2025 (9) TMI 71 - AT - IBC

Appeal dismissed; approval of resolution plan upheld as compliant with IBC eligibility and JDA terms, land ownership preserved

Chintan Jhunjhunwala Versus Avani Towers Pvt. Ltd. Through Its RP, Jitendra Lohia & Ors

Chintan Jhunjhunwala Versus Avani Towers Pvt. Ltd. Through Its RP, Jitendra Lohia & Ors - TMI 1. ISSUES PRESENTED AND CONSIDERED 1. Whether specific clauses of the approved Resolution Plan (notably Clauses 5(c), 5(h), 5(i), 5(j) and 5(l)) unlawfully divest or take away the ownership rights of the land-owner vis-à-vis the developer under the existing MoU and Joint Development Agreement (JDA). 2. Whether the approved Resolution Plan effects transfer of ownership in the subject land or otherwise deprives the land-owner of its proprietary rights. 3. Whether the approved Resolution Plan is conditional/contingent in a manner that renders it unworkable or contrary to the requirements of Section 30(2)(e) and relevant CIRP Regulations. 4. Whether the Successful Resolution Applicant (SRA) satisfied eligibility criteria required for submission of the Resolution Plan. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Do Clauses 5(c), 5(h), 5(i), 5(j) and 5(l) of the Resolution Plan divest ownership rights or contravene the MoU/JDA? Legal framework: The Resolution Plan must conform with statutory scheme of the IBC and the CIRP Regulations and cannot impermissibly alter third-party proprietary rights; contractual rights under MoU and JDA govern allocation of constructed area, security deposit refund mechanism, creation of charges/mortgages, grant of powers of attorney and share/board arrangements. Precedent treatment: Prior tribunal decisions recognize limits on altering third-party land rights by a Resolution Plan where such plan purports to transfer title, but permit implementation of contractual provisions (including developer rights) where those rights were validly created and amount to 'assets' under IBC. Interpretation and reasoning: Examination of JDA and MoU reveals (i) security deposit refund schedule (Third Schedule Part-II) and a specific remedy (acquisition of owner's allocation at agreed rate) upon failure to refund; (ii) express contractual right for developer to create charge/mortgage for project finance; (iii) express entitlement for execution/substitution of powers of attorney and the developer's exclusive rights in respect of development and sale; (iv) share transfer/nomination rights evidenced in shareholders' agreement. Clauses 5(c), 5(h), 5(i), 5(j) and 5(l) reflect and implement these contractual provisions and include an express recital that the Resolution Applicant will carry out terms of the MoU/shareholders agreement/JDA subject to fulfillment of JDA pre-conditions (Clause 5(m)). The challenged clauses do not, on their face, effect an immediate appropriation of owner's land or transfer of title upon plan approval; rather they envisage enforcement of existing contractual remedies and mechanisms (e.g., appropriation on default per JDA, creation of charge per JDA, substitution of PoA holders per JDA, continued share/board positions as per executed documents, and ability to bring in JV/ SPV for financing as permitted to developer). Ratio vs. Obiter: Ratio - A Resolution Plan that gives effect to contractual rights previously created in favour of the corporate debtor/developer (including remedies on default, creation of charges and substitution of PoA) does not, by operation of those clauses alone, amount to unlawful divestment of the land-owner's ownership where the JDA/MoU validly created a bundle of development rights constituting 'assets' under IBC. Obiter - Comparative remarks on other fact patterns (e.g., where a plan purports to transfer land title absent contractual basis) not necessary to the decision. Conclusion: The impugned Clauses 5(c), 5(h), 5(i), 5(j) and 5(l) neither take away ownership rights of the land-owner nor contravene the MoU and JDA as they are consistent with the contractual regime and subject to fulfillment of JDA pre-conditions. Issue 2 - Does the approved Resolution Plan effect transfer of ownership in the subject land? Legal framework: Ownership transfer requires appropriate contractual or legal mechanism; development rights (a 'bundle' of interests) may constitute 'property'/'asset' under IBC but are distinct from absolute title absent an express transfer mechanism. Precedent treatment: Supreme Court and tribunal authorities accept that development rights, when validly created for consideration, may constitute assets of the corporate debtor and be dealt with in CIRP, but a plan cannot impermissibly fabricate or convert third-party title where none exists. Interpretation and reasoning: The underlying MoU/JDA and subsequent judicial findings established that the corporate