TMI Blog2021 (12) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... t the application under Clause (b) of sub-Section (5). The statute does not provide for the Adjudicating Authority to undertake any other action, but for the two choices available. In Innoventive Industries [ 2017 (9) TMI 58 - SUPREME COURT ], a two-judge Bench of this Court has explained the ambit of Section 7 of the IBC, and held that the Adjudicating Authority only has to determine whether a default has occurred, i.e., whether the debt (which may still be disputed) was due and remained unpaid. If the Adjudicating Authority is of the opinion that a default has occurred, it has to admit the application unless it is incomplete. In the present case, the Adjudicating Authority noted that it had listed the petition for admission on diverse dates and had adjourned it, inter alia, to allow the parties to explore the possibility of a settlement. Evidently, no settlement was arrived at by all the original petitioners who had instituted the proceedings. The Adjudicating Authority noticed that joint consent terms dated 12 February 2020 had been filed before it. But it is common ground that these consent terms did not cover all the original petitioners who were before the Adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. 3 On a petition C.P(IB)No. 188/BB/2019 which was instituted by the appellants (and others) under Section 7 of the IBC for initiating the Corporate Insolvency Resolution Process CIRP in respect of the respondent, the NCLT declined to admit the petition and instead directed the respondent to settle the claims within three months. The NCLAT found no merit in the appeal Company Appeal (AT) (Insolvency) No 649 of 2020 against the NCLT s order. 4 The issue which arises for adjudication before this Court is whether, in terms of the provisions of the IBC, the Adjudicating Authority can without applying its mind to the merits of the petition under Section 7, simply dismiss the petition on the basis that the corporate debtor has initiated the process of settlement with the financial creditors. 5 The genesis of the case arises from a Master Agreement to Sell Master Agreement which was entered into between the respondent, IDBI Trusteeship Limited and Karvy Realty (India) Limited Facility Agent on 22 June 2014, in order to raise an amount of ₹ 50 crores for the development of 100 acres of agricultural land. Under the terms of the Master Agreement, the Facility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter, the respondent undertook that in the event of its failure to convey the plots by 31 October 2016, the entire amount which was paid would be returned, together with interest as agreed in the Master Agreement itself. 9 Further, on 30 November 2016, the respondent is stated to have extended the term of the Loan Agreement, due to its alleged inability to refund the principal amount along with interest. The respondent is also alleged to have sought an extension of the loan period by 12 months, with an assurance that the principal amount would be repaid in three equal instalments in the 13th, 14th and 15th months. 10 However, on 26 April 2019, 11 out of the 17 appellants before this Court (together with 72 other petitioners) instituted a petition under Section 7 of the IBC before the Adjudicating Authority, due to the respondent s default in making the re-payment of an amount of ₹ 33,84,32,493. 11 On 11 September 2019, the Adjudicating Authority adjourned the proceedings on the ground that the parties were attempting to resolve the dispute. A further extension of time for exploring the possibility of a settlement was sought on 24 October 2019 by the respondent, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been filed. 7. It is a settled position of law that this procedure under the Code is contemplated to be summary in nature, and it cannot manage or decide upon each and every case of individual homebuyers. Lists of Individual cases have been placed on record which show that 140 investors have been fully settled by the Corporate Debtor and an amount of ₹ 27.25 crore has been paid to them. 13 claims/Petitioners before us have been settled, 40 are in the process of settlement and 39 pending settlement. Thus the process of settlement appears to be progressing in all seriousness. Instead of examining all the individual claims in detail, we would like to dispose of the instant case by directing the Corporate Debtor to settle all the remaining claims sincerely within a definite lime frame. Thus, the Adjudicating Authority decided to dispose the petition based on the following factors: (i) that respondent s efforts to settle the dispute were bona fide, as evinced by the fact that they had already settled with 140 investors, including 13 petitioners before it; (ii) the settlement process was underway with 40 other petitioners; (iii) the procedure under the IBC was summary in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse. 5. It is a fact that the given time frame has already elapsed but we take judicial notice of the fact that normal business operations had been adversely affected by the imposition of lockdown due to outbreak of COVID-19 which has been declared pandemic. Even after unlocking, the pace of business operations is far from normal. In these circumstances, some concession has to be given in adherence to the timelines set in terms of the impugned order. Be-that-as-it-may, this situation may also have to be addressed by the Adjudicating Authority, if approached by a claimant whose claim has not been settled so far. It is not disputed that the resolution of disputes relating to claims, more particularly of Allottees in Housing Projects, has to be given primacy and pushing the Corporate Debtor into liquidation would only be the last option. 