TaxTMI 
TaxTMI 
2021 (6) TMI 492
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....irty Five Lakh Ninety One Thousand Two Hundred and Two only). 2. Brief facts of the case, which are relevant to the issue in question, are as follows: (1) M/s. LIC Housing Finance Limited ('Petitioner / Financial Creditor') is a Company incorporated on 19.06.1989 under the provisions of Companies Act, 1956 bearing CIN: L65922MH1989PLC052257 with its registered office situated at Bombay Life Building, 2nd Floor, 45/47, Veer Nariman Road, Mumbai - 400001. The Petitioner is a financial institution involved in providing long term finance to individuals for purchase or construction of house or flat for residential purpose / repair and renovation of existing flat/houses. It provides finance on existing property for business, personal needs etc. It also provides long term finance to persons engaged in the business of construction of houses or flats for residential purpose and to be sold by them. (2) M/s. Buoyant Technology Constellations Private Limited ('Respondent / Corporate Debtor') is a Company incorporated on 23.07.2007 under the provisions of Companies Act, 1956 vide CIN: U45201KA2007PTC043436 with its registered office situated at Mantri House,....
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....Debtor (Borrower) M/s. Mantri Technology Constellations Private Limited including interest, additional interest on principal, commitment charges, liquidated damages, costs, charges and all other monies that may be payable and remain unpaid to M/s. LIC Housing Finance Limited. c. Escrow Agreement 31.01.2017 entered into and executed between M/s. Mantri Technology Constellations Private Limited on the first part, M/s. LIC Housing Finance Limited and Punjab National Bank on the Third Part. This agreement provides that for the benefit of the Lender (Financial Creditor) the Borrower (Corporate Debtor) shall establish open and maintain an Escrow account for depositing the receivables with the designated branch of the Escrow agent as mentioned in the Schedule I annexed to the Escrow Agreement. (6) The disbursement schedule is as follows: (7) Further, as per the Memorandum of Deposit of Title Deeds executed on 27.02.2017 at Bangalore between M/s. Manyata Reality, M/s. Mantri Technology Constellations Private Limited (the Borrowers), M/s. Mantri Developers (the Guarantor) and in favour of LIC Housing Finance Limited, the borrowers have offered to create mortgage i....
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....uly approved and authorized by all the Authorities, the work has been in great progress. (4) Due to the requirement for additional funding, the Petitioner herein came forward to clear off the loan of Vijaya Bank Consortium and sanction larger limits with all the assets and securities being shifted over in its favor. After confirming with various aspects and cluster of details, the Petitioner Bank agreed to take over the entire existing outstanding loan of Vijaya Bank Consortium and agreed to fund Rs. 250 crores (which was inclusive of the payment disbursed to the outstanding of Vijaya Bank Consortium). Thereafter, detailed loan Agreement dated 20.01.2017 was entered into between the Respondent and the Petitioner. A registered Memorandum of Deposit of Title Deeds dated 27.02.2017 was also executed in favor of the Petitioner. A General Undertaking Cum Indemnity dated 20.01.2017 was also executed by the Respondent in favor of the Petitioner. By this document it is amply clear that the developer's share and all sale proceeds would cover as an indemnity to the financial assistance received. (5) Further, a Corporate Guarantee was also executed by M/s. Mantri Develop....
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....iving NOC to the Petitioner to create liability on the developer's share against the financial assistance. (8) From the contents and covenants of the proposal submitted by the Respondent, sanction order issued by the Petitioner Bank, loan agreement, Memorandum of Deposit of title deeds or any other documents inter-se, there is no agreement for "enforcement of security interest" and nor such right to do so under the Securitization Act (SARFAESI) vests with the Petitioner organization. Further, the security created in favor of the Petitioner Financial Institution being the value of Developer's share in the entire project, their right to enforce will get accrued in them only upon formation of complete developers share. In other words, the right of bank to enforce against the pledged asset of Developer's share is clearly a contingent right upon the completion of the project since the Developer's share will be not accrue in the developer without the project being completed. In case of failure to complete the project or such eventualities, the deed of indemnity and the corporate guarantee protected the Petitioner. (9) It is submitted that the repayment o....
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....lection from customers are also delays which leads to delay in repayment. Release of the Additional Security was paramount for the Respondent to carry on. But the Petitioner committed a serious contractual error and disobedience by baselessly refusing to return the same on vague grounds. (12) Respondent received the letter from LICHFL dated 06.02.2019 asking to clear the outstanding dues of Rs. 66.48 crores. Subsequently, the Respondent met officials of Petitioner and explained various practical issues and also informed them vide letter dated 22.05.2019, stating that, they have completed the entire project barring certain finishing works and other external development / landscape etc., post which to apply for Fire CC, followed by seeking Occupancy Certificate from the local authority. Despite, LICHFL chose to initiate legal proceedings by committing serious breach of contract. (13) It is contended that the entire "Real Estate Market" affected very badly due to slowdown in the market and due to various reasons. Particularly, the customer focus undergoing a shift from "under construction project" towards "completed/ near completion project", due to this the Responde....
