Abhiyan Developers Pvt Ltd vs Shreepati Build Infra Investment Ltd

[Arising out of Order dated 28.07.2023 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court-II in IA/739/2022 in C.P. (IB) -4149(MB)/2018.]

IN THE MATTER OF:

ABHIYAN DEVELOPERS PRIVATE LIMITED 72/4, Shambhu Nath Pandit Street, Kolkata 700025 ...Appellant

Versus SHREEPATI BUILD INFRA INVESTMENT LIMITED Row House D, Castle Rock-Land Scape Town, Odxel, Goa, Dona Paul Police Station, North Goa- 403045 ...Respondents

Present:

For Appellant: Mr. Gopal Jain, Sr. Advocate with Ms. Astha Sharma, Mr. Piyush Agarwal, Ms. Anju Thomas, Ms. Kritika Sethi, Ms. Ripul Swati and Ms. Shrinath Kajani, Advocates. For Respondents: Mr. Arun Kathpalia, Sr. Advocate with Mr. Anuj Tiwari and Ms. Monika, Advocates.

JUDGMENT

ASHOK BHUSHAN, J.

1. This Appeal has been filed by the Appellant challenging the Order

dated 28th July, 2023 passed by the National Company Law Tribunal,

Mumbai Bench, Court-II (hereinafter referred to as "The Adjudicating

Authority") rejecting the Section 7 Application filed by the Appellant.

Cont'd.../ -2-

2. Brief facts of the case are:-

i) On 15th February, 2011, the Appellant entered into an Agreement

with Respondent for purchase of Flats bearing Flat No. 4201 and

Flat No. 4202 on 42nd Floor of Shreepati Estate at Mumbai.

ii) Under the Agreement, the Appellant had paid an amount of Rs.

3,50,00,000/- to the Respondent. A Letter dated 31st March, 2015

was written by Respondent No. 1 to the Appellant informing that

the investment made by the Appellant shall be transferred in the

Loan Account on temporary basis till the project is approved and

starts. Respondent No. 1 also wrote a letter dated 31st March, 2018

to the Appellant in continuation of Letter dated 31st March, 2015.

iii) Appellant filed CP(IB)4149(MB)(C-II)/2018 under Section 7 of

Insolvency and Bankruptcy Code, 2016 alleging financial debt with

regard to which default was committed by the Corporate Debtor.

Amount claimed in Part-IV was Rs. 3,50,00,000/- with 15%

cumulative interest. Section 7 Application was admitted by Order

dated 29th October, 2021 passed by the Adjudicating Authority.

iv) Company Appeal (AT) Ins. No. 939 of 2021 was filed by the

Suspended Director of the Corporate Debtor challenging the Order

of the Adjudicating Authority. Company Appeal (AT) Ins. No. 939 of

2021 came to be decided by this Appellate Tribunal by Order dated

07th March, 2022. Appellate Tribunal took the view that issue of

non-satisfaction of statutory provision of 3rd Proviso under Section

7(1) was not considered adequately by the Adjudicating Authority

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hence the matter was remanded to the Adjudicating Authority to

consider the objection about the maintainability as required under

3rd Proviso to Section 7(1) of the Code.

v) Against order dated 07th March, 2022 passed by this Tribunal,

Appellant filed an Appeal being C.A. No. 3184 of 2022 which came

to be dismissed as withdrawn vide Order dated 05th September,

2022. After the remand order passed by this Tribunal, the

Adjudicating Authority by the Impugned Order dated 28th July,

2023 heard the parties and held that application for initiation of

Corporate Insolvency Resolution Process filed by the Appellant was

required to be filed by not less than 100 allottees under same Real

Estate Project or not less than 10% of total number of such

allottees in pursuance of amendment which came into effect on 28th

December, 2019, Applicant has not taken steps to comply with the

amended provision of Section 7 hence the Application is not

maintainable.

vi) Aggrieved by the order passed by the Adjudicating Authority on 28th

July, 2023 holding the application filed by the Appellant as not

maintainable, this Appeal has been filed.