6. In view of the foregoing discussion and also bearing in mind that the settlement process set in motion at the pre-admission stage is supported by the Consent Terms filed by some of the stakeholders, though it may not be all encompassing, this appeal would not lie. We accordingly hold that the appeal is not maintainable. There being no leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sunil Jain Sixth Appellant Appellant Petitioner 7 Bhupesh Dinger Seventh Appellant Appellant Petitioner 8 Battula Satish Eight Appellant Appellant Not a Party 9 Shashi Arora Ninth Appellant Appellant Not a Party 10 Gangasagar Neminath Hemade Tenth Appellant Not a Party Petitioner 11 P.V. Lakshminarayana Eleventh Appellant Not a Party Petitioner 12 Shaila S Kothari Twelfth Appellant Not a Party Not a Party 13 Nemmara Raju Dorai Mahadevan Thirteenth Appellant Not a Party Not a Party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not become due or is interdicted by some law, the Adjudicating Authority must admit a petition under Section 7; (b) Admittedly, in the present case, the respondent has committed an act of default as understood in the provisions of Section 3(12) of the IBC. This is evident from the fact that it is willing to settle the debt owed to the appellants, which was also noted by the Adjudicating Authority. Further, the dispute between the respondent and as many as 70 original petitioners had not been settled, at the time when the Adjudicating Authority passed its order. In spite of this, the Adjudicating Authority failed to act in accordance with the provisions of Section 7(5)(a) and issue an order admitting the application; and (c) Further, the Appellate Authority has also erred in observing that the petition under Section 7 was disposed of at a pre-admission stage by the Adjudicating Authority. Where the Adjudicating Authority is not satisfied that the financial debt is owed and a default has occurred, Section 7(5)(b) provides that it shall reject the application. Thus, an option to dispose at a pre-admission stage is not available to the Adjudicating Authority; (iii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iss Ribbons Pvt Ltd and Anr. v. Union of India and Ors. (2019) 4 SCC 17 that even after a petition under Section 7 of the IBC is admitted and before the Committee of Creditors CoC is formed, the parties can settle the dispute. Further, even after the CoC is formed, Section 12A of the IBC does provide for a mechanism through which the petition can be withdrawn (if the parties were to reach a settlement); (iv) The IBC envisages two classes of creditors financial and operational creditors. Except some differences in their rights and role in the CIRP, the IBC confers equal rights upon both the classes of creditors. However, through the impugned judgment, the Appellate Authority has created a sub-class within the class of financial creditors by observing that in the resolution of disputes relating to claims of allottees in housing projects, their rights have to be given primacy and the project entity/corporate debtor should not be sent into liquidation only at the behest of the other investors; and (v) The threshold requirement of 10 per cent allotees of a housing project filing a petition under Section 7 of the IBC has been upheld by this Court in Manish Kumar v. Union of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the original proceedings under Section 7, the threshold requirement would have to be met. Evidently, with the reduced number of litigants, it is not met; and (d) Further, if the appellants have to file a fresh proceeding before the Adjudicating Authority or if their proceedings are restored before the Adjudicating Authority at this stage, they would still have to fulfil the mandatory requirement of bringing together 100 creditors in the same class or 10 per cent of the total number of such creditors; (ii) The present proceedings have only been filed by the appellants to arm-twist the respondent, instead of taking up the settlements offered to them: (a) The first appellant preferred a petition on behalf of 82 home buyers. The Adjudicating Authority in its order dated 28 February 2020 recorded that the respondent had fully settled with 140 investors against a payment of ₹ 27.25 crores. Further, it was noted that the claims of 13 petitioners before the NCLT were settled, 40 were in the process of settlement and 39 were pending settlements. It was in this backdrop that the NCLT disposed of the petition, with specific directions that the appellants could approach it if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the tenth, twelfth, thirteenth and seventeenth appellants, it is submitted that the cheques were issued in June 2020 but the respondent itself in October 2020 told them not to encash them till the outcome of the present appeal. Presently, the appellants acknowledge that final settlements have been reached between the respondent and the eighth, tenth and twelfth appellants. This position has not been controverted by the respondent. 20 The central question in this appeal then is whether the NCLT and the NCLAT were correct in their approach of rejecting the appellants petition under Section 7 of the IBC at the pre-admission stage , and directing them to settle with the respondent within 3 months. Section 7 of the IBC provides for the initiation of CIRP by a financial creditor or a class of financial creditors. Section 7, as it stood prior to its amendments in 2019 Through Act 26 of 2019 and Act 1 of 2020 , is reproduced below: 7. Initiation of corporate insolvency resolution process by financial creditor.