2019 (1) TMI 1503 - AT - Insolvency and Bankruptcy

Appellate Tribunal Overturns NCLT Decision on Joint Application

The Appellate Tribunal found that the National Company Law Tribunal (NCLT) erred in rejecting the joint application under Section 7 of the Insolvency and ... Maintainability of application - Section 7 of the ‘I&B Code’ - Collaboration Agreement - application filed jointly against the two ‘Corporate Debtors’ - whether the application under Section 9 is jointly maintainable against 1st and 2nd Respondents (‘Corporate Debtors’) or not? Held that:- The ‘Collaboration Agreement’ dated 3rd May, 2013 reached between the ‘Owner of the Land’- ‘AMB Infrabuild Pvt. Ltd.’ and the ‘Developer’- ‘Earth Galleria Pvt. Ltd.’ shows that the ‘Developer’ will sell the flats to the extent of its own shares and the ‘Land Owner’ will sell the developed portion of its own shares. The ‘Land Owner’ have agreed to make it as a ‘Joint Venture Project’ and treated the ‘Joint Venture Project’ for all purpose as evident from Clause 55 of the ‘Collaboration Agreement’ dated 3rd May, 2013 read with Memorandum of Understanding reached between three allottees, the Appellant and the 1st and 2nd Respondents dated 6th February, 2016 - The ‘Developer’- ‘M/s. Earth Galleria Pvt. Ltd.’ having been empowered by ‘M/s. AMB Infrabuild Pvt. Ltd.’- (Land Owner) to advertise the project and for marketing the developed property as a ‘Joint Venture Project’, in terms with the said ‘Collaboration Agreement’ on behalf of the joint venture, if the Memorandum of Understanding dated 20th June, 2014 has been reached between the ‘Earth Infrastructure Ltd.’ and the Appellant- Mrs. Mamtha, the 2nd Respondent cannot take a plea that it is not a signatory to the Memorandum of Understanding dated 20th June, 2014, the 2nd Respondent being represented by ‘Earth Infrastructure Ltd.’ pursuant to the ‘Collaboration Agreement’. The Adjudicating Authority has failed to take into consideration the aforesaid facts and wrongly held that the ‘Corporate Insolvency Resolution Process’ cannot be initiated against the two ‘Corporate Debtors’. If the two ‘Corporate Debtors’ collaborate and form an independent corporate unit entity for developing the land and allotting the premises to its allottee, the application under Section 7 will be maintainable against both of them jointly and not individually against one or other - In such case, both the ‘Developer’ and the ‘Land Owner’, if they are corporate should be jointly treated to be one for the purpose of initiation of ‘Corporate Insolvency Resolution Process’ against them. The Adjudicating Authority having failed to notice the same, the impugned order dated 12th March, 2018 is set aside and matter remitted to the Adjudicating Authority, New Delhi Bench, for admission of the case if record is complete, after notice to the parties - appeal allowed. Issues Involved:1. Joint maintainability of an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against two Corporate Debtors.2. Validity of the collaboration agreement and memorandums of understanding between the parties.3. Adherence to the procedural requirements under the Insolvency and Bankruptcy Code, 2016.Detailed Analysis:1. Joint Maintainability of an Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against Two Corporate Debtors:The primary issue addressed was whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) can be jointly maintained against two Corporate Debtors. The National Company Law Tribunal (NCLT) had initially rejected the application on the grounds that the I&B Code does not provide for a joint petition against two Corporate Debtors, particularly when they have collaborated for a Joint Venture. The Tribunal observed that the payment was made to one Corporate Debtor while the insolvency process was sought against both. Additionally, the application did not adhere to the required format, notably failing to name the Insolvency Resolution Professional, which is a mandatory requirement under Clause 3 of Sub-Section 3 of Section 7 of the I&B Code.2. Validity of the Collaboration Agreement and Memorandums of Understanding Between the Parties:The judgment delves into the Collaboration Agreement dated 3rd May 2013 between AMB Infrabuild Pvt. Ltd. (Owner) and Earth Galleria Pvt. Ltd. (Developer). This agreement facilitated the development of a commercial complex on a piece of land owned by AMB Infrabuild Pvt. Ltd. The agreement authorized the Developer to undertake planning, designing, construction, development, selling, and marketing of the project. The Developer was also empowered to advertise the project, indicating it as a joint venture project with the Owner. Furthermore, a Memorandum of Understanding dated 20th June 2014 between Earth Infrastructure Ltd. (Developer) and the Appellant for booking a cineplex was highlighted, where the Appellant paid an advance in terms of the agreement. Another Memorandum of Understanding dated 6th February 2016 between the Appellant and the Respondents (Developer and Land Owner) was also discussed, wherein the Developer and Land Owner were collectively referred to as the 'Company' and the Appellant as the 'Allottee.'3. Adherence to the Procedural Requirements under the Insolvency and Bankruptcy Code, 2016:The judgment scrutinizes the procedural adherence under the I&B Code, particularly the requirement to name the Insolvency Resolution Professional in the petition. The Tribunal initially found the petition deficient in this regard. However, the Appellate Tribunal noted that the collaboration agreement and subsequent memorandums of understanding indicated a joint venture project, thus justifying a joint application against both Corporate Debtors. The Appellate Tribunal emphasized that if two Corporate Debtors collaborate and form an independent corporate unit for developing land and allotting premises, a Section 7 application is maintainable against both jointly.Conclusion:The Appellate Tribunal concluded that the NCLT failed to consider the joint venture nature of the project and wrongly held that the Corporate Insolvency Resolution Process could not be initiated against two Corporate Debtors. The judgment was set aside, and the case was remitted to the NCLT, New Delhi Bench, for admission if the record was complete. The Tribunal also allowed the Respondents an opportunity to settle the matter before admission. The appeal was allowed with no cost.