TMI Blog2021 (5) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under Section 7 of I B Code,2016 by the Applicants in the capacity of Allottees of Apartments or on the basis of Arbitral Award as Decree Holders? - HELD THAT:- If the builder fails to deliver the possession of the real estate project, they agreed to pay penalty of ₹ 25/- per square feet to the Applicants. Here, the debt was disbursed against the consideration for the time value of money which includes an amount raised from an allottees under a real estate project, and this transaction has the commercial effect of a borrowing. Whether the Application is barred by limitation? - HELD THAT:- The Applicants have entered into an Agreement of Sale and subsequently sale deed was also executed, which has occurred over three years prior to the date of filing of this Application. In the present case, the Corporate Debtor has not delivered the possession of the real estate property. The default has committed only when possession was scheduled to be delivered. Since the default had occurred over three years before the date of filing of Section 7 Application, the Application is a time barred Application. Whether the Application is maintainable against the Corporate Debtor/bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the approved building plan during the construction of the project, the Respondent failed in securing essential requirements such as an electricity connection, water connection and even possession certificates for the various units in the project as on the promised dates of delivery as per the Agreements for Sale and Sale Deeds executed with the Applicants. 5. Thereafter, due to surfacing of certain allegations of misappropriation of money committed by the officials of the Respondent, the landowner, M/s Cherupushpam Films (P) Ltd, revoked the Power of Attorney executed in favour of the Respondent for the execution and completion of the Project as per the Joint Venture Agreement. Owing to such reasons, coupled with the failure to conduct timely elections for the appointment of its office bearers, the Respondent has failed miserably at regularising the unauthorised construction made or securing the necessary government approvals. 6. The Applicants further stated that they suffered huge losses, including the sums of money paid as consideration for the transfer of title at the time of executing Sale Deed and also the potential rent that they could have earned. On account of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fraudulent and malicious intent for the purpose other than the resolution of insolvency. c. It is further stated that the right to sue accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the Application, the Application would be barred under Article 137 of the Limitation Act. Hence, if the default has been occurred by breach of Agreement of Sale, then the date of default will be the date on which the Corporate Debtor failed to deliver possession. In terms of Clause 13 of Agreement of Sale, the period of default starts from the expiry of two weeks after the notice has been issued by the Applicants. Since it is a joint Application filed by Applicants, the whole Application under Section 7 is liable to be dismissed for being barred by Limitation and with no requisite of proof of default against the Corporate Debtor. In this connection they have referred to the decision in Ashish Kumar V. Vinod Kumar [CA(AT) (Insolvency) No. 1411 of 2019] stating that the cause of action can only be extended when there is an acknowledgement of liability. Here, the Corporate Debtor never acknowledged the debt and, therefore, the period of limita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was executed. Both parties were to raise loan jointly, separate books of accounts shall be kept for the entire construction and accounts to be audited by the Auditor approved by both sides. The Corporate Debtor has to accept advance and remit the same in building construction account in a Nationalised Bank and to be operated jointly. In the agreement, the condition was that the net income will be apportioned in the ratio of 40:60 between the Corporate Debtor and M/s Cherupushpam Films (P) Ltd. The validity of the Agreement has not been disputed by the parties. Since both parties are joint venture partners, they were directed to cooperate with each other to act according to the Agreement. g. It is further stated that the Applicants herein have evidently entered into an agreement of sale with both M/s. Cherupushpam (Land Owner) and Respondent (Builder) and not the Respondent alone. Furthermore, the agreements have been signed by the authorised signatory of Kerala Trade Centre and not the representative of Respondent alone. By virtue of this joint venture agreement, an application under Section 7 will be maintainable only against both of them jointly and not individually against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing decisions: - (i) Palogix Infrastructure Private Limited V. ICICI Bank Ltd [Company Appeal (AT) (Insolvency) No.30 of 2017] (ii) Innoventive