Appeal allowed: Order set aside, Appellant to initiate insolvency process against defaulting company

The appeal was allowed, and the Adjudicating Authority's order dismissing the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was set aside. The Appellant, classified as a Financial Creditor under recent amendments, was directed to initiate the Corporate Insolvency Resolution Process against M/s Earth Gracia Buildcon Private Limited. The Adjudicating Authority's failure to consider relevant factors, including the terms of the allotment letter and the default on payments by the Respondent, led to the decision to admit the Company Petition and appoint an Interim Resolution Professional for the resolution process.

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Issues:
1. Service of notice to the Respondent.
2. Dismissal of application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
3. Classification of allottees of real estate projects as Financial Creditors.
4. Failure of the Adjudicating Authority to consider relevant factors.

Issue 1: Service of notice to the Respondent
The Appellant attempted to serve notice on the Respondent, M/s Earth Gracia Buildcon Private Limited, multiple times without success. Due to the Respondent's office being closed, the Appellant was permitted to publish the notice in two national newspapers, one English (Times of India) and one Hindi (Hindustan). The service was deemed complete after the publications, and the Respondent did not appear despite the notice.

Issue 2: Dismissal of application under Section 7 of the Insolvency and Bankruptcy Code, 2016
The Appellant, an allottee of a real estate project, filed an application under Section 7 of the I&B Code for initiating Corporate Insolvency Resolution Process against M/s Earth Gracia Buildcon Private Limited. The Adjudicating Authority dismissed the application, stating that the disbursements made by the Appellant did not qualify as financial debt. The Respondent argued for arbitration based on a clause in the agreement, but the Appellate Tribunal clarified that the decision in a previous case was not applicable to the current situation.

Issue 3: Classification of allottees of real estate projects as Financial Creditors
The Appellate Tribunal highlighted a recent amendment to the I&B Code, which now deems amounts raised from allottees under real estate projects as having the commercial effect of borrowing, thus treating them as Financial Creditors. Citing a previous judgment, the Tribunal established that the Appellant, being an allottee of a residential unit with assured return provision, falls under this category.

Issue 4: Failure of the Adjudicating Authority to consider relevant factors
The Adjudicating Authority failed to acknowledge the decision of the Appellate Tribunal in a similar case and neglected to consider the terms and conditions of the allotment letter, including the assured return provision. As the Appellant had already paid a substantial amount to the Corporate Debtor, which the Respondent defaulted on, the Tribunal set aside the Authority's order and directed the initiation of the Corporate Insolvency Resolution Process against the Respondent.

In conclusion, the appeal was allowed, the impugned order was set aside, and the Adjudicating Authority was instructed to admit the Company Petition, declare a moratorium, and appoint an Interim Resolution Professional to initiate the Corporate Insolvency Resolution Process against M/s Earth Gracia Buildcon Private Limited.

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