3. We have heard Mr. Gopal Jain, Sr. Advocate for the Appellant as

well as Learned Sr. Counsel-Mr. Arun Kathpalia appearing for the

Respondent.

4. Mr. Gopal Jain, Learned Sr. Counsel submits that it is true that

initially an agreement was entered between the Appellant and the

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Corporate Debtor for allotment of two flats in the project of the Corporate

Debtor however project could not be commenced hence the Corporate

Debtor himself vide his letter dated 31st March, 2015 offered to transfer

the amount in the Loan Account hence the amount which was initially

given for allotment in the Real Estate Project stood converted as financial

debt in pursuance of Letter dated 31st March, 2015. The balance

confirmation was also issued by the Corporate Debtor showing the

amount as loan. It is submitted that the Adjudicating Authority

committed error in rejecting the Application by the Appellant under

Section 7 whereas Appellant was no more allottee and non-compliance of

Section 7 of the Code as amended was not applicable. It is further

submitted that remand made by this Tribunal vide its Judgment and

Order dated 07th March, 2022 was open remand and all issues were

required to be considered by the Adjudicating Authority and the

Adjudicating Authority has not taken into consideration that Appellant is

now a financial creditor by virtue of transfer of the amount in the Loan

Account.

5. Mr. Arun Kathpalia, Learned Sr. Counsel for the Respondent

refuting the submissions of Learned Sr. Counsel for the Appellant

submits that Appellant was allottee with whom corporate debtor entered

into an agreement for allotment of two flats and amount of Rs.

3,50,00,000/- was paid towards the aforesaid real estate project for

booking of two flats. It is submitted that Letter dated 31st March, 2015

given by the Corporate Debtor did not change the status of Appellant. It is

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further submitted that issues sought to be raised in this Appeal are fully

covered and concluded by this Appellate Tribunal in its judgment dated

07th March, 2022. In view of the Judgment of this Tribunal dated 07th

March, 2022 it is not open for the Appellant to claim that he is not an

allottee. It is further submitted that against the Judgment of this

Tribunal dated 07th March, 2022, Civil Appeal 3184 of 2022 was filed

where all the issues were raised by the Appellant which Appeal has been

dismissed as withdrawn by Order dated 05th September, 2022.

6. We have considered the submissions of Learned Sr. Counsel for the

parties and have perused the record.

7. Application under Section 7 which was filed by the Appellant was

on the strength of amount of Rs. 3,50,00,000/- which was paid by the

Appellant for allotment of two flats bearing Flat No. 4201 and 4202 in

42nd Floor in the proposed building namely Shrepati Estate. An

agreement dated 15.02.2011 was also entered between the parties.

8. Learned Counsel for the Appellant has placed much reliance on

Letter dated 31st March, 2015 sent by the Corporate Debtor. It is

submitted that Letter dated 31st March, 2015 was considered by this

Tribunal in Appeal which was filed by the Respondent in C.A.(AT) Ins. No.

939 of 2021 decided on 07th March, 2022. This Tribunal has taken the

view that application filed by the Appellant under Section 7 was required

to fulfil the requirement as provided under 3rd Proviso to Section 7(1) of

the Code. Learned Counsel for the Respondent has rightly referred to

Paragraph 18 and 19 of the Judgment of this Tribunal where agreement

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dated 15.02.2011 as well as Letter dated 31st March, 2015 was noted and

considered. Paragraph 18 and 19 are as follows:

"18. We have noticed that Respondent No.1 signed an agreement with the Corporate Debtor on 15.3.2011(supra) for purchase of two flats. Admittedly, the agreement provided that the flat purchaser will be given occupation/possession of the flat after construction, when the flat purchaser shall pay to the Corporate Debtor the balance amount of Rs. 9,57,00,000 and also a sum of Rs. 23,47,500 towards membership of the project. The letter dated 31.3.2015 states that the project could not take off for want of approvals from various authorities especially jail authorities, and since no sales should be done prior to approval of the project, it is in such a situation that the corporate debtor made an arrangement to transfer the amount deposited by the Respondent into a loan account in favour of Shreepati Investment (RRC) on temporary basis till the project is approved and starts.