Industries Limited V. ICICI Bank and another [Appeal Nos. 8337-8338 of 2017] k. It is also stated that the joint Application filed by Applicants under Chapter II of Part II of the Code and the I B (Application to Adjudicating Authority) Rules, 2016 is incomplete and needs to be rejected u/s 7(5)(b) of the Code. The following defects were also there in the Application: - i. Since the application is made jointly by Applicants, a copy of authorisation to a financial creditor to file and act on this application has not been attached as per Annexure IV in Form 1 of l B (Application to Adjudicating Authority) Rules, 2016. ii. Identification Number of 3 Applicants have not been provided in Form 1 (Clause 3)- Tom K Thomas, Lalu Samuel, Manyil Kandoth Ali Koya. iii. Authorisation letters have not been enclosed by the Power of Attorney Holders as required under Form 1 (Clauses 5 6). iv. In Part IV of Form 1, Particulars of Financial Debt is incomplete, the date on which default occurred has not been mentioned for any of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into between the Respondent and M/s Cherupushpam on 05.08.2020 through which the parties therein decided to permanently settle amongst themselves all their disputes on the basis of mutual trust and good faith. Furthermore, the Hon'ble High Court of Kerala in l.A. 1/20 of WP (C) 15765/2019 has recorded he Settlement Deed/compromise vide its order dated 20.08.2020. The Applicants have very well acknowledged the inter se disputes between the partners but still concealed this material fact from this Tribunal. The Applicants herein have invoked the insolvency resolution process under the Code fraudulently, with malicious intent only against the Respondent. The Arbitral awards in favour of the Applicant have been challenged by both M/s Cherupushpam and Respondent through separate petitions under S. 34 of Arbitration and Conciliation Act before the Hon'ble District Court, Ernakulam. One of the main grounds raised is that the Arbitrator's award is in direct and irreconcilable conflict with the agreement between the parties (buyer and vendors). The Applicants have suppressed material information including the terms of the agreement of sale and liability of M/s C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default under the I B Code,2016. ➢ Respondent has stated that the claims of the Applicants are barred by limitation and that the minimum threshold is not met. This is effectively put to rest as a bare perusal of Clause 13 of the Sale Agreement, which would reveal that a default is said to occur under the said Agreement only on the expiry of a period of two weeks from the date the allottees gave due notice to the Respondent. It is further stated that it is an admitted fact that there are extant arbitral proceedings, most of which have already reached their conclusions, which fact is not denied by the Respondent at arny juncture. Moreover, the Application for initiating CIRP under Section 7 of IBC Code, 2016 was filed well within the limitation period provided thereof. ➢ It is further contended that Respondent is not contesting that there was a delay in delivery of the projects as promised under the Sale Agreement and Sale Deed. The various events occurred are as under: - (a) The replies filed by the Respondent in various court proceedings amount to Acknowledgement of debt mentioned under Section 18 of the Limitation Act, 1963. Explanation (a) of Section 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Sale Agreement. It is also stated that the failure to even number the buildings is not merely an accident or a mistake but is a wilful act of indifference amounting to default. Moreover, without appropriate regularisation of the units of the building, the allotted real estate projects cannot be considered to have been delivered or even usable. ➢ Clause 21 of Annexure A9 Settlement Deed submitted by the Respondent, which was executed between M/s. Cherupushpam and KCCI, amounts to an acknowledgement of the existence of debt on the part of the Respondent with respect to the construction of Kerala Trade Centre project. ➢ It is further stated that the Joint Venture entered into by M/s. Cherupushpam Films (P) Ltd and the Corporate Debtor have got all the elements of a partnership. Moreover the Applicants, who are financial creditors, are at the liberty to file a joint application against both the partners or to file separate applications to initiate CIRP against each of partners for their Joint liability as held by the Hon'ble NCLAT in Vishnu Kumar Agarwal VS. Piramal Enterprises Ltd. [(08.01.2019 NCLAT): MANU/NL/0003/2019] ➢ It is further stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Arbitral Award as Decree Holders? II. Whether the Application is barred by limitation? III. Whether the Application is maintainable against the Corporate Debtor/builder alone since the project is a joint venture by the Corporate Debtor and M/s. Cherupushpam Films (P) Ltd? 12. This Tribunal is considering the issues framed in the light of respective stand taken by the parties, submissions made on their behalf and the insolvency jurisprudence evolved till date. Issue No.1 13. The Applicant contends that they entered into an agreementwith the Corporate Debtor and M/s. Cherpushpam Films (P) Ltd to purchase the Apartment. In pursuance to this agreement the Corporate Debtor and M/s. Cherupushpam Films (P) Ltd executed a sale deed in favour of the Applicants. The Applicants paid the total consideration of the sale. The Corporate Debtor also acknowledged the entire sale consideration. Per contra the Respondent stated that instant Application filed by the Applicants being decree holders and not as allottees in a real estate project. 