Cfm Asset Reconstruction Pvt Ltd vs Swatantra Kumar And Anr

(Arising out of Order dated 01.11.2021 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court-II in C.P. (IB)-395 (MB)/2020)

IN THE MATTER OF:

CFM Asset Reconstruction Pvt. Ltd. (acting in the capacity of Trustee of CFMARC Trust - 1 Xander) Registered office at A/3, 5th Floor, Safal Profitaire, Near Prahlad Nagar Garden, Ahmedabad 380015.

Also at: Corporate Office: 1st Floor, Wakefield House Sprott Road, Ballard Estate, Mumbai 400038. ...Appellant

Versus

1. Swatantra Kumar Having Registered Office at:- 1504, Challenger 1, Thakur Village, Kandivali (East), Mumbai - 400101.

2. Mr. Kedar P. Mulye The Interim Resolution Professional of JVPD Properties Private Limited, Having Registered Office at:- 501, 5th Floor, Prime Plaza, S. V. Road, Santacruz (West), Mumbai: 400054. ...Respondents

Present: For Appellant: Mr. Ramji Srinivasan, Sr. Advocate, Mr. Aditya Narayan Mahajan, Ms. Rajshree Chaudhary and Ms. Meghna Dugar, Advocates.

For Respondents: Mr. M. Sharma and Mr. Preet Singh Oberoi, Advocates.

With

Cont'd.../ -2-

Company Appeal (AT) (Insolvency) No. 56 of 2022

(Arising out of Order dated 08.06.2021 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court-II in IA 572/2021 in C.P. (IB)-395 (MB)/2020)

IN THE MATTER OF:

CFM Asset Reconstruction Pvt. Ltd. (acting in the capacity of Trustee of CFMARC Trust - 1 Xander) Registered office at A/3, 5th Floor, Safal Profitaire, Near Prahlad Nagar Garden, Ahmedabad 380015.

Also at: Corporate Office: 1st Floor, Wakefield House Sprott Road, Ballard Estate, Mumbai 400038. ...Appellant

Versus

1. Swatantra Kumar Having Registered Office at:- 1504, Challenger 1, Thakur Village, Kandivali (East), Mumbai - 400101.

2. Mr. Kedar P. Mulye The Interim Resolution Professional of JVPD Properties Private Limited, Having Registered Office at:- 501, 5th Floor, Prime Plaza, S. V. Road, Santacruz (West), Mumbai: 400054. ...Respondents

Present: For Appellant: Mr. Ramji Srinivasan, Sr. Advocate, Mr. Aditya Narayan Mahajan, Ms. Rajshree Chaudhary and Ms. Meghna Dugar, Advocates.

For Respondents: Mr. M. Sharma and Mr. Preet Singh Oberoi, Advocates.

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -3-

JUDGMENT

ASHOK BHUSHAN, J.

These two appeals by the same Appellant claiming to be Financial

Creditor of the Corporate Debtor have been filed against the order dated

01.11.2021 passed by the Adjudicating Authority (National Company Law

Tribunal), Mumbai Bench, Court No.2 admitting the Section 7 application

filed by the Respondent, Swatantra Kumar and order dated 08.06.2021

passed by the Adjudicating Authority rejecting I.A. No. 572 of 2021 filed by

the Appellant praying for intervention and dismissal of the Company

Petition. Brief facts of the case necessary to be noticed for deciding both

these Appeals are:-

(i) One 'Xander Finance Pvt. Ltd.' (Assignor of the Appellant) had

extended loan facility of Rs.40 Crore to Jaycee Homes Pvt. Ltd., a

group entity/ sister concern of the Corporate Debtor (JVPD

Properties Private Limited). The Borrower and the Corporate

Debtor executed a Deed of Corporate Guarantee in favour of

Xander. Term Loan Facility was also secured by way of the

Mortgage Deed dated 28.07.2015 executed by the Borrower and

the Corporate Debtor whereby Xander was given first charge over

the property situated in Village Tirandaz, Taluka Kurla and all

constructions (present and future).

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -4-

(ii) On account of default in payment of loan by the Jaycee, the

Xander has initiated proceedings under Sections 13 and 14 of the

SARFAESI Act under which possession of property was handed

over to Xander on 10.04.2018.

(iii) Corporate Debtor having defaulted in granting timely possession

to various flat purchasers in respect of the building 'Bhagtani

Serenity', civil proceedings were initiated against the Corporate

Debtor and its Promoters/ Directors.

(iv) On complaint filed before the Maharashtra Real Estate Regulatory

Authority, the Adjudicating Officer vide its order dated

04.05.2018 directed the Corporate Debtor to refund the amount

paid by the complainants alongwith simple interest @15% per

annum. On failure of the Corporate Debtor to comply with the

order, application for execution was filed where warrant of

attachment was issued on 09.10.2018.

(v) On 16.01.2020, the Respondent - Swatantra Kumar filed an

application under Section 7 against the Corporate Debtor. The

Xander assigned the debts/financial assets including securities/

guarantees in relation to the subject property and Mortgage Deed

dated 28.07.2015 to the Appellant vide Deed of Assignment dated

20.02.2020.