19. Furthermore, the same letter dated 31.3.2015 mentions that this arrangement will not relinquish the right of the investor from the permanent allotment of the flat on the day the project is complete at the agreed rate. In view of such statements in the letter dated 31.3.2015, we are of the view that since the requisite and necessary approvals for starting the Shreepati Estates project could not be obtained by the corporate debtor, and since it had already accepted an advance of Rs. 3.50 crores from the Respondent No. 1, it had to take recourse to transferring the said amount of 3.50 crores on a temporary basis in a loan

Company Appeal (AT) (Insolvency) No. 1694 of 2023 -7-

account. That no interest either accrued or was applicable on this loan amount is evidenced by the fact that no such interest amounts are included in the account statements maintained by the corporate debtor which are attached from page 112 to page 116 of the Appeal Paperbook. Further, the promise of the corporate debtor for making good the principal booking amount alongwith interest, as mentioned in the letter dated 31.3. 2015 (supra), is incumbent on the situation if the proposal of Shreepati Estate is not approved for any reason. Thus, it is quite clear to us that the amount of Rs. 3.50 crore was not a loan given by Respondent No.1 to the Corporate Debtor which would have earned a pre-decided rate of interest, but was a deposit amount against booking of two flats which had been transferred on temporary basis in a loan account for saving the Corporate Debtor from falling foul of any law or accounting standards, and the same amount would have been transferred back as booking amount for flats upon completion and handing over possession of the flats."

9. This Tribunal noted the amendment in Section 7 which came in to

effect on 28.12.2019, at the time when Section 7 Application filed by the

Appellant was pending. This Tribunal in its judgment in paragraph 24

and 25 laid down following:

"24. On the basis of aforementioned discussion, we are of the clear opinion that third proviso to Section 7 (1) of IBC which lays down that if the applicant does not modify his application to comply with the requirements of the first or second proviso within 30 days of the commencement of the said Amendment

Company Appeal (AT) (Insolvency) No. 1694 of 2023 -8-

Act to IBC, which came into effect on 28.12.2019, the application shall be deemed to be withdrawn before its admission. This statutory provision is quite 24. On the basis of aforementioned discussion, we are of the clear opinion that third proviso to Section 7 (1) of IBC which lays down that if the applicant does not modify his application to comply with the requirements of the first or second proviso within 30 days of the commencement of the said Amendment Act to IBC, which came into effect on 28.12.2019, the application shall be deemed to be withdrawn before its admission. This statutory provision is quite clear and makes it obligatory on the part of their real estate allottee to modify his application in accordance with the first and second proviso of Section 7 (1). As facts of the case, and the arguments advanced by the parties, show that it was not done by the real estate allottee/applicant. In our view, this is a basic infirmity which strikes at the very root of the maintainability of Section 7 application.

25. In view of our inference that issue of non-

satisfaction of statutory provision of third proviso to section 7(1) was not considered adequately and dealt with in the Impugned Order, we set it aside and remand the case to the Adjudicating Authority to consider the objection about maintainability as required under third proviso of Section 7(1) and any other objection/issues raised by the parties and pass a speaking order regarding admission/rejection of the section 7 application. Needless to add, it shall be open to the parties to enter into any settlement in case they so desire."

