2021 (10) TMI 1181 - Tri - Insolvency and Bankruptcy

Reverse CIRP Application Granted for Real Estate Project: Relief for Stakeholders

The application filed under Section 60(5) of the Insolvency and Bankruptcy Code sought reliefs related to a reverse Corporate Insolvency Resolution ... Waiving/relaxing the compliances as stipulated in detail in Annexure-3 - Section 29 and Section 39 of the Code and Regulations 27, 36(1), 36A, 36B, 37, 38 and 39 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulation, 2016 - treatment of claims of the existing operational creditors - Payment to Operational Creditors (Existing) - Section 25 (2) (c), (g), (h) & (i) of the Act of 2016 and Regulation 27 of the Regulations of 2016 - Section 29 of the Code and Regulation 36(1) of Regulations of 2016-Submission of Information Memorandum (IM) to CoC - Section 31 of the Code and Regulations 36A, 36B, 37, 38 and 39. Payment to Operational Creditors (Existing) - HELD THAT:- As the treatment of operational creditors is entirely different under the Act of 2016 and regulations thereunder, and as such there is no provision to clear the existing operational creditors during CIRP, appropriate directions are required on this aspect - the RP is directed to look into hiring new suppliers or service providers, if needed, for the purpose of completion of the project as directed by this Authority vide order dated 25.11.2020 and the cost of the same shall be included in CIRP cost. Further, the treatment of the existing operational creditors be done according to Section 53 of the Code. Section 25 (2) (c), (g), (h) & (i) of the Act of 2016 and Regulation 27 of the Regulations of 2016 - HELD THAT:- Since it is a case of Reverse CIRP, the same is not required as there would be no occasion for the Project going into liquidation. Hence, the RP is seeking the direction that the appointment of valuer and CoC to evaluate any resolution plan as being required to be done may kindly be waived - As per the seventh status cum progress report, the erstwhile director of the Corporate Debtor Mr. Mahendra Kalla had shown interest in financing the project as independent financers. In furtherance to this, the financing plan submitted by him in the 4th CoC meeting dated 26.02.2021 was agreed upon by the members of the CoC. It is also stated that Mr. Kalla has deposited ₹ 21,00,000/- for the purpose of construction of Project CRK. In view of these developments, appointment of registered valuers for the purpose of valuation of the project and need for CoC to evaluate Resolution Plan have become redundant and thus, the RP is granted waiver from complying with these provisions. Section 29 of the Code and Regulation 36(1) of Regulations of 2016-Submission of Information Memorandum (IM) to CoC - HELD THAT:- The relevant information with respect to the Project CRK shall be collated and provided by the RP as was directed vide order dated 25.11.2020. Since, the RP is not required to prepare the IM, there is no need to obtain NDA from the Allottees/Home buyers/their Authorized Representative. In view of the same, the RP is granted waiver from complying with these provisions. Section 31 of the Code and Regulations 36A, 36B, 37, 38 and 39 - HELD THAT:- Since this is a case of reverse CIRP where this Authority has already directed the CIRP to get the project completed on priority basis, repay the loan of Financial Creditor and handover the possession of flats to respective allottees and homebuyers and make efforts to sell the flats which are not booked. For the same, the RP has been directed to obtain finances from 3 mechanisms i.e., promoters or Financial Creditor or 3rd party private lender. Therefore, the RP is not required to perform the above functions and so this requirement may be waived - In the present case, vide order dated 25.11.2020, this Authority had directed the RP to complete the project on priority basis through existing promoters acting in the capacity of independent financiers and not promoters or Financial Creditor or 3rd party private lender to ensure that CIRP reaches success. And it is seen that erstwhile director of the Corporate Debtor has come forward as an independent financier for the purpose of completion of the project CRK. In view of this, there is no requirement for inviting EOI for resolution plan and subsequent provisions in respect of contents of resolution and approval thereof become redundant. Application disposed off. Issues:1. Application filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 seeking various reliefs.2. Reverse Corporate Insolvency Resolution Process (CIRP) mechanism.3. Non-cooperation from the suspended board of directors.4. Compliance issues related to reverse CIRP for real estate projects.5. Treatment of existing operational creditors.6. Waiver from complying with certain provisions of the Code and Regulations.7. Clarifications on various aspects of the CIRP process.8. Directions regarding completion of the project and financial arrangements.Analysis:1. The application was filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, seeking reliefs such as waiving compliances related to Sections 29 and 39 of the Code and directions on treatment of claims of operational creditors. The CIRP was initiated by a Financial Creditor, and the Applicant was appointed as the Interim Resolution Professional to focus on the real estate project of the Corporate Debtor.2. The CIRP was admitted under a reverse mechanism, focusing on a specific project of the Corporate Debtor. The Adjudicating Authority provided directions to smoothen the functioning of the reverse CIRP process and emphasized the revival of the construction project for the benefit of stakeholders.3. The Applicant faced non-cooperation from the suspended board of directors, leading to challenges in obtaining necessary information. An application was filed under Section 19(2) of the Code to address this issue.4. Compliance issues arose regarding the unique approach of reverse CIRP for real estate projects. The Applicant sought clarifications and waivers to navigate the complexities of compliance under the Code and related Regulations.5. Concerns were raised about the treatment of existing operational creditors, who demanded clearance of dues before continuing work. The Applicant sought suitable directions on handling operational creditors in line with the provisions of the Code.6. The Applicant requested waivers from complying with certain provisions of the Code and Regulations, such as valuation requirements and submission of Information Memorandum to the Committee of Creditors (CoC), due to the project-specific nature of the reverse CIRP.7. Various aspects of the CIRP process, including valuation, submission of Information Memorandum, and other compliance-related issues, were discussed to ensure clarity and smooth functioning of the reverse CIRP mechanism.8. Directions were provided regarding the completion of the project, financial arrangements, and the role of the Resolution Professional in securing funds for project completion. The Applicant was granted waivers from specific provisions based on the factual matrix of the case and the unique circumstances of the reverse CIRP. The application was allowed, subject to the provided directions, and disposed of accordingly.