-(1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al creditor, within seven days of admission or rejection of such application, as the case may be. 21 Sub-Section (1) of Section 7 enables the financial creditor to file an application for initiation of CIRP against the corporate debtor before the Adjudicating Authority when a default has occurred . The expression default is defined in Section 3(12) of the IBC in the following terms: (12) default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be; The definition of default adverts to the non-payment of a debt, when it has become due and payable in whole or in part, by the debtor or the corporate debtor. Since the definition of default incorporates the expression debt , it is necessary to advert to the definition of the latter expression under Section 3(11) of the IBC: (11) debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; Thus, a debt is defined to be a liability or an obligation in respect of a claim due from any person. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, two courses of action are available to the Adjudicating Authority in a petition under Section 7. The Adjudicating Authority must either admit the application under Clause (a) of sub-Section (5) or it must reject the application under Clause (b) of sub-Section (5). The statute does not provide for the Adjudicating Authority to undertake any other action, but for the two choices available. 25 In Innoventive Industries (supra), a two-judge Bench of this Court has explained the ambit of Section 7 of the IBC, and held that the Adjudicating Authority only has to determine whether a default has occurred, i.e., whether the debt (which may still be disputed) was due and remained unpaid. If the Adjudicating Authority is of the opinion that a default has occurred, it has to admit the application unless it is incomplete. Speaking through Justice Rohinton F Nariman, the Court has observed: 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise. (emphasis supplied) 26 In the present case, the Adjudicating Authority noted that it had listed the petition for admission on diverse dates and had adjourned it, inter alia, to allow the parties to explore the possibility of a settlement. Evidently, no settlement was arrived at by all the original petitioners who had instituted the proceedings. The Adjudicating Authority noticed that joint consent terms dated 12 February 2020 had been filed before it. But it is common ground that these consent terms did not cover all the original petitioners who were before the Adjudicating Authority. The Adjudicating Authority was apprised of the fact that the claims of 140 investors had been fully settled by the respondent. The respondent also noted that of the claims of the original petitioners who have moved the Adjudicating Authority, only 13 have been settled while, according to it 40 are in the process of settlement and 39 are pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners, who are aggrieved by the settlement process, to move fresh proceedings in accordance with law. Such a course of action is not contemplated by the IBC. 29 The IBC is a complete code in itself. The Adjudicating Authority and the Appellate Authority are creatures of the statute. Their jurisdiction is statutorily conferred. The statute which confers jurisdiction also structures, channelises and circumscribes the ambit of such jurisdiction. Thus, while the Adjudicating Authority and Appellate Authority can encourage settlements, they cannot direct them by acting as courts of equity. In Pratap Technocrats (supra), a two-judge Bench of this Court, speaking through Justice DY Chandrachud, held: 47. These decisions have laid down that the jurisdiction of the Adjudicating Authority and the Appellate Authority cannot extend into entering upon merits of a business decision made by a requisite majority of the CoC in its commercial wisdom. Nor is there a residual equity based jurisdiction in the Adjudicating Authority or the Appellate Authority to interfere in this decision, so long as it is otherwise in conformity with the provisions of the IBC and the Regulations under the ena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Sunil Jain Yes September 2019 Rejected N.A. N.A. 4 Lakshminarayan P.V. Yes May 2019 Accepted then subsequently rejected N.A. N.A. 5 Milind Raka No N.A. N.A. N.A. N.A. 6 Nitin Palekar No N.A. N.A. N.A. N.A. 7 Marie Therese Lima Fernandes No N.A. N.A. N.A. N.A. 8 Shashi Arora Yes 30.08.2019 Rejected N.A. N.A. 9 Bhupesh Dinger Yes December 2019 Rejected N.A. N.A. 10 Shaila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was prejudicial to the rights and interest of the stakeholders. The Appellate Authority was cognizant of the fact that even the time schedule for settlement which had been indicated by the Adjudicating Authority had elapsed, but then noted the impact of the outbreak of COVID-19 pandemic on the real estate market, including on the respondent. While acknowledging that the consent terms were filed by some of the stake holders though may not be all encompassing , the Appellate Authority nonetheless proceeded to dismiss the appeal as not maintainable. The observation that the appeal was not maintainable is erroneous. Plainly, the Adjudicating Authority failed to exercise the jurisdiction which was entrusted to it. A clear case for the exercise of jurisdiction in appeal was thus made out, which the Appellate Authority then failed to exercise. 33 We may note at this stage that the provisions of Section 7 of the IBC have been amended with retrospective effect from 28 December 2019 by Act 1 of 2020. These provisions have been construed in the judgment of this Court in Manish Kumar (supra). Since we are inclined to restore the proceedings back to the Adjudicating Authority for a fresh co ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