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....ew of the bar under section 31(a) of the said Act and also of the fact that the entire matters were governed under the Indian Contract Act, due to repeated novation of agreements that were even acted upon by the parties. (17) It is contended that various acts of the Petitioner such as failure to make proper disbursements in time, leveling false allegations of default even when the payments were in order, wrongly classifying the Respondent's accounts as NPA, wrongly invoking SARFAESI provisions, etc., were clearly unlawful, as they were bound to follow the terms of legal contract. The respondent therefore, initiated a suit in OS No. 26493/2019 before the City Civil Court Bangalore and the Hon'ble Court was pleased to grant an interim order dated 19.11.2019 restraining the Petitioner from taking any coercive steps. The said order was in subsistence till 26.02.2020 till it was vacated on a legal ground. In a court held mediation proceedings, this Respondent also submitted proposal of settlement and schedule of payments. When once the Petitioner is aware of the fact that the loan is secured and the assets offered as security are far exceeding the liability, moving unde....
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....urce of extra funds required to complete the project in all respects. Main Security is the entire project land and entire Apartments constructed thereon. The entire project even after its completion is virtually under the captive of the Petitioner as the Respondent cannot sell without the NOC of the Petitioner and the sale proceeds directly gets into their account via the escrow arrangement. Till the construction of all apartments are complete in all respects and it comes into existence, the contract is a contingent contract and the same cannot be enforced for any reasons. (22) It is also stated that the OC has been received for the Mantri Lithos project, which was developed on the lands approximately 6.5 Acres and the balance lands of 9.5 acres (out of total lands of 15 Acres, 31 Guntas) are yet to developed and the same are mortgaged with the Petitioner. Apart from these 9.5 Acres of lands, as per the Loan Sanction Letter and Loan Agreement executed, the Petitioner has agreed in writing that, "the Additional security of certain lands shown under Schedule II was to be released after the 18 months moratorium period", but the Petitioner breached the contract by refusing to ....
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....ebt of all lenders of the entity and also return the investment to the Investors also. Hence, the Petitioner approve the reschedulement of loan keeping in mind the affect of COVID 19 Pandemic on the Real Estate Industry as a whole. (25) The matter is a contractual dispute and unlike the other banks where lending is purely interest based, the LICHFL being a Housing Finance Company, is conducting adverse to its objects. The lending was secured through escrow arrangement and the Petitioner is a party in the overall contract of construction and sale of units under its NOC. The dispute is rather contractual in nature. The loan is not unsecured and the recovery through securities is otherwise possible beyond doubt. Hence, the application is nothing but a one that would fall under section 65 of the Code. This Tribunal is being abused and the intention is a coercive recovery. Being aware of the financial status of this Respondent and having gone through their financial statement which clearly shows its worthiness, other liabilities in respect of other projects towards different bankers / institutions, the Petitioner has presented this application without notifying them and without....
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....in order to defraud the Petitioner. (4) It is also stated that the Respondent has paid only a sum of Rs. 28 Crores till date out of principal amount of Rs. 250 Crores. The overdue amount as on 01.03.2021 is Rs. 282,48,86,647 including interest, out of which Rs. 222 Crores is outstanding towards Principal amount only. (5) Vide a Memo of Citations filed on 11.03.2021, the Petitioner has drawn attention to some decided cases on the issue. 5. The Respondent has also filed written submissions reiterating the averments made in their objections. It has further contended that since the Petition is filed during injunction order operating against LICHFL they should not take any coercive steps, and thus the instant Petition is contemptuous and the IBC proceedings may be dismissed and the Parties may be relegated to for an amicable settlement and resolution of difference via-media in terms of contemplation made under section 12A of the Commercial Courts Act, 2015. For the reasons stated in its objections, the completion of the project was delayed and, in the meantime, the repayment of which was agreed as per the sanctioned terms also fell due as the Petitioner did not coop....
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....ct between the parties, debt is payable after a certain point of time or on the occurrence of a certain event, that is, it is contingent in nature, the debt becomes due only after the happening of that event and not immediately. Also, it is imperative that the agreement, basis which a debt or default is to be determined are acted upon by both sides, as the performance of the obligations by each party may be contingent upon the similar performance by the other party. 9. We find that in the process of raising the loan of Rs. 250 crore, the Petitioner and the Respondent have entered into several agreements, bilaterally and involving other parties as well, such as the Punjab National Bank, JDA partners, the parent company etc. They are briefly considered hereunder. (1) It is seen from the Loan Sanction Letter of 30.12.2016 placed at Annexure 2 of the CP, that as per its terms, the loan had a term of 36 months including the moratorium period of 18 months from the date of first disbursement. Further, apart from the Main Security there was an Additional Security held by the Petitioner, comprising of land parcels in Bengaluru South Taluk, over which the Petitioner would have ch....
