2023 (2) TMI 1288 - SCH - Insolvency and Bankruptcy

Settlement Lacked Fairness; Threshold for Project-wise CIRP Not Met, Emphasizing Due Process & Legal Compliance in Insolvency.

The NCLAT ruled that the settlement between the Operational Creditor and the Director, executed without notifying the Home Buyers Association, lacked ... Maintainability of petition - Initiation of CIRP - Operational Creditor or not - proceedings before the NCLT are in rem or not - HELD THAT:- In order to restore the appeal before the NCLAT, this Court must be satisfied that the appellant is in a position to meet the threshold requirement which is imposed by the terms of Section 7 for the initiation of the CIRP. Absent that demonstration, the appeal is not allowed at the behest of the appellant and restore the proceedings, the effect of which would be to revive the CIRP against the company. In the event that the appellant seeks to invoke the jurisdiction of the NCLT in terms of the provisions of Section 7 of the IBC, the appellant would be at liberty to do so in which case, the observations in the present order will not stand in its way as any adjudication on the merits or maintainability of such an application. The order of the NCLAT dated 13 December 2022 disposing of the appeal filed by the appellant, namely, BPTP SPACIO PARK SERENE FLAT ALLOTTES WELFARE ASSOCIATION (BAWA) VERSUS M/S. BPTP LTD. & ANR. [2022 (12) TMI 1504 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] shall not come in the way of the appellant in taking recourse to its remedies before the NCLT in fresh proceedings, if so advised. In the alternative, since the appellant has a consent decree of the NCDRC, it would be at liberty to execute it in accordance with law. The execution proceedings before the NCDRC are expedited and may be taken up for early disposal. Application disposed off. Issues:1. Settlement between Operational Creditor and Director without notice to Home Buyers Association.2. Appellant's contention on initiation of Corporate Insolvency Resolution Process (CIRP) project wise.3. Appellant's locus standi to institute insolvency proceedings under Section 7(1) of IBC.4. Restoration of appeal before NCLAT and appellant's threshold requirement under Section 7 for CIRP initiation.Analysis:1. The judgment involves a settlement between the Operational Creditor and the Director without notifying the Home Buyers Association, raising concerns about due process and the rights of all parties involved. The appellant argued that the settlement should not have been reached without their involvement and opportunity to be heard, emphasizing the importance of fair proceedings and equal representation.2. The appellant contended that the CIRP should be initiated project wise rather than against the entirety of the Corporate Debtor's assets. This issue highlights the specificity and scope of the insolvency process, indicating a nuanced approach to addressing financial distress and obligations within the real estate sector.3. The question of the appellant's locus standi to institute insolvency proceedings under Section 7(1) of the IBC was raised, particularly regarding the requirement of one hundred allottees under the same real estate project. The judgment emphasized the need for the appellant to meet this threshold for initiating CIRP, underscoring the legal criteria for pursuing insolvency actions.4. Regarding the restoration of the appeal before the NCLAT and the appellant's threshold requirement under Section 7 for CIRP initiation, the judgment clarified that the appellant's interests were distinct from the Director's appeal. The court emphasized the importance of meeting the statutory requirements for initiating CIRP, indicating a cautious approach to insolvency proceedings and the need for compliance with legal standards.Overall, the judgment delves into procedural fairness, the specificity of insolvency proceedings, the criteria for initiating CIRP, and the distinct interests of different parties involved in the resolution process. It underscores the legal framework governing insolvency actions and the importance of meeting statutory requirements for pursuing such proceedings.