2023 (1) TMI 190 - AT - Insolvency and Bankruptcy

Tribunal upholds order for HUDCO to issue NOCs to home buyers, ensuring equitable treatment

HOUSING AND URBAN DEVELOPMENT CORPORATION LTD. Versus RAMNATH DEVELOPERS PVT. LTD. & ORS.

The Tribunal dismissed the appeal, upholding the Adjudicating Authority's order directing HUDCO to issue NOCs for the execution of sale deeds to home ... Seeking recovery of dues - priority of charge over the project of the Corporate Debtor and the constructions raised thereon - Non-Performing assets - HELD THAT:- The whole emphasis of the Appellant is on the issue that since the loan agreements categorically provides that the Appellant shall have a charge over the property together with building, superstructure, construction etc. both present and future owned and possessed by the borrower and prior approval of the Appellant is to be taken for the sale and entire sale proceeds are deposited with the Appellant for reduction of total amount of outstanding and that an escrow account was opened with a clear understanding with the borrower that all receipts accruing to the borrower from the project shall be deposited in the escrow account for which the loan has been sanctioned. 30. On the other hand, the case of Respondents (Homebuyers) is that since they have made the payments of the entire sale consideration, therefore, they are entitled to get the sale deed registered in their favour with the NOC to be issued by the Appellant as they are not at all at fault because they had no control over the escrow account and had discharged their liability as a prospective buyer in terms of the agreement to sell, to pay sale consideration which was either to be credited to the account of the Appellant by the borrower or agent of the escrow account. The Adjudicating Authority has also recorded its findings in para 3 of the impugned order that the home buyers have paid entire sale consideration, therefore, they would be at par with 17 such other home buyers to whom NOC was issued by the Appellant after receipt of the entire sale consideration and if the equities are to be balanced on the same scale, we find weight in the case of the home buyers. There are no error in the approach of the Adjudicating Authority which requires any kind of interference in this appeal - appeal dismissed. Issues Involved:1. Validity of the directions issued by the Adjudicating Authority to HUDCO to grant NOCs for the execution of sale deeds.2. Compliance with the loan and escrow agreements by the Corporate Debtor.3. Rights and obligations of home buyers in relation to the mortgage held by HUDCO.4. Jurisdiction of the Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC).5. Application of Section 14 and Section 30(2) read with Section 53(1) of the IBC.6. Allegations of siphoning off funds by the Corporate Debtor.7. Equitable treatment of home buyers who have paid the entire sale consideration.Issue-wise Detailed Analysis:1. Validity of the Directions Issued by the Adjudicating Authority:The appeal challenges the order dated 22.12.2021, wherein the Adjudicating Authority directed HUDCO to grant NOCs for the execution of sale deeds in favor of the applicants. HUDCO contended that the Adjudicating Authority lacked jurisdiction to issue such directions, arguing that the Corporate Debtor's assets, mortgaged to HUDCO, could not be disposed of without HUDCO's consent. HUDCO emphasized that the entire sale consideration had not been received for the units in question, differentiating these cases from the 17 units where NOCs were previously issued.2. Compliance with Loan and Escrow Agreements:HUDCO advanced loans totaling Rs. 31.35 Crores to the Corporate Debtor under agreements dated 30.06.2009 and 31.08.2010, with the entire project mortgaged to HUDCO. The escrow agreements mandated that all project receipts be deposited into escrow accounts managed by UBI. HUDCO alleged that the Corporate Debtor defaulted on payments and violated the escrow agreements by not depositing sale proceeds, which were potentially siphoned off.3. Rights and Obligations of Home Buyers:Home buyers argued that they had fulfilled their contractual obligations by paying the entire sale consideration, which was to be deposited into the escrow accounts. They contended that they had no control over the escrow accounts and should not be penalized for the Corporate Debtor's failure to deposit funds. The Adjudicating Authority found that the home buyers, having paid the full consideration, were entitled to NOCs for the execution of sale deeds, similar to the 17 units where NOCs were previously issued.4. Jurisdiction of the Adjudicating Authority:HUDCO argued that the Adjudicating Authority exceeded its jurisdiction by directing the issuance of NOCs and that such directions were contrary to the IBC's provisions. The Adjudicating Authority, however, found that it had the authority to issue such directions to balance the equities and ensure that home buyers who had paid the full consideration were not unfairly disadvantaged.5. Application of Section 14 and Section 30(2) read with Section 53(1) of the IBC:HUDCO contended that Section 14 of the IBC prohibited the disposal of the Corporate Debtor's assets during the moratorium period and that the Adjudicating Authority's order violated the priority of claims under Section 30(2) and Section 53(1). The Adjudicating Authority, however, determined that the home buyers, having paid the entire sale consideration, were entitled to the execution of sale deeds, thereby balancing the equities.6. Allegations of Siphoning Off Funds:HUDCO alleged that the Corporate Debtor, through its directors, fraudulently sold units without obtaining NOCs and diverted sale proceeds for purposes other than loan repayment. HUDCO initiated criminal proceedings against the Corporate Debtor and its directors. The Corporate Debtor denied these allegations, asserting that it had sufficient unsold assets to repay HUDCO's dues.7. Equitable Treatment of Home Buyers:The Adjudicating Authority emphasized the equitable treatment of home buyers who had paid the entire sale consideration, noting that they should be treated similarly to the 17 units where NOCs were issued. The Tribunal upheld this view, finding no error in the Adjudicating Authority's approach and dismissing the appeal.Conclusion:The appeal was dismissed, with the Tribunal affirming the Adjudicating Authority's order directing HUDCO to issue NOCs for the execution of sale deeds in favor of the home buyers who had paid the full sale consideration. The Tribunal found no jurisdictional error or violation of the IBC provisions in the Adjudicating Authority's order, thereby ensuring equitable treatment of the home buyers.