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -5-

(vi) The Appellant after coming to know about the Section 7 petition

against the Respondent, filed an application being I.A. No. 572 of

2021 before the Adjudicating Authority praying for permitting the

Appellant to intervene in the matter and further praying that the

Company Petition be dismissed which has been collusively

initiated.

(vii) By order dated 08.06.2021, the Adjudicating Authority rejected

I.A. No. 572 of 2020 filed by the Appellant holding that the

Appellant has no locus to file an application. By a subsequent

order dated 01.11.202, the Adjudicating Authority admitted

Section 7 application filed by the Respondent. These two Appeals

have been filed challenging aforesaid two orders of the

Adjudicating Authority. Company Appeal (AT)(Ins.) No. 56 of

2022 has been filed challenging order dated 08.06.2021 rejecting

I.A. No. 572 of 2020 and Company Appeal (AT)(Ins.) No. 24 of 2022

has been filed challenging order dated 01.11.2021 initiating the

CIRP.

2. Company Appeal (AT)(Ins.) No. 56 of 2022 and Company Appeal

(AT)(Ins.) No. 24 of 2022 when came up for hearing before this Tribunal on

23.01.2022, this Court passed following order by which the impugned

order dated 01.11.2021 was stayed:

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -6-

"ORDER (Through Virtual Mode)

21.01.2022: Heard Shri Ramji Srinivasan, Learned Senior Counsel for the Appellant. He submits that the application u/s 7 filed by Respondent No. 1 against Respondent No. 2 was due to collusion between the parties and the application has been fraudulently filed to deprive the rights of the Creditors. He placed reliance on the judgement of Hon'ble Supreme Court 2020 SCC Online SC 1233 in the matter of Beacon Trusteeship Ltd. Vs. Earthcon Infracon Pvt.

Ltd. & Anr. in Civil Appeal No. 7641/2019. He submits that Hon'ble Supreme Court has clearly laid down when any such allegation is made, it need to be examined.

Issue Notice.

Let the reply be filed within two weeks, rejoinder, if any, may be filed within one week thereafter.

List this matter on 03.03.2022.

The impugned judgement dated 01.11.2021 shall remain stayed."

3. Shri Ramji Srinivasan, learned counsel for the Appellant challenging

the order rejecting the I.A. submits that the Appellant having stepped in

the shoes of the Financial Creditor was entitled to seek intervention and

dismissal of the Company Petition which was fraudulently filed to save the

Corporate Debtor from various proceedings which were initiated against it.

The Respondent was an allottee of a flat in the project and could not have

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -7-

filed the application under Section 7 claiming to be Financial Creditor

unless the provisions of the I&B Code requiring for application by allottee

are complied with, hence, the application filed by Respondent No. 1 was

liable to the rejected. The order of the Adjudicating Authority dated

08.06.2021 holding that the Appellant has no locus is wholly erroneous.

When the allegations have been made in the application that insolvency

resolution process has been fraudulently initiated, the Adjudicating

Authority was obliged to consider the allegations and not reject the

application on the ground of having no locus. It is further submitted that

admission of Section 7 application is also unsustainable. The entire

proceeding has been fraudulently and collusively initiated to save the

Corporate Debtor from the liability of the Appellant and other creditors.

4. Learned counsel appearing for the Respondent submits that the

Appellant has no locus to file any application and the appeal filed by the

Appellant also deserved to be dismissed. The challenge raised by the

Appellant is not covered under Section 61 of the Code, hence, the Appeal

is to be dismissed in limine. The only limited scope is under Section 65 of

the Code which provides for punishment/ penalty, however, the Appellant

neither in the application nor in the Appeal has placed on record any cogent

reasons to support its bogus allegations and pleaded even a prima facie

case. Learned counsel for the Respondent further submits that the

Respondent has entered into MOU dated 24.02.2014 with the Corporate

Debtor whereby a friendly loan of Rs.1.10 Crore was granted by the lender

to the borrower for a period two years. The borrower has to pay an interest

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -8-

of 18% per annum. The amount was transferred by the lender to the

borrower through cheque/RTGS. The borrower has paid interest to the

lender. Second MOU was executed on 19.02.2016, granting extension of

two years in payment. The borrower failed to develop the project. The

Respondent has also entered into a separate transaction, where two

residential units in the project has been allotted on 22.01.2014. The

purchase of two units and loan transactions are two separate transactions.

The respondent being a Financial Creditor was fully entitled to file Section

7 application. The application filed by several flat purchasers also came

up before the Adjudicating Authority but was rejected.

5. We have considered the submissions of learned counsel for the

parties and perused the record.

6. We need to first examine the challenge to the order dated 08.06.2021

by which application I.A. No. 572 of 2021 filed by the Appellant has been

rejected. Application I.A. No. 572 of 2021 was filed by the Appellant where

following prayers have been made:-

"In view of the facts and grounds as mentioned above, the Applicant prays for the following relief(s):

(i) That this Hon'ble Tribunal be pleased to allow the present Interlocutory Application and pass an order allowing the Applicant to intervene in the captioned Company Petition;

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -9-

(ii) That this Hon'ble Tribunal be pleased to ass an order dismissing the captioned Company Petition;

(iii) That this Hon'ble Tribunal be pleased to impose necessary penalties on the Petitioner under Section 65 of the Insolvency and Bankruptcy Code, 2016;

and (iv) Pass any such other further order(s) that this Hon'ble Tribunal may deem appropriate in the facts and circumstances of the present case."

