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        <h1>Home-buyers' Section 7 application against corporate debtor upheld despite limitation and collusion challenges</h1> <h3>Jayshree Agnihotri Versus Nirmal Kumar Jain, Richard Shreedhar & Pratima Shreedhar Khajrana Chouraha, Anil Kumar Sharma, Rekha Chouhan, Sanjay Jain, Chandra Prakash Jain, Vishnu Kumar Joshi, Sonal Choradia, Prmod Bhawsar & Rekha Bhawsar, Surendra Kumar Farkya & Vimla Surendra Farkya, Ashok Jain, Pratima Bohra, Pushp Ratna Realty Pvt. Ltd., Mr. Hasti Mal Kachhara And Ashok Kumar Jain Versus Nirmal Kumar Jain, Richard Shreedhar & Pratima Shreedhar Khajrana Chouraha, Anil Kumar Sharma, Rekha Chouhan, Sanjay Jain, Chandra Prakash Jain, Vishnu Kumar Joshi, Sonal Choradia, Prmod Bhawsar & Rekha Bhawsar, Surendra Kumar Farkya & Vimla Surendra Farkya, Ashok Jain, Pratima Bohra, Pushp Ratna Realty Pvt. Ltd.</h3> Jayshree Agnihotri Versus Nirmal Kumar Jain, Richard Shreedhar & Pratima Shreedhar Khajrana Chouraha, Anil Kumar Sharma, Rekha Chouhan, Sanjay Jain, ... 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:Whether the Section 7 application filed by the home-buyers (Financial Creditors in class) against the Corporate Debtor was barred by limitation.Whether the Section 7 application was a collusive or proxy litigation filed at the behest of the suspended management (Jain group) to wrest control over the Corporate Debtor's land from the Agnihotri group.Whether the home-buyers qualified as genuine allottees and Financial Creditors under the Insolvency and Bankruptcy Code (IBC), given allegations of speculative investment and default in payments.Whether the settlement proposals submitted by the Agnihotri group and the suspended management to discharge the home-buyers' claims were just, bona fide, and ought to have been accepted by the Committee of Creditors (CoC).The applicability and interpretation of relevant legal precedents concerning limitation, admission of Section 7 petitions by home-buyers, and the scope of settlement proposals under the IBC framework.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Limitation Bar on Section 7 ApplicationLegal Framework and Precedents: Section 7 of the IBC allows financial creditors to initiate Corporate Insolvency Resolution Process (CIRP) upon default. The limitation period for filing such application is three years from the date of default. The Supreme Court's Suo Motu Writ Petition (Civil) No. 03 of 2020 provided for exclusion of limitation period from 15.03.2020 to 14.03.2021 due to the COVID-19 pandemic.Court's Interpretation and Reasoning: The Tribunal examined the dates of allotment letters issued to the home-buyers and the corresponding dates of default calculated by expiry of the 30-month possession period. The default dates ranged from 2016 to 2019. The Tribunal relied on the audited balance sheets of the Corporate Debtor from 2013-14 to 2019-20, which showed 'Advances from customers against flat bookings' as current liabilities, confirming receipt of funds from the allottees. Further, balance confirmation letters dated 09.11.2021 issued by the Corporate Debtor acknowledged the debt liability towards the home-buyers.The Tribunal held that these acknowledgments extended the limitation period, and with the benefit of the Supreme Court's exclusion period, the Section 7 application filed on 22.05.2024 was well within limitation. The withdrawal of the earlier Section 7 petition filed in 2023 did not preclude filing the fresh petition.Key Evidence and Findings: Audited balance sheets showing advances, balance confirmation letters acknowledging debt, dates of allotment letters and default, and Supreme Court's directions on limitation.Application of Law to Facts: The Tribunal applied the principle that acknowledgment of debt extends the limitation period and excluded the COVID-19 period as per Supreme Court directions. It found no merit in the limitation objection.Treatment of Competing Arguments: The Appellant's contention that the petition was barred by limitation and based on backdated acknowledgments was rejected as the balance sheet and confirmation letters were valid acknowledgments. The suspended management's similar limitation argument was also dismissed.Conclusion: The Section 7 application was not barred by limitation.Issue 2: Allegation of Collusive or Proxy LitigationLegal Framework: The IBC mandates genuine creditor initiation of CIRP. Collusive litigation to wrest control or frustrate the process is impermissible. The Tribunal must examine bona fides and parties' conduct.Court's Interpretation and Reasoning: The Appellant Jayshree Agnihotri alleged that the Jain group, suspended management holding majority shares, colluded with home-buyers to file the Section 7 petition to take over the land, alleging forgery of MoU cancellation and breach of shareholder agreements. The Appellant contended that the home-buyers were acting as proxies for the Jain group.The Tribunal noted admissions by the Agnihotri group that settlement talks with the Jain group were ongoing, indicating inter se disputes and attempts at reconciliation. It observed that such negotiations showed both factions' intent to maintain control over the project. The Tribunal rejected the contention that home-buyers were pawns in this dispute, holding that home-buyers' rights are independent and cannot be sacrificed due to shareholder disputes. The Tribunal emphasized that the home-buyers were not privy to the MoU or its cancellation and thus the MoU dispute was irrelevant to their claims.Key Evidence and Findings: Orders of Madhya Pradesh High Court recording settlement talks, admissions in pleadings, and the fact that home-buyers had suffered due to project delay amidst shareholder disputes.Application of Law to Facts: The Tribunal applied the