2022 (4) TMI 78 - Tri - Insolvency and Bankruptcy

Application for Corporate Insolvency Rejected. Threshold Requirements Not Met. Mutual Agreement Deemed Part of Original Transaction.

The Tribunal dismissed the application for the initiation of Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT:- The Applicant has claimed the default on the part of the Respondent for an amount of ₹ 29 Lakhs. This is as a sequel to the booking of an office space by the Financial Creditor in a project launched by the Corporate Debtor. The Financial Creditor paid an amount of ₹ 20 Lakhs towards the said unit to the Corporate Debtor; however since the Corporate Debtor failed to give possession of the unit to the Financial Creditor, the Corporate Debtor and the Financial Creditor entered into a mutual agreement by which an amount of ₹ 41 Lakhs was to be paid by the Corporate Debtor to the Financial Creditor as buy back and the Financial Creditor would return the original agreement in respect of the allotment of the office space back to the Company. It is to be noted here that the mutual agreement was not by itself an ab initio standalone agreement but it was a consequence of the Corporate Debtor not giving possession of the unit for office space to the Financial Creditor which he had agreed to give and for which consideration had been paid by the Financial Creditor. Therefore this mutual agreement/settlement under which the Corporate Debtor has defaulted is to be considered as such and not as an ab initio standalone agreement. As per the IBC (Amendment) Act, 2020, for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten percent of the total number of such allottees under the same real estate project, whichever is less - the Petitioner having failed to modify the application to meet the mandatory threshold requirement, within the prescribed time period or even within the extended time period, should no longer be allowed to pursue the present application. It remains an undisputed fact that the origin of the claim by the Applicant was by the virtue of him being an allottee. The subsequent mutual agreement cannot be treated as a standalone agreement and must be read in light of the original Space Buyer Agreement. Moreover, the mutual agreement has no component of interest as claimed by the Applicant. Further, it appears that after the IBC (Amendment) Act, 2020, the Applicant has twisted his line of arguments and is now relying on the subsequent mutual agreement without making any modification to his Application under Section 7 of the Insolvency and Bankruptcy Code, 2016. Therefore, the Tribunal is of the view that the said application is not in consonance with the IBC (Amendment) Act, 2020. Application dismissed. Issues Involved:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.2. Determination of Financial Debt and Financial Creditor status under the IBC.3. Compliance with the mandatory threshold requirements under the IBC (Amendment) Act, 2020.4. Allegations of misuse of the IBC provisions and abuse of the process of law.Issue-wise Detailed Analysis:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016:The application was filed by the applicant to initiate CIRP against the Corporate Debtor for an alleged default of Rs. 29,00,000/-. The Financial Creditor had booked office spaces in a project by the Corporate Debtor and paid Rs. 20,00,000/-. Due to the Corporate Debtor's failure to deliver possession, a mutual agreement was made to buy back the office space for Rs. 41,00,000/-, but the Corporate Debtor defaulted on this agreement.2. Determination of Financial Debt and Financial Creditor status under the IBC:The Respondent contended that there was no financial debt as defined under Section 5(8) of the IBC, 2016, arguing that the amount was not borrowed as a loan and did not have the consideration for the time value of money. The Applicant argued that the transaction should be considered a financial debt under Section 5(8)(f) of the IBC, as it involved commercial borrowing. The Tribunal noted that the mutual agreement was a consequence of the Corporate Debtor's failure to deliver possession and not an ab initio standalone agreement.3. Compliance with the mandatory threshold requirements under the IBC (Amendment) Act, 2020:The IBC (Amendment) Act, 2020 requires that applications by financial creditors who are allottees in a real estate project must be filed jointly by at least 100 allottees or 10% of the total allottees, whichever is less. The Applicant failed to modify the application to meet this threshold within the prescribed or extended time period. The Tribunal emphasized that the origin of the claim was the Applicant being an allottee, and the subsequent mutual agreement could not be treated as a standalone agreement.4. Allegations of misuse of the IBC provisions and abuse of the process of law:The Respondent argued that the insolvency application was an abuse of the process of law, filed on an experimental basis, and that the Petitioner approached the Tribunal with unclean hands. The Tribunal acknowledged these contentions and noted that the mutual agreement did not include an interest component as claimed by the Applicant. The Tribunal also highlighted that the Applicant's arguments were twisted post the IBC (Amendment) Act, 2020, relying on the mutual agreement without modifying the application accordingly.Conclusion:The Tribunal dismissed the application, concluding that it was not in consonance with the IBC (Amendment) Act, 2020. The Applicant failed to meet the mandatory threshold requirement and twisted the line of arguments post-amendment. The mutual agreement was not considered a standalone agreement but a consequence of the original transaction. The Tribunal emphasized that it is not a recovery forum and the application did not comply with the amended provisions of the IBC.