TMI Blog2020 (8) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Creditors, other Creditors and Employees as detailed in para 10 of the reply filed by Respondent No.3 and the Settlement Deed does not take care of the interest of Claimants other than Respondent Nos.1 2. Therefore, allowing of withdrawal of application on the basis of such Settlement which is not all-encompassing and being detrimental to the interests of other Claimants including the allottees numbering around 300 would not be in consonance with the object of I B Code and purpose of invoking of Rule 11 of the NCLAT Rules. In a case where interests of the majority of stakeholders are in serious jeopardy, it would be inappropriate to allow settlement with only two creditors which may amount to perpetrating of injustice. Exercise of inherent powers in such cases would be a travesty of justice. Whether application filed by Respondent Nos. 1 2 under Section 7 of the I B Code was not maintainable? - HELD THAT:- The impugned order dated 17th March, 2020 initiating Corporate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicating Authority is that they have jointly booked a unit bearing no. 0073 admeasuring 3746 sq. ft. with the Corporate Debtor for total consideration of ₹ 1,62,43,133/- on 5th August, 2014 and paid an amount of ₹ 8,37,300 as booking advance. Besides Respondent No.2 Mr. Saurabh Tripathi had booked a separate unit bearing No. B7/GF/01 admeasuring 1229 sq. fts. on 16th July, 2014 with the Corporate Debtor in the same project and paid an amount of ₹ 1,63,994/- as booking advance. A joint Built Up Agreement/ Builder Buyer Agreement dated 12th September, 2014 in respect of the first unit and Flat Buyer Agreement dated 28th September, 2014 for the second unit came to be executed inter se the respective parties. Allotment letters came to be issued by the Corporate Debtor in favour of the allottees. Corporate Debtor undertook to complete the construction and to deliver possession of the units to allottees within two years from the date of commencement of construction on receipt of sanctioned plans from the Authority. The project start date notified on the website of Real Estate Regulatory Authority ( RERA for short) was 22nd September, 2015 and reckoned from such dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issed 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 filed by Respondent Nos. 1 2 under Section 7 of the I B Code was not maintainable in light of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 promulgated on 28th December, 2019 (for short Ordinance ) as Respondent Nos. 1 2 did not meet the required criteria viz constituting either one hundred allottees or ten percent of the total allottees. According to Appellant, the Ordinance was promulgated and enforced during the pendency of the applications before the Adjudicating Authority and the Adjudicating Authority had to insist upon compliance of the mandate of Ordinance regarding threshold limit before proceeding to pass impugned order. It is further urged that the Ordinance was followed by passing of Insolvency and Bankruptcy Code (Amendment) Act, 2020 ( Amending Act for short) incorporating the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 claims against Corporate Debtor qua the same. These Respondents accordingly prayed for invoking Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 ( NCLAT Rules ) to set aside the order of admission and terminate Corporate Insolvency Resolution Process against the Corporate Debtor. It is further submitted that the dispute has been settled prior to constitution of Committee of Creditors and there is no legal impediment in allowing such settlement and permit withdrawal and termination of Corporate Insolvency Resolution Process . In so far as claims of other Homebuyers/ creditors are concerned, it is submitted that they can pursue their claims independently on their own merits through any remedy as may be available under law. As regards instant appeal, it is submitted that the Respondent Nos. 1 2 do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that in the event of orders passed qua both Respondents i.e Respondent Nos.1 2 not being complied with by the Corporate Debtor, they can seek implementation of such order through UP RERA . The record further unfolds that Respondent Nos.1 2 approached the UP RERA for initiating recovery proceedings within the ambit of Section 40 of the Real Estate (Regulation and Development) Act, 2016 . Order dated 10th August, 2019 came to be passed directing recovery of amount as an arrear of land revenue from the Corporate Debtor. A Recovery Certificate was issued in this regard and forwarded to the concerned Authority for effecting recovery to the tune of ₹ 73,35,686.43/- from Corporate Debtor favouring UP RERA . It further emerges from the record that the Respondent Nos.1 2 who are entitled to seek disbursement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016, 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 of the NCLT Rules, 2016 for withdrawal of the application under Section 7 of the I B Code or disposal of such application on the basis of settlement worked out by the parties. Such power can be exercised by the Adjudicating Authority only before constitution of the Committee of Creditors. Exercise of inherent power on the part of Adjudicating Authority or even by this Appellate Tribunal in appeal would depend on consideration of all relevant factors on the peculiar facts of the case. All concerned parties will be required to be heard before allowing withdrawal or Settlement. It is also manifestly clear that the exercise of inherent powers is discretionary and invoked only to meet the ends of justice or prevent abuse of process of Court. The Adjudicating Authority or the Appellate Tribunal will have to keep in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vency. 