principle that home-buyers, as financial creditors, have independent rights to seek CIRP and cannot be denied relief based on inter-shareholder disputes. Allegations of collusion lacked foundation.Treatment of Competing Arguments: The Appellant's allegations of proxy litigation were rejected as speculative. The home-buyers' contention that their petition was bona fide and independent was accepted.Conclusion: The Section 7 application was not collusive or proxy litigation.Issue 3: Qualification of Home-Buyers as Financial Creditors and Validity of Allotment LettersLegal Framework: Under IBC, home-buyers who have advanced money to a developer qualify as financial creditors. The genuineness of allotment letters and compliance with payment schedules are relevant to establish debt and default.Court's Interpretation and Reasoning: The Appellant and suspended management contended that some home-buyers were speculative investors who defaulted on payments and that allotment letters were not genuine, citing anomalies such as multiple flats allotted to one person at low booking amounts and missing standard clauses.The Tribunal found that the Corporate Debtor did not deny receipt of advances from the home-buyers, which were reflected in the audited balance sheets as current liabilities. It also noted the absence of demand letters for balance payments and the stalling of construction, which justified the home-buyers' withholding of payments. The Tribunal held that default by the Corporate Debtor in timely possession triggered the debt and default under Section 7. The settlement proposals made by both parties further admitted the existence of debt and default.Key Evidence and Findings: Audited balance sheets, balance confirmation letters, allotment letters, and absence of demand notices for balance payments.Application of Law to Facts: The Tribunal applied the principle that receipt of advances and failure to deliver possession constitute debt and default. It rejected the argument that home-buyers' partial payment or speculative nature disqualified them as financial creditors.Treatment of Competing Arguments: The Appellant's and suspended management's objections were dismissed as unsubstantiated and contrary to documentary evidence.Conclusion: The home-buyers qualified as financial creditors and the allotment letters and payments were genuine.Issue 4: Justifiability and Acceptance of Settlement ProposalsLegal Framework and Precedents: The Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. Vs UOI recognized that the CoC's rejection of a just settlement proposal can be set aside by the Adjudicating Authority or Appellate Tribunal. The judgment in Anand Murti Vs Soni Infratech Pvt. Ltd. emphasized acceptance of bona fide settlement offers. However, the IBC mandates adherence to the CIRP process once initiated.Court's Interpretation and Reasoning: The Appellant Jayshree Agnihotri submitted a settlement proposal to discharge home-buyers' claims fully or complete the project within a stipulated period, offering to deposit Rs. 6.03 Cr as security. The suspended management also made a belated oral settlement offer. Both were rejected by the CoC.The Tribunal found no arbitrariness in the CoC's rejection, noting that the home-buyers had lost faith in both shareholder groups due to prolonged delays and mismanagement. The Tribunal distinguished the Anand Murti case, noting the present case involved inter se shareholder disputes and a majority of home-buyers opposing the settlement. The Tribunal held that the settlement proposals appeared as attempts by the shareholders to retain control over the land and frustrate CIRP. It emphasized that the home-buyers' collective wisdom to seek new resolution applicants was reasonable and justified.Key Evidence and Findings: Minutes of CoC meetings, IRP report indicating stalled construction, and pleadings reflecting home-buyers' distrust in existing management.Application of Law to Facts: The Tribunal applied the principle that settlement proposals must be bona fide and acceptable to the CoC and that CIRP must proceed if the CoC rejects such proposals for cogent reasons.Treatment of Competing Arguments: The Appellant's and suspended management's settlement offers were rejected as tactical and lacking bona fides. The home-buyers' insistence on CIRP continuation was upheld.Conclusion: The rejection of settlement proposals by the CoC and Adjudicating Authority was justified; CIRP must continue.3. SIGNIFICANT HOLDINGS'The Section 7 application was filed within limitation as the audited balance sheets and balance confirmation letters constituted valid acknowledgment of debt extending the limitation period, and the period of exclusion due to COVID-19 was rightly applied.''The rights of home-buyers as financial creditors cannot be sacrificed on account of inter se disputes between shareholders of the Corporate Debtor. Allegations of collusion and proxy litigation lacked foundation and were rejected.''Receipt of advances by the Corporate Debtor from home-buyers and failure to deliver possession within stipulated time constituted debt and default under Section 7, qualifying home-buyers as financial creditors.''The Committee of Creditors' rejection of the settlement proposals was neither arbitrary nor unjustified. The CIRP process must continue to enable a resolution applicant to take over and complete the project, safeguarding home-buyers' interests.''The Tribunal refrained from commenting on the ownership dispute and inter se shareholder matters, as these are to be adjudicated by appropriate forums.'The appeals challenging the admission of the Section 7 application and rejection of the settlement proposal were dismissed, and the CIRP was ordered to proceed in accordance with the IBC.

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