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10. In the Appeal which was filed by the Corporate Debtor challenging

the admission order under Section 7 it was held that maintainability of

the Application has to be examined as per Section 7 (1) as amended and

the Adjudicating Authority after the Order dated 07th March, 2022

examined the issue of maintainability of application and held that

Appellant having not complied with the provisions of Section 7(1) as

amended, application is not maintainable. It is useful to extract the

paragraph 5 of the Impugned Order which is as follows:

"5. After hearing the parties and on perusal of the main company petition (CP(IB)4149(MB)/2018) including other material on record and the order dated 07.03.2022, passed by Hon'ble NCLAT in Company Appeal (AT) Ins. No. 939 of 2021, we are of the opinion that the actual nature of transaction between the parties was in the capacity of builder and allottee, based on the agreement dated 15.02.2011. Further any agreement cannot change the basic nature of transaction and the Financial Creditor over here will remain an allottee within the meaning of Section 2(d) of the Real Estate (Regulation and Development) Act, 2016. Therefore, it will also remain as a "financial creditor" who is owed a "financial debt" as per provisions of Section 5(7) read with Section 5(8) of the IB Code 2016. However, as a result of amendment in Section 5(7) read with Section 5(8)(f) of the IBC, 2016 which came into effect on 28.12.2019, the application for initiating corporate insolvency resolution process against the Corporate Debtor was required to be filed by not less than 100 of such allottees under the same real estate project or

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not less than 10% of the total number of such allottees of such real estate project, whichever is less. The third proviso gave an opportunity for persons who had already initiated corporate insolvency resolution process against a corporate debtor to comply with the said requirement within 30 days of the commencement of the said ordinance, failing which the application would be deemed to be withdrawn before its admission. The main Company Petition in the instance case was filed by a single allottee. The Applicant has not taken any steps to comply with the amended provisions of Section 7 of the Code, and the application is, therefore, deemed to be withdrawn before admission or the petition could have been filed jointly by not less than one hundred allottees or not less than 10% of the total number of allottees under the same real estate project. So, in view of the above, CP(IB)/4149/2018 is dismissed as non-

maintainable.

Accordingly, IA/739/2022 is allowed as disposed of in aforesaid terms."

11. The Adjudicating Authority rightly held that Company Petition has

been filed by a single allottee and there is non-compliance of provision of

Section 7 of the Code as amended with effect from 28.12.2019, the

application is not maintainable. Section 7(1) of the Code is as follows:

"Section 7: Initiation of corporate insolvency resolution process by financial creditor.- (1) A financial creditor either by itself or jointly with 1[other financial creditors, or any other person on behalf of the financial creditor, as may be notified2 by the Central Government] may file an application for initiating

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corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.

[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 admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act,

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failing which the application shall be deemed to be withdrawn before its admission.]

Explanation.--For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor."

12. Application filed by the Appellant being pending at the time when

amendment under Section 7 sub-section (1) was enforced with effect from

28/12/2019 it was incumbent on Appellant to comply with the provisions

as required under statutory provisions. Appellant having not complied

with the said provision, no error has been committed by the Adjudicating

Authority in holding the Section 7 Application not maintainable.

13. Learned Counsel for the Appellant submitted that in pursuance of

the remand order passed by this Tribunal dated 07th March, 2022, all

issues were required to be examined by the Adjudicating Authority

including that Appellant is no longer allottee after Letter dated 31st

March, 2015. The submission on basis of Letter dated 31st March, 2015

was also noticed by this Tribunal in its judgment dated 07th March, 2022

and despite the said Letter this Tribunal took the view that that

maintainability has to be examined as per Section 7(1) as amended.

14. The Adjudicating Authority in the Impugned Order has considered

the submissions raised by the Appellant in support of the Application and

has rightly negated the submission of the Appellant that he is no longer

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an allottee. The Adjudicating Authority held that basic nature of

transaction cannot be changed and the Appellant shall remain as allottee.

15. We do not find any error in the Order impugned passed by the

Adjudicating Authority holding the Application filed by the Appellant as

not maintainable. There is no merit in the Appeal, the Appeal is

dismissed.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

NEW DELHI 10th January, 2024

Basant

Company Appeal (AT) (Insolvency) No. 1694 of 2023