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....those parcels of land or raising loans against the same. Thus, since the default was contingent upon the occurrence of this event, namely release of the Additional Security, the condition to which the Petitioner did not adhere, it could not be termed as default by the Respondent. (3) The two parties also entered into an Assignment Deed of Receivables dated 20.01.2017 as per which the Respondent was to assign all receivables generated from the sale of apartments/properties to the assignee, i.e. the Petitioner, till all the dues were cleared. Further, for recovery of debt, the Respondent (Assignor), the Petitioner (Lender) and Punjab National Bank (Escrow Agent) entered into an Escrow Agreement on 31.01.2017, a copy of which is placed at page 233 of the CP, Ann. 9 of the Petition. As per Clause III at page 3 of this Agreement, it was agreed that the receivables to be collected by the Assignor from all the concerned persons shall be directly be credited/deposited into the said Escrow Account and the Escrow Agent shall transfer the receipts into the account of the Lender, such amount as is equivalent to the sum payable by the Borrower to the Lender on a Due Date. As per clause....
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....trol, such as the slowdown in the economy, the same cannot become a reason for triggering an insolvency process against it. 10. We have said that the default in paying against the schedule of payment after 18 months was contingent upon the release of the Additional Security by the Petitioner as also sale of apartments as per the Escrow Account receipts. But the sale of apartments itself was contingent upon the health of the real estate sector in recent times being severely affected by the Covid 19 pandemic and the ensuing lockdowns. Major decisions have been taken to protect industry from its effects, to inject economic stimulus and to revive the economy. On 24.03.2020 the minimum threshold of default was increased from Rs. 1 Lakh to Rs. 1 Crore, various provisions were modified/suspended, so that Companies facing financial stress due to the pandemic can be supported rather than be pushed into CIRP. Debts are being restructured as per Government guidelines. Taking cognizance of the present scenario, even the Hon'ble Supreme Court in suo motu proceedings in Miscellaneous Application No. 665/2021 in SMW(c) No. 3/2020 had previously, vide order dt. 23rd March 2020 and again rec....
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....to deal with hardships in the pandemic era, has come out with schemes for rescheduling debts allowing further 180 days for the same, in which several financial institutions are participating. 14. Another issue that needs to be addressed is as to whether the Corporate Debtor is unable to pay on account of having lost its substratum or because of the refusal of the Petitioner to release the additional security as also the temporary lull in the business due to the pandemic related lockdown. We may mention that in the case of Gujarat Urga Vikas Nigam vs. Amit Gupta and others the Hon'ble Supreme Court clarified that the NCLT has been created as a single forum to adjudicate disputes which arise solely from or relate to the insolvency of the Corporate Debtor. However it also sounded a note of caution that NCLT should ensure that it does not usurp the legitimate jurisdiction of other Courts, Tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor. The nexus with the insolvency of the Debtor must exist. 15. In the instant case, we are unable to come to a conclusion that the Respondent is insolvent. Its releas....
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....n its letter of 27.07.2020 to the Petitioner it has mentioned that its receipts were improving after receiving the OC from BBMP, and it sought a reschedulement of outstanding amount so as to complete the entire payment. In the same letter it has asked for release of the additional security and sought time of 12 months for the entire repayment, i.e. upto January 2022. In a letter from the Petitioner dated 08.09.2020 reference is made to these requests and various queries have been raised. This shows that the two sides have been in continuous touch to work out repayment issues. The Petitioner's response that the release of additional security would be considered after its account is updated, is against the terms of the Sanction Order. The Petitioner's contentions that the projected receivables was not as good as shown by it leading to the conclusion that it was trying to defraud the Petitioner, does appear to be acceptable in the light of the OC received, the latest Project report, the correspondence, that all the receivables were flowing to the Petitioner through the Escrow Account, the holding back of the Additional Security by the Petitioner and genuine hardship caused to ....
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.... case of Bharat Hi-tech Infra Ltd., it has become an accepted stance to save the interest of home buyers, most of whom are middle class individuals who have taken loans and are paying huge EMIs to financial institutions. Pushing a real estate / construction company into insolvency, by admitting a petition filed by a financial institution, which has also objects such as house building, would affect home buyers the most, as also several other stakeholders, JV partners etc.. 21. In view of the foregoing, we are not satisfied that a case has been made out by the Financial Creditor for initiating CIRP against the Corporate Debtor, especially when the default is contingent upon the Financial Creditor's actions of release of Additional security as per the Sanction Letter and the Loan Agreement, the continuing receipts through the Escrow Account as per the Assignment Agreement; the readiness of the Respondent to pay the debt and seeking a reschedulement and very recent exchanges between the two in this direction; and the ongoing pandemic conditions. 22. In the result, C.P. (IB) No. 44/BB/2020 is hereby disposed of by directing both Petitioner and the Respondent to work out a repa....