2022 (8) TMI 503 - Tri - Insolvency and Bankruptcy

Tribunal initiates Corporate Insolvency Process against M/s. Som Resorts; Homebuyers recognized as genuine creditors

The Tribunal admitted the petition (C.P.(IB)/67(ND)/2022) and initiated the Corporate Insolvency Resolution Process against M/s. Som Resorts Private ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - petitioners are entitled to maintain the present petition being homebuyers and meet the threshold limit of 100 of such allottees or 10% of the total number of such Allottees, or not - doctrine of indoor management - lifting of corporate veil - existence of debt and dispute or not - Whether the present petition is hopelessly time barred? - HELD THAT:- The cause of action or default in the case of homebuyers arises only when the agreed/promised date of possession as per the builder buyer agreement has lapsed and till date the possession is not handed over. Given the fact that the default is for the date of possession only, the limitation for the said period does not end because the date of possession does not arrive, until and unless the project is completed and the possession is handed over to the homebuyers/petitioners, thereby, resulting in a continuing/recurring cause of action - the present petition filed under Section 7 of the Code, 2016 qualifies the test of limitation since the possession of the units in the project 'Casa Italia' are not handed over till date, which is in breach of the Builder Buyer Agreement and therefore, amounts to continuing default committed by the Corporate Debtor. Whether the petitioners are entitled to maintain the present petition being homebuyers and meet the threshold limit of 100 of such allottees or 10% of the total number of such Allottees? - HELD THAT:- In order to initiate the CIRP against a corporate debtor on an application filed by financial creditors who are allottees under Section 7 of the Code, 2016, it must primarily qualify the threshold limit of not less than 100 of such allottees under the same real estate project or not less than 10% of the total number of such allottees under the same real estate project, whichever is less as envisaged under second proviso to the Section 7(1) of the Code - this instant petition has been jointly filed by 26 allottees out of total of 69 allottees i.e., more than 10% in the 'Casa Italia' project, which satisfies the criteria as provided in second proviso to the Section 7(1) of the Code, 2016. Whether there was any relation between M/s. Cosmic Structures Ltd. and the Corporate Debtor i.e. M/s. Som Resorts Pvt. Ltd. and whether M/s. Cosmic Structures Ltd. was entitled to receive the amount from the Petitioners on behalf of the Respondent Corporate Debtor to book the units in project 'Casa Italia'? - Whether there was any default on the part of the Respondent Corporate Debtor in completion of the project 'Casa Italia' and in repayment of the amount to the Petitioners and whether on that basis corporate insolvency resolution proceedings can be initiated against this Corporate Debtor? - HELD THAT:- The rule as to agency is expressed in maxim 'qui facit per alium, facit per se'. It is founded on a contract, express or implied, by which one of the parties confides to the other, the management of some business to be transacted in his name or on his account and by which the other assumes to do the business and renders an account of it. With regard to Corporate Debtor's contention that the allotment agreements were entered into between the petitioners and M/s. Cosmic Structures Limited directly as well as the payments were made directly to M/s. Cosmic Structures Limited without the knowledge or intimation to the corporate debtor, and accordingly no debt whatsoever is due and payable by the respondent to the petitioner, it is opined that the marketing agreement dated 10.10.2013 between the corporate debtor and M/s. Cosmic Structures Limited is a matter of internal affairs of the corporate debtor and the petitioners being outsider are not privy to the internal affairs of the corporate debtor and doctrine of indoor management applies herein, therefore, it is not open to the corporate debtor to take advantage of such irregularity at the cost of the petitioners. The principle of lifting the 'corporate veil' is an exception to the distinct corporate personality of a company or its members and is well recognized not only to unravel tax evasion but also where protection of public interest is of paramount importance and the corporate entity makes an attempt to evade legal obligations, than, lifting of veil is necessary to prevent the corporate entities to misuse the principle of distinct corporate personality. