TaxTMI 
TaxTMI 
2020 (8) TMI 396
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....abh Tripathi claiming to be the Financial Creditors. The order of admission passed on 17th March, 2020 by the Adjudicating Authority (National Company Law Tribunal), New Delhi, Court-II, with consequential directions in the nature of slapping of Moratorium and appointment of Interim Resolution Professional has been assailed through the medium of instant appeal on grounds adumbrated in the Memo of Appeal to which we shall advert to at a later stage. 2. The dispute underlying the triggering of Corporate Insolvency Resolution Process at the instance of Respondents- Mr. Ashok Tripathi and Mr. Saurabh Tripathi owes its genesis to booking of dwelling units under a Real Estate Project namely 'Sushant Golf City' developed at 'High Tech Township', Sector-P, Sultanpur Road, Lucknow. The case set up by the Respondent Nos. 1 & 2 before the Adjudicating Authority is that they have jointly booked a unit bearing no. 0073 admeasuring 3746 sq. ft. with the Corporate Debtor for total consideration of Rs. 1,62,43,133/- on 5th August, 2014 and paid an amount of Rs. 8,37,300 as booking advance. Besides Respondent No.2 Mr. Saurabh Tripathi had booked a separate unit bearing No. B7/GF/01 admeasuring 1....
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....r. It also noticed that the allottees had approached the Adjudicating Authority in the capacity of decree-holder against the default of the financial debt committed by the Corporate Debtor on account of the non-payment of the principal amount alongwith penalty as decreed by the "UP RERA" vide orders dated 16th November, 2017 and 13th December, 2018 besides Recovery Certificate dated 10th August, 2019. The Adjudicating Authority has also taken note of Judgment of this Appellate Tribunal rendered in "M/s. Ugro Capital Limited v. Bangalore Dehydration and Drying Equipment Co. Pvt. Ltd.- Company Appeal (AT) (Insolvency) No. 984 of 2019" wherein this Appellate Tribunal observed that the definition of word 'creditor' in 'I&B Code' includes decree-holder and a petition filed for realisation of decretal amount could not be dismissed on the ground that the creditor should have taken steps for filing execution case in Civil Court. The Adjudicating Authority, accordingly, proceeded to pass the impugned order admitting the joint application of Respondent Nos. 1 & 2 which has been assailed in this appeal. 4. The impugned order has been primarily assailed on the ground that the application fi....
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....r withdrawal and termination of Corporate Insolvency Resolution Process of the Corporate Debtor while the Committee of Creditors has not been constituted till date in terms of order dated 20th March, 2020. As regards application filed by Interim Resolution Professional, it is submitted on behalf of the Appellant that most of the claims have been received by the Interim Resolution Professional from various creditors and allottees prior to 17th April, 2020 i.e. the date when Interim Resolution Professional published the second revised advertisement. The Corporate Debtor, which is developing about 100 number of projects, has arrived at settlement with five lenders during last financial year with total amount repaid slightly over Rs. 487.3 Crores. Therefore, the Corporate Debtor could be allowed to complete the project as also maintain control of the projects in the interest of allottees to ensure completion of its project and deliver the same to the allottees. 6. Per contra, it is submitted on behalf of Respondent Nos. 1 & 2 that the Appellant and Respondent Nos. 1 & 2 have settled all their disputes in relation to Unit bearing no. 0073 and the allottees do not have any pending cla....
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....y been completed. It is also not in dispute that the Corporate Debtor had entered into Builder-Buyer Agreement dated 12th September, 2014 with the Respondent Nos.1 and 2 in regard to Unit No.0073 of 'M/s. Ansal Properties and Infrastructure Private Limited', Sector-P/ Pocket-1 while another Builder-Buyer Agreement dated 29th September, 2014 was reached between the Corporate Debtor and Respondent No.2 in regard to Unit bearing No. B7/GF/01. Respondent No.1 appears to have lodged a complaint with 'UP RERA' for refund of money as the Corporate Debtor did not complete Unit No.0073 within the stipulated time. On consideration thereof, 'UP RERA' directed the Corporate Debtor to deposit the amount payable to the Respondent Nos. 1 & 2 in six instalments spanning a period of nine months. This happened on 16th November, 2017. First instalment was due on 1st December, 2017. Respondent No.2 also appears to have filed a complaint with 'UP RERA' seeking refund of deposited amount. 'UP RERA' directed the Corporate Debtor to refund the amount deposited by Respondent No.2 in 10 monthly instalments along with interest determined by 'UP RERA'. It happened on 13th December, 2018. 'UP RERA' directed th....
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....r's petition under Sections 7 to 9, the proceeding that is before the Adjudicating Authority, being a collective proceeding, is a proceeding in rem. Being a proceeding in rem, it is necessary that the body which is to oversee the resolution process must be consulted before any individual corporate debtor is allowed to settle its claim. A question arises as to what is to happen before a committee of creditors is constituted (as per the timelines that are specified, a committee of creditors can be appointed at any time within 30 days from the date of appointment of the interim resolution professional). We make it clear that at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the concerned parties and considering all relevant factors on the facts of each case." 12. It is manifest that a party to Corporate Insolvency Resolution Process can approach the Adjudicating Authority directly for exercise of its inherent powers under Rule 11 ....
