noted above in the decision of the Hon'ble NCLAT in the case of Bharat Hi-tech Infra Ltd., it has become an accepted stance to save the interest of home buyers, most of whom are middle class individuals who have taken loans and are paying huge EMIs to financial institutions. Pushing a real estate / construction company into insolvency, by admitting a petition filed by a financial institution, which has also objects such as house building, would affect home buyers the most, as also several other stakeholders, JV partners etc.. 21. In view of the foregoing, we are not satisfied that a case has been made out by the Financial Creditor for initiating CIRP against the Corporate Debtor, especially when the default is contingent upon the Financial Creditor's actions of release of Additional security as per the Sanction Letter and the Loan Agreement, the continuing receipts through the Escrow Account as per the Assignment Agreement; the readiness of the Respondent to pay the debt and seeking a resc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