14. The question arose for consideration is whether a decree-holder, though covered by the definition of Creditor , does fall wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 15. 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 allottee under a Real Estate Project shall be deemed to be an amount having the commercial effect of a borrowing. Thus, the relevant consideration for determination of financial debt would be whether the debt was disbursed against the consideration for the time value of money which may include amount raised from an allottee under a Real Estate Project, the transaction deemed to be amount having the commercial effect of a borrowing. 16. In order to understand the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose they would need to refer to the Agreement to sell as well as the information as registered with RERA. 20. The date of default according to the Allottees based on Clause 13 of the Agreement of Sale is the ALLOTTEE shall be entitled to give notice in writing to the BUILDER and if the BUILDER further fails to deliver possession within two weeks from the date of receipt of such notice, the ALLOTTEE shall become entitled to receive @ ₹ 25/- per Sq.ft for every two months delay therefrom, for the area described in Schedule C D hereto as liquidated damages till the date of actual handing over of possession from the expiry of the two weeks time after the notice as stipulated herein. . it is also pertinent to note that the Corporate Debtor has not produced any documents on record to show that the Corporate Debtor has ever offered possession of the real estate property and that the occupation certificate was applied for within the stipulated time of handing over possession. When the Corporate Debtor failed to complete the Construction and could not deliver the possession, the default was committed. This is also evident from the minutes of the meeting of Investors of Kera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication. Issue No.3 22. Respondents contended that the Applicants herein have evidently entered into an Agreement of Sale with both M/s. Cherupushpam (Land Owner) and Respondent/Corporate Debtor (Builder) and not the Respondent alone. Furthermore, the agreements have been signed by the authorised signatory of Kerala Trade Centre and not the representative of Respondent/Corporate Debtor alone. By virtue of this joint venture agreement, the application under Section 7 willnot be maintainable against Respondent/Corporate Debtor alone. The Applicants refuted this contention and stated that it is the sole discretion of the Applicants to proceed against any one of the partners of the joint venture since, the joint venture Agreement was entered between Corporate Debtor and M/s. Cherupushpam Films Pvt Ltd. In this scenario they have referred to the following judgements: - (1) Continental Construction Ltd. Vs. State of Gujarat and Anr. [AIR 1987 Guj 66, (1986) 2 GLR 884] wherein it is stated as follows: - Each partner of a Joint Venture is jointly and severally liable to its creditors. (2) Vishnu Kumar Agarwal us. Pirama1 Enterprises Ltd. [(08.01.2019 - NCLAT): MAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the fully finished constructed area . 26. From a reading of the above clauses it is clear that both the parties would be jointly responsible for and participate in the construction or development. The terms and conditions with respect to institutional areas and common areas also reflect that the cost would be shared between both the parties at the rate of 60 and 40 substantiates that it is a Joint Venture Agreement. Thus the Agreement entered between the Corporate Debtor and M/s. Cherupushpam Films Pvt Ltd dated 08.12.2003 reflects a commercial transaction in the nature of a Joint Venture wherein there is division of profits. 27. It is pertinent to mention that while dealing with a Joint Venture in a real estate Project, Hon ble NCLAT in Mamatha V/s. AMB Infrabuild Pvt. Ltd. and Others [CA(AT) (Insolvency) No. 155/2018] has held as follows: - 14. If the two Corporate Debtors collaborate and form an independent corporate unity entity for developing the land and allotting the premises to its allottee, the application under Section 7 will be maintainable against both of them jointly and not individually against one or other. 28. In view of the above Princi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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