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....n an application under Section 7 of the Code. We may mention here that once this prima facie case is made out, the burden shifts on the promoter/real estate developer to point out in their reply and in the hearing before the NCLT, that the allottee is himself a defaulter and would, therefore, on a reading of the agreement and the applicable RERA Rules and Regulations, not be entitled to any relief including payment of compensation and/or refund, entailing a dismissal of the said application. At this stage also, it is important to point out, in answer to the arguments made by the Petitioners, that under Section 65 of the Code, the real estate developer can also point out that the insolvency resolution process under the Code has been invoked fraudulently, with malicious intent, or for any purpose other than the resolution of insolvency. This the real estate developer may do by pointing out, for example, that the allottee who has knocked at the doors of the NCLT is a speculative investor and not a person who is genuinely interested in purchasing a flat/apartment. They can also point out that in a real estate market which is falling, the allottee does not, in fact, want to go ahead wit....
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....ct, whichever is less. It was further provided that where such an application has been filed by a Financial Creditor but has not been admitted before commencement of the Ordinance viz 28th December, 2019, such application shall be modified to comply with the aforesaid requirements in regard to threshold limit within 30 days of the commencement of such Ordinance, failing which it shall be deemed to have been withdrawn at the pre-admission stage. This Ordinance was subsequently replaced by the 'Insolvency and Bankruptcy Code (Amendment) Act, 2020' ("Amending Act" for short) incorporating the amendment introduced in Section 7 by virtue of the aforestated Ordinance with express provision that the Amending Act shall be deemed to have come into force on 28th December, 2019. Section 3 of the Amending Act is extracted hereinbelow: "3. In section 7 of the principal Act, in subsection (1), before the Explanation, the following provisos shall be inserted, namely:- "Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6A) of section 21, an application for initiating corporate insolvency resolution process against the corporate debtor s....
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.... emerges that this is a one-time opportunity provided only with respect to pending applications at pre-admission stage where the allottees have been granted thirty days' time to meet the threshold limit for initiation of Corporate Insolvency Resolution Process. It is flabbergasting to discover that such one-time opportunity is practically non-existent inasmuchas the allotees in such case are required to garner support of the requisite number of allottees for meeting the threshold limit within thirty days of the commencement of the Amending Act which in terms of Section 2 of the said Amending Act is deemed to have come in force on 28th December, 2019 though the same has been notified on 13th March, 2020. The thirty days' time granted to allottees for meeting the threshold limit would, therefore, commence w.e.f 28th December, 2019 and not w.e.f. 13th March, 2020. This is bound to lead to absurdity. It is brought to our notice that one Mr. Manish Kumar has filed Writ Petition (Civil) No. 26/2020 before the Hon'ble Apex Court challenging the amended Section 7 with respect to allottees who has already filed applications under Section 7 prior to the date of amendment. The Hon'ble Apex Co....
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....ts dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; [Explanation. -For the purposes of this subclause, - (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] (g) any derivative transaction entered into in connection with protection ....
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....itors'. Such argument being absurd and incompatible with their plea before the Adjudicating Authority and the events following filing of complaints before the 'UP RERA' and leading to passage of Recovery Certificate needs to be rejected outright. Respondent Nos. 1 and 2 neither asserted nor sought triggering of Corporate Insolvency Resolution Process in a purported capacity as allottees of Real Estate Project but sought initiation of Corporate Insolvency Resolution Process against the Corporate Debtor on the strength of being 'decree-holders' which owed its genesis to the Recovery Certificate issued by the 'UP RERA'. It is, therefore, required to be determined whether in their projected capacity as 'decree-holders' Respondent Nos.1 and 2 could maintain an application under Section 7 as 'Financial Creditors'. 20. A 'decree-holder' is undoubtedly covered by the definition of 'Creditor' under Section 3(10) of the 'I&B Code' but would not fall within the class of creditors classified as 'Financial Creditor' unless the debt was disbursed against the consideration for time value of money or falls within any of the clauses thereof as the definition of 'financial debt' is inclusive in c....
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.... Ors.- MANU/NL/0092/2020". It was held that an application under Section 7 of the 'I&B Code' cannot be filed for execution of a decree. The relevant portion of the Judgment may be reproduced hereunder: "26. By filing an application under Section 7 of the I&B Code, a Decree cannot be executed. In such case, it will be covered by Section 65 of the I&B Code, which stipulates that the insolvency resolution process or liquidation proceedings, if filed, fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, attracts penal action." 22. It has already been noticed in this Judgment that the 'UP RERA', which ordered recovery of amount of Rs. 73,35,686.43/- owed to Respondent Nos.1 and 2 in terms of its order dated 10th August, 2019 has forwarded the Recovery Certificate to the Competent Authority for effecting recovery in the manner and as an arrear of land revenue from the Corporate Debtor. In the backdrop of this factual situation, Respondent Nos. 1 and 2 can safely be held to have approached the Adjudicating Authority only with a view to execute the decree in the nature of Recovery Certificate and recover the amount d....
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....rate Insolvency Resolution Process against Corporate Debtor cannot be sustained. The Adjudicating Authority has landed in grave error in admitting the application of Respondent Nos.1 and 2 under Section 7 who claimed to be the 'Financial Creditors' in their capacity as 'decree-holders' against the Corporate Debtor on account of non-payment of the amount due under the Recovery Certificate dated 10th August, 2019 issued by the 'UP RERA' while execution of decree/ recovery of amount due under Recovery Certificate would not justify triggering of Corporate Insolvency Resolution Process. We are also of the firm view that the application of Respondent Nos. 1 and 2 was moved for execution/ recovery of the amount due under the Recovery Certificate and not for insolvency resolution of the Corporate Debtor. The impugned order suffers from grave legal infirmity and cannot be supported. We accordingly set aside the impugned order dated 17th March, 2020. 25. In effect, order(s), passed by the Adjudicating Authority appointing 'Interim Resolution Professional', declaring moratorium, freezing of account, and all other order (s) passed by the Adjudicating Authority pursuant to impugned order and....