2020 (11) TMI 585 - AT - Insolvency and Bankruptcy

Tribunal upholds single allottee's application under I&B Code despite joint application requirement

The Tribunal deemed the application under Section 7 of the I&B Code by a single allottee as maintainable despite the Amendment Ordinance's requirement ... Maintainability of application - sale of paratments - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditor or not - provisional allotment of an under construction of apartments - Whether in view of the I&B Code (Amendment)Ordinance 2019/Amendment Act, 2020, the Application under Section 7 of the I&B Code by one allottee is not maintainable? - HELD THAT:- The provision of Section 7 of the I&B Code, as is obtained prior to the date of Amendment occupies the field as of now. Thus, we hold that there is no effect of the I&B Code, Amendment Ordinance 2019 which was replaced by the I&B Code Amendment Act, 2020, on the present Application under Section 7 of the I&B Code. Therefore, it is not required to be considered whether in the light of the aforesaid Amendment whether the Respondent No. 1 has modified the Application under Section 7 of the I& B Code, or not. Whether MOU dated 06.04.2016 is an agreement for sale the apartments or an agreement for buyback the apartments? - HELD THAT:- It is apparent that MOU is an irrevocable contract and the Respondent No. 1 is duty bound for execution of buy back. There is a provision in the event of failure of the Respondent No. 2 to complete the buy back by the end of 12 month. On completion of all buy back of apartments by the Respondent No. 2, the Respondent No. 1 have no right, claim & interest in the apartments. As per clause 8 of the MOU, the Respondent No. 2 ensures the Respondent No. 1 that in the event of dishonor of any cheques (one cheque of ₹ 65 lacs and another cheque of ₹ 35 lacs), the Respondent No. 1 shall take possession of the apartments on the basis of MOU and no possession letter or any further act or deed would be required. The Respondent No. 1 shall be free to sell/deal with the same in any manner and no demand shall be payable by the Respondent No. 1. Thus, we hold that the MOU is an agreement to buyback the apartments. Whether the Respondent No. 1 is a genuine allottee or a speculative investor? - HELD THAT:- The allottee has made attempt to get back the amount of ₹ 1,00,00,000/- by way of this coercive measure i.e. under Section 138 of the Negotiable & Instrument Act - the Respondent No. 1 is a speculative investor and not a person who is genuinely interested in purchasing the apartments. Therefore, she cannot be termed as a allottee as per the explanation attached to clause (f) of Section 5(8) of the I&B Code - The Respondent No. 1 is not a genuine allottee, therefore, the amount of ₹ 35 lacs paid to the Respondent No. 2 is not a Financial Debt and the Respondent No. 1 is not a Financial Creditor. The Application preferred by the Respondent No. 1 under Section 7 of the I&B Code, is dismissed. The Respondent No. 2 is released from rigours of the moratorium and is allowed to function through its Board of Directors from immediate effect - Appeal allowed. Issues Involved:1. Maintainability of the application under Section 7 of the I&B Code by a single allottee in light of the I&B Code (Amendment) Ordinance 2019/Amendment Act, 2020.2. Nature of the MOU dated 06.04.2016 - whether it is an agreement for sale or buyback of apartments.3. Determination of whether the Respondent No. 1 is a genuine allottee or a speculative investor.Detailed Analysis:Issue 1: Maintainability of the Application under Section 7 of the I&B Code by a Single AllotteeThe application under Section 7 of the I&B Code was filed by Respondent No. 1 on 18.03.2019 and reserved for orders on 04.12.2019. The impugned order was passed on 02.01.2020. Meanwhile, the I&B Code (Amendment) Ordinance 2019 was promulgated on 28.12.2019, introducing a requirement for applications to be filed jointly by not less than 100 allottees or 10% of the total number of allottees under the same real estate project. The Tribunal was closed for winter vacation from 21.12.2019 to 01.01.2020, and thus, the Adjudicating Authority did not consider the effect of the Ordinance. The Tribunal held that the provision of Section 7 of the I&B Code, as it existed prior to the Amendment, occupies the field as of now. Therefore, the application by a single allottee was deemed maintainable.Issue 2: Nature of the MOU - Agreement for Sale or BuybackThe MOU dated 06.04.2016 provisionally allotted four apartments to Respondent No. 1 for a total consideration of Rs. 1,03,78,521, with Rs. 35 lacs paid upfront. The MOU included a compulsory buyback provision, whereby the Corporate Debtor was to return Rs. 35 lacs plus a premium of Rs. 65 lacs after 12 months. The Tribunal found several discrepancies:- No payment schedule for the remaining amount of Rs. 68,78,500 was mentioned.- The MOU was extended twice without any mention of project status or reasons for extension.- The MOU included postdated cheques for Rs. 1,00,00,000 as security, which were dishonored.The Tribunal concluded that the MOU was not an agreement for sale but an agreement to buyback the apartments, as it contained an irrevocable contract for buyback and no provisions for possession or remedies in case of non-compliance by the builder.Issue 3: Genuine Allottee or Speculative InvestorThe Tribunal examined whether Respondent No. 1 was a genuine allottee or a speculative investor. It noted:- The lucrative terms of the MOU, where Rs. 35 lacs paid would yield Rs. 1,00,00,000 after 12 months.- The handing over of postdated cheques by the Corporate Debtor at the signing of the MOU and during its extensions, all of which were dishonored.- The filing of a complaint under Section 138 of the Negotiable Instruments Act by Respondent No. 1.The Tribunal, referencing the Supreme Court's observations in Pioneer Urban Land & Infrastructure Ltd., concluded that Respondent No. 1 was a speculative investor and not genuinely interested in purchasing the apartments. Thus, Respondent No. 1 could not be considered an allottee under the I&B Code, and the amount paid did not constitute a financial debt. Consequently, Respondent No. 1 was not a financial creditor.ConclusionThe Tribunal set aside the impugned order dated 02.01.2020, dismissing the application under Section 7 of the I&B Code. The Corporate Debtor was released from the moratorium and allowed to function through its Board of Directors. The Interim Resolution Professional was directed to provide details of fees and CIRP costs to the Corporate Debtor, which would be paid after adjusting any amount already received. The appeal was allowed with no order as to costs.