2018 (6) TMI 859 - Tri - Insolvency and Bankruptcy

Insolvency Application Dismissal Overturned: 'Assured Return' Investors Deemed Financial Creditors

Nikhil Mehta And Sons (HUF) And Ors. Versus M/s. AMR Infrastructures Limited

Nikhil Mehta And Sons (HUF) And Ors. Versus M/s. AMR Infrastructures Limited - TMI Issues Involved:1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.2. Definition and status of 'financial creditors' and 'financial debt'.3. Default in payment of 'Committed Returns'.4. Delay in project completion and its reasons.5. Pending litigations and mediation processes.6. Appointment of Interim Resolution Professional (IRP) and initiation of Corporate Insolvency Resolution Process (CIRP).Issue-wise Detailed Analysis:1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016:The application was initially dismissed on 23.01.2017 as not maintainable, primarily because the applicants were not considered 'financial creditors' and the claimed amount was not seen as 'financial debt'. However, this judgment was set aside by the Hon’ble NCLAT on 21-07-2017, which held that those committed to pay 'assured return' were covered by the expression 'financial creditor'. The matter was remitted back to the NCLT with directions to admit the application if otherwise complete.2. Definition and status of 'financial creditors' and 'financial debt':The NCLAT clarified that the amount invested by the applicants qualifies as 'financial debt' under Section 5(8)(f) of the Code, and the applicants are 'financial creditors' as defined in Section 5(7) of the Code. The NCLAT's order emphasized that the transactions had the commercial effect of borrowing, thus qualifying the applicants as financial creditors.3. Default in payment of 'Committed Returns':The applicants entered into agreements with the corporate debtor for the purchase of units under a 'Committed Return Plan', where the debtor was to pay monthly committed returns until possession was handed over. However, the debtor stopped these payments unilaterally from April 2014 for some applicants and from January 2014 for others, leading to defaults.4. Delay in project completion and its reasons:The corporate debtor attributed the delay to external factors such as depression in the real estate sector, litigation by farmers, disputes with contractors, and various other litigations. The debtor claimed efforts were being made to resolve these issues and complete the project with the help of a strategic investor.5. Pending litigations and mediation processes:The corporate debtor mentioned ongoing litigations, including winding-up petitions, consumer court proceedings, and criminal complaints. The debtor also highlighted ongoing mediation at the Delhi High Court Mediation Centre, where proposals were being discussed with investors. However, the tribunal noted that pending mediation does not bar the initiation of CIRP under the Code.6. Appointment of Interim Resolution Professional (IRP) and initiation of Corporate Insolvency Resolution Process (CIRP):The tribunal appointed Mr. Vikram Bajaj as the Interim Resolution Professional and directed him to make a public announcement regarding the admission of the application. A moratorium was declared under Section 14 of the Code, prohibiting suits, asset transfers, foreclosure actions, and recovery of property. The IRP was instructed to perform his duties as per Sections 15, 17, 18, 19, 20, and 21 of the Code, ensuring cooperation from the corporate debtor's personnel.Conclusion:The petition was admitted, and the CIRP was initiated against the corporate debtor. The tribunal emphasized that the mediation process and ongoing litigations did not impede the initiation of CIRP. The office was directed to communicate the order to the financial creditor, the corporate debtor, and the IRP within seven days.