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 with its obligation to take possession of the flat/apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it .. 13. Whether the allottees in the instant case are speculative investors or want to jump the ship, is for the Adjudicating Authority to determine when approached under Section 65 of the I B Code . That situation is not obtaining in the instant case as of now the joint Settlement of the Corporate Debtor with Respondent Nos.1 and 2 is confined to their claims and nothing beyond that. No issue of the nature referred to hereinabove has been raised in this appeal, therefore, the same does not require consideration. 14. Admittedly, the Interim Resolution Professional has received 283 claims from allottees of different projects, Financial Creditors, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent. of the total number of such creditors in the same class, whichever is less: Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less: Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 Court vide order dated 13th January, 2020 issued notice to Respondents and order to maintain status quo. It is, therefore, clear that provision of Section 7 of the I B Code as it obtained prior to the date of amendment, occupies the field as of now. Since the issue is pending consideration before the Hon ble Apex Court, we refrain from making any observation thereon. 17. However, the matter does not rest here. Respondent Nos. 1 and 2 admittedly approached the Adjudicating Authority not in the purported capacity of allottees of a Real Estate Project bringing them within the fold of Financial Creditors claiming to be decree-holders against the default of financial debt committed by the Corporate Debtor on account of non-payment of principal amount along with penalty as decreed by the UP RERA vide orders dated 16th November, 2017 and 13th D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clause (a) to (h) of this clause 19. Sub-clause (f) of sub-section (8) of Section 5 provides that any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing would fall within the ambit of financial debt and the explanation added to sub-section by Act No. 26 of 2018 provides that any amount raised from an allott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 character. A decree is defined under Section 2(2) of the Code of Civil Procedure, 1908 ( CPC for short) as the formal expression of an adjudication which conclusively determines the rights of the parties with regard to the matters in controversy in a lis. A decreeholder , defined under Section 2(3) of the same Code means any person in whose favour a decree has been passed or an order capable of execution has been made. Order XXI Rule 30 of the CPC lays down the mode of execution of a money decree. According to this provision, a money decree may be executed by the detention of judgment-debtor in civil prison, or by the attachment or sale of his property, or by both. Section 40 of the Real Estate (Regulation and Development) Act, 2016 lays down the mode of execution by providing that the RERA may order to recover the amount due under the Recovery Certificate by the concerned Authority as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 due thereunder. No conclusion other than the one that Respondent Nos. 1 and 2 were seeking execution of the Recovery Certificate issued by RERA and did not file the application under Section 7 of the I B Code for purposes of Insolvency Resolution, would be available in the facts and circumstances noticed hereinabove. This conclusion is further reinforced by the fact that the Recovery Certificate issued by RERA had been forwarded to the Competent Authority for effecting recovery as arrears of land revenue and the process was underway when Respondent Nos.1 and 2 sought triggering of Corporate Insolvency Resolution Process against the Corporate Debtor. It is indisputable that the Recovery Certificate sought to be executed is the end product of an adjudicatory mechanism under the Real Estate (Regulation and Development) Act, 2016 and realisation of the amount due under the Recovery Certi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 action, if any, taken by the Interim Resolution Professional , including the advertisement, if any, published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. The application preferred by Respondent Nos.1 and 2 under Section 7 of the I B Code is dismissed. Learned Adjudicating Authority will now close the proceeding. The Corporate Debtor (company) is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect. 26. The Adjudicating Authority will fix the fee of Interim Resolution Professional for the period he has functioned. 27. We are conscious of the fact that there are number of claimants including the allottes under the Real Estate Project who have filed claims before the Interim Resolution Professional. Setting aside of impugned order is bou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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