debtor possesses a bundle of development rights (assets) but did not convert the developer into the absolute owner of the land. The Resolution Plan's clauses implement developer rights and remedies without purporting to transfer the land owner's legal title. The Plan includes positive obligations to comply with the MoU/JDA and to satisfy JDA pre-conditions; there is no clause effecting immediate or unconditional vesting of ownership in the SRA. Ratio vs. Obiter: Ratio - Approval of a Resolution Plan that exercises or implements contractual development rights does not ipso facto effect transfer of land ownership where the plan remains within the contractual framework and judicially recognized scope of assets. Obiter - Distinguishing cases where plans expressly seek transfer of title without contractual underpinning. Conclusion: The approved Resolution Plan does not transfer ownership of the subject land nor strip the land-owner of its proprietary title. Issue 3 - Is the Resolution Plan conditional/contingent so as to render it unworkable or contravene Section 30(2)(e) / CIRP Regulations? Legal framework: Section 30(2)(e) and relevant CIRP Regulations require a Resolution Plan to be feasible, implementable and provide a workable timetable and mechanisms for performance; conditionality which makes realization of the plan uncertain may attract scrutiny. Precedent treatment: Resolution Plans containing commercial contingencies are permissible provided they set out clear timelines, obligations and do not leave material performance wholly uncertain or at SRA's discretion without binding commitment. Interpretation and reasoning: The challenged Plan identifies monetary commitments, schedules for payments in Schedule-A and specifies implementation steps; significant portions of funds were alleged to be contingent upon fulfillment of JDA pre-conditions. However, the Plan expressly adopts contractual mechanisms and provides timelines for payments; there is no clause granting an exit right to the SRA nor rendering the plan revocable. The requirement to fulfill JDA pre-conditions (which are antecedent to construction) does not, in the tribunal's view, render the Plan inherently contingent or violative of Section 30(2)(e) where the Plan otherwise delineates clear obligations and no material performance is left indeterminate. Ratio vs. Obiter: Ratio - A Resolution Plan that conditions implementation on fulfillment of pre-existing contractual conditions (e.g., statutory clearances, conversions) is not per se impermissible so long as the Plan provides concrete payment schedule, binding obligations and no impermissible exit/uncertainty mechanism. Obiter - Remarks on fact scenarios where excessive conditionality might vitiate a plan. Conclusion: The Resolution Plan is not impermissibly contingent or conditional and does not contravene Section 30(2)(e) or the CIRP Regulations on the basis of the alleged contingencies. Issue 4 - Whether the Successful Resolution Applicant fulfilled eligibility criteria? Legal framework: Eligibility (including net worth / funds deployed / committed funds) is governed by invitation for EOI and the eligibility criteria therein; the Resolution Professional evaluates compliance and places relevant financial statements on record for judicial scrutiny. Precedent treatment: Courts and tribunals respect RP's verification where documentary evidence (audited financials, balance sheet figures) substantiates satisfaction of eligibility thresholds, absent demonstrable falsity. Interpretation and reasoning: The RP filed an affidavit supported by the SRA's audited financial statements showing net worth above prescribed threshold and funds deployed/committed funds meeting the AUM / deployment requirement. The financial data on record (balance sheet figures and statements) substantiate the SRA's eligibility under the EOI criteria; challengers failed to demonstrate a mis-reading or material misrepresentation of the financials. Ratio vs. Obiter: Ratio - Where audited financial statements and RP's affidavit demonstrate fulfillment of stated eligibility thresholds, the SRA should be regarded as eligible; absent contrary admissible evidence, eligibility challenges fail. Obiter - Observations on circumstances warranting deeper forensic inquiry into financial statements. Conclusion: The SRA fulfilled the prescribed eligibility criteria and the Adjudicating Authority appropriately accepted the Plan on that basis. Overall Conclusion The Adjudicating Authority did not err in dismissing the application challenging the Resolution Plan: the challenged Plan clauses implement contractual rights under the MoU/JDA, do not divest ownership title of the land-owner, are not impermissibly contingent, and the SRA met eligibility requirements. The appeal is without merit.