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc. - The doctrine of lifting the corporate veil can be invoked, if the public interest so requires or if there is allegation of violation of law by using the device of a corporate entity. Thus, M/s. Cosmic Structures Limited was indirectly controlled by the same directors, who are controlling the management of the corporate debtor and ultimate beneficiary of the impugned transaction is the respondent corporate debtor i.e., M/s. Som Resorts Private Limited herein. Thus, the instant petition is filed in the proforma prescribed under Section 7 of the Code, 2016 read with Rule 4(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and is complete. There is a debt of more than Rs. 1 crore i.e., above the threshold limit as envisaged under Section 4 of the Code, 2016 and the same is in default. Petition admitted - moratorium declared. Issues Involved:1. Whether the present petition is hopelessly time-barredRs.2. Whether the petitioners are entitled to maintain the present petition being homebuyers and meet the threshold limit of 100 of such allottees or 10% of the total number of such allotteesRs.3. Whether there was any relation between M/s. Cosmic Structures Ltd. and the Corporate Debtor i.e., M/s. Som Resorts Pvt. Ltd. and whether M/s. Cosmic Structures Ltd. was entitled to receive the amount from the Petitioners on behalf of the Respondent Corporate Debtor to book the units in project 'Casa Italia'Rs.4. Whether there was any default on the part of the Respondent Corporate Debtor in completion of the project 'Casa Italia' and in repayment of the amount to the Petitioners and whether on that basis corporate insolvency resolution proceedings can be initiated against this Corporate DebtorRs.5. Relief(s).Detailed Analysis:Point No. I:The Tribunal considered whether the petition was barred by the law of limitation. The petitioners argued that the period of limitation for an Application seeking initiation of CIRP under Section 7 of the Code is governed by Article 137 of the Limitation Act, with a three-year period from the date when the 'Right to Apply' accrues. The Tribunal noted that the cause of action or default arises when the agreed/promised date of possession lapses and possession is not handed over. The Tribunal found that the default continues until possession is handed over, resulting in a continuing cause of action. This was supported by the Supreme Court's decision in Samruddhi Co-operative Housing Society Ltd. v. Mumbai Mahalaxmi Construction Private Limited. Thus, the petition qualifies the test of limitation.Point No. II:The Tribunal examined whether the petitioners met the threshold limit for initiating CIRP under Section 7 of the Code. The petition was filed by 26 allottees out of a total of 69 allottees in the 'Casa Italia' project, satisfying the requirement of not less than 100 allottees or 10% of the total number of such allottees under the same real estate project.Point No. III & IV:The Tribunal assessed the relationship between M/s. Cosmic Structures Ltd. and the Corporate Debtor, M/s. Som Resorts Pvt. Ltd. The agreement dated 10.10.2013 between the two was found to be an agency agreement, with M/s. Cosmic Structures Ltd. acting as an agent for the Corporate Debtor. The Tribunal referred to legal principles regarding agency relationships, noting that an agent is merely an extended hand of the principal and cannot claim independent rights. The Tribunal also applied the doctrine of indoor management, stating that the petitioners, as outsiders, were not privy to the internal affairs of the Corporate Debtor and could not be penalized for any irregularities. The Tribunal found that the builder buyer agreements and payments were made with the Corporate Debtor's consent/knowledge. Additionally, the Tribunal lifted the corporate veil, finding that M/s. Cosmic Structures Ltd. and M/s. Som Resorts Pvt. Ltd. were managed by the same individuals, and the ultimate beneficiary of the transactions was the Corporate Debtor.Point No. V (Conclusion):The Tribunal concluded that the petitioners were genuine homebuyers and that the alleged principal amount paid to the Corporate Debtor was a financial debt in default. The petition was found to be complete and satisfied the threshold limit under Section 4 of the Code. The Tribunal admitted the petition and initiated the Corporate Insolvency Resolution Process against M/s. Som Resorts Private Limited. Mr. Sumit Shukla was appointed as the Interim Resolution Professional. The Tribunal declared a moratorium in terms of Section 14 of the Code, prohibiting certain actions against the Corporate Debtor and directing the Interim Resolution Professional to perform his functions in accordance with the Code, Rules, and Regulations.Reliefs Granted:1. The petition (C.P.(IB)/67(ND)/2022) was admitted, and the Corporate Insolvency Resolution Process against M/s. Som Resorts Private Limited was initiated.2. Mr. Sumit Shukla was appointed as the Interim Resolution Professional.3. A moratorium was declared in terms of Section 14 of the Code, with specific prohibitions imposed.4. The office was directed to communicate a copy of the order to the relevant parties and authorities.