2024 (6) TMI 90 - AT - Insolvency and Bankruptcy

Real estate allottees' Section 7 application upheld despite challenge over 100-member threshold requirement

NCLAT dismissed the appeal challenging NCLT's admission of Section 7 application by real estate allottees. The tribunal held that the threshold of 100 ... Threshold of one hundred allottees under Section 7 - counting of allottees versus number of financial creditors/units - treatment of joint allotment for reckoning allottees - effect of No Dues/No Claim certificates and sub lease on allottee status - requirement of a default of Rs.1 crore for maintainability of Section 7 - relevance of occupancy/completion certificate and actual possession - admission of Section 7 petition by the Adjudicating AuthorityThreshold of one hundred allottees under Section 7 - counting of allottees versus number of financial creditors/units - requirement of a default of Rs.1 crore for maintainability of Section 7 - Whether the Section 7 application met the proviso threshold for real estate projects and was rightly admitted - HELD THAT: - The Tribunal held that the threshold in the proviso to Section 7 must be assessed by reference to allottees/units and not merely by counting applicants as financial creditors. The Court applied the principles in Manish Kumar (paras.186-188 and paras.170-171 cited) that independent allotments count separately for the purpose of the proviso and that joint allotments are to be treated as a single allotment where appropriate. The admitted pleadings and Annexure D Part I demonstrated that several applicants represented multiple units and, on counting units as recorded in the amended Section 7 pleadings (122 units as per Schedule I after impleadments), the requisite threshold was crossed. The Adjudicating Authority's orders allowing impleadment applications and permitting amendment of the memo of parties were recorded and taken into account in assessing the number of allottees. The Tribunal therefore found the admission of the Section 7 petition by the Adjudicating Authority to be in order. [Paras 11, 13, 14, 22, 23]The Section 7 application fulfilled the proviso threshold and its admission by the Adjudicating Authority was correct.Effect of No Dues/No Claim certificates and sub lease on allottee status - relevance of occupancy/completion certificate and actual possession - Whether issuance of No Dues/No Claim certificates, sub lease agreements or alleged possession by some unit holders disentitled them from being allottees for the purpose of Section 7 - HELD THAT: - The Tribunal held that No Dues/No Claim certificates relied upon by the Corporate Debtor merely record an allottee's forbearance of certain claims (such as interest or penalties) and do not operate to cancel or extinguish the original allotment agreement or the allottee's status. Execution of a sub lease in favour of an allottee likewise did not amount to deletion of the allottee's status. Regarding alleged possession of approximately 23 commercial units, the IRP's site inspection report (prepared with a Government approved valuer/surveyor) indicated shutters closed, no clear evidence of regularised possession, and absence of Occupation/Completion Certificates; the Tribunal accepted that without valid occupancy/completion certification and regularised possession those buyers do not lose their character as allottees. The Adjudicating Authority had considered and rejected contentions that certain allottees were speculative or had ceased to be allottees, and the Tribunal found no error in that conclusion. [Paras 17, 18, 19, 20, 21]No Dues/No Claim certificates, sub lease execution or the facts relied on to allege possession did not deprive the persons of their status as allottees for Section 7 purposes.Admission of Section 7 petition by the Adjudicating Authority - Whether any error was committed by the Adjudicating Authority in admitting the Section 7 petition and whether any interim directions of this Tribunal affected the continuance of CIRP - HELD THAT: - Having found that the proviso threshold was satisfied and that the alleged No Dues certificates/possession did not negate allottee status, the Tribunal concluded that the Adjudicating Authority did not err in admitting the Section 7 petition. The Tribunal recorded that an interim order was earlier passed directing the IRP to run the corporate debtor as a going concern and to take steps for completion of the project with assistance of suspended management, and observed the passage of time since admission. In consequence the Tribunal directed exclusion of the period from 21.02.2023 till 31.05.2024 in the CIRP timeline. [Paras 3, 23, 24]No error in admission; appeal dismissed subject to exclusion of time from 21.02.2023 to 31.05.2024 and CIRP to proceed in accordance with law.Final Conclusion: The Tribunal upheld the Adjudicating Authority's admission of the Section 7 petition: the proviso threshold was satisfied on the record (counting units/allottees, including after impleadments), No Dues/No Claim certificates or alleged possession did not negate allottee status, and the appeal was dismissed while directing exclusion of time from 21.02.2023 to 31.05.2024 for the CIRP. Issues Involved:1. Admission of Section 7 application.2. Fulfillment of the threshold of 100 allottees.3. Validity of No Dues and No Claim Certificates.4. Status of possession and completion of the project.5. Interim order and continuation of CIRP.Summary:1. Admission of Section 7 Application:The appeal was filed by a Suspended Director of the Corporate Debtor challenging the order dated 07.02.2023 by the Adjudicating Authority (NCLT), Principal Bench, New Delhi, which admitted a Section 7 application filed by the Respondents-allottees of a Real Estate Project. The Corporate Debtor, M/s. Vardhman Estates & Developers Pvt. Ltd., failed to complete the project and handover possession, leading to the application by 117 Financial Creditors representing 104 allotted units.2. Fulfillment of the Threshold of 100 Allottees:The Corporate Debtor argued that the threshold of 100 allottees u/s 7 of the IBC was not met, claiming the calculation should be based on units, not applicants. However, the Adjudicating Authority found the number of allottees crossed the threshold of 100. The Hon'ble Supreme Court in 'Manish Kumar vs. Union of India And Anr.- (2021) 5 SCC' clarified that the number of allottees, not units, is relevant for fulfilling the threshold. The amended application included 146 Financial Creditors representing 122 allotted units, thus meeting the required threshold.3. Validity of No Dues and No Claim Certificates:The Corporate Debtor presented No Dues and No Claim Certificates from some Financial Creditors, arguing these should exclude them from the Section 7 application. However, the Adjudicating Authority and the Tribunal found that these certificates did not negate the status of the allottees. Agreements remained valid, and the certificates merely indicated a waiver of certain claims, not a relinquishment of allottee status.4. Status of Possession and Completion of the Project:The IRP's report indicated that no Occupancy or Completion Certificates were issued, and significant construction work was pending. The Tribunal noted that even if possession was claimed for some units, without valid Occupancy Certificates, these allottees retained their status. The project was incomplete, and the Corporate Debtor's claim of possession was not substantiated.5. Interim Order and Continuation of CIRP:An interim order on 21.02.2023 directed the IRP to ensure the Corporate Debtor ran as a going concern and to take steps for project completion with the assistance of suspended directors/ex-management. The CoC was not to be constituted. The Tribunal dismissed the appeal, directing the exclusion of the period from 21.02.2023 to 31.05.2024 in the CIRP of the Corporate Debtor, allowing the CIRP to proceed in accordance with law.