7. The Appellant in application has given the details of events from

19.06.2015 to March, 2020 and has given details of the Deed of Mortgage

entered by Corporate Debtor to secure the loan granted to the sister

concern. Details of SARFAESI proceedings initiated against borrower as

well as complaint filed under Maharashtra RERA Act was referred to.

Details of the order passed by MRERA dated 04.05.2018 and other details

were given. The application filed by the Appellant was an application under

Section 60(5) of the Code r/w Rule 11 of NCLT Rules, 2016 and under

Section 65 of the Code seeking appropriate directions. We may notice

certain averments made in the application. In para 8, it was mentioned

that the Petitioner (Respondent No. 1 herein) being allottee cannot file the

application individually and the petition has not been filed as per the

proviso to Section 7 of the Code. In para 11, 12 and 13 following averments

have been made in the application:-

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -10-

"11. The Applicant states that the Petitioner has maliciously filed the above Petition in the capacity of a lender under section 7 of the Code, in order to evade the procedural requirements under the Code and to prejudice the claims of other flat purchasers/allottees against the said Respondent. The Applicant states that in light of the various proceedings pending against the Respondent in various forum, the Petitioner has fraudulently filed an application under section 7 to avoid the consequences of such proceedings on the Petitioner's claim.

12. The Applicant states that it is a trite law that a homebuyer can initiate insolvency proceedings only as per the procedure laid down under section 7 of the Code and not in his individual capacity. The Petitioner has mischievously presented the facts to mislead this Hon'ble Tribunal. The Applicant states that the Petitioner has various remedies available under the Real Estate Regulatory Act, 2016 so as to recover the dues against the investment in the said Project. However, the Petitioner has conveniently ignored the various other remedies available to it so as to prejudice the claims of other flat purchasers/ allottees against the Respondent.

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -11-

13. Without prejudice to the above, the Applicant states that it verily believes that the Petitioner has initiated the captioned Petition at the instance of the Respondent and that both the Respondent and the Petitioner are hand in glove. It is evident that it is only the Respondent that would benefit from the initiation of the insolvency resolution process, inasmuch as, a moratorium will be imposed against all proceedings pending against the Respondent and it would effectively nullify the rights of all the creditors of the Respondent, including the other flat purchasers/allottees and the Applicant. As such, the captioned Petition has been filed fraudulently and maliciously for purposes other than the resolution of the Respondent and this Hon'ble Tribunal ought to impose necessary penalty against the Petitioner as per Section 65 of the Code."

8. Now we come to the impugned order passed by the Adjudicating

Authority on 08.06.2021. The entire order runs into three paras. In para

2, the Adjudicating Authority noticed the prayers made in the application

I.A. 572 of 2021 and another application I.A. No. 910 of 2020 filed by 'The

Bhagtani Flat Buyers Association'. In para 2 itself the Adjudicating

Authority has held that both the IAs are dismissed for want of locus. Para

2 is as follows:-

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -12-

"IA 910 of 2020 is filed by The Bhagtani Serenity Flat Buyer's Association seeking an order allowing the Applicant to implead/intervene in the Company Petition and IA 572 of 2021 is filed by CFM Asset Reconstruction Private Limited seeking the identical prayer in IA 910 of 2020. After hearing all the parties, the Adjudicating Authority is of the view that both the Applicants do not have locus to intervene in the CP No. 395 of 2020 therefore, Both the IAs are dismissed for want of locus standi."

9. The order passed by the Adjudicating Authority is laconic order,

where only conclusion has been recorded by the Adjudicating Authority in

following words:-

"After hearing all the parties, the Adjudicating Authority is of the view that both the Applicants do not have locus to intervene in the CP No. 395 of 2020 therefore, Both the IAs are dismissed for want of locus standi."

10. The Adjudicating Authority has not adverted to the facts in the

application I.A. No. 572 of 2021. The Appellant/ Applicant has come up in

the application as an assignee of the Financial Creditor to whom the

subject property is mortgaged and possession has already been taken

under Section 13(4) of SARFAESI Act much before the filing of Section 7

application. Application also notice in detail the proceedings initiated

against the Corporate Debtor prior to the application under Section 7 and

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -13-

allegations have been made in the application that the application has been

filed fraudulently and maliciously to save the Corporate Debtor.

Allegations made in the application are the allegations which are made in

reference to Section 65 of the Code. Learned counsel for the Appellant has

relied on the Judgment of Hon'ble Supreme Court in "Beacon Trusteeship

Limited vs. Eathcon Infracon Pvt. Ltd. & Anr., Civil Appeal No.

7641/2019" , where in Para 7 and 8 following has been laid down:

"7. Considering the provision of Section 65 of the IBC, it is necessary for the Adjudicating Authority in case such an allegation is raised to go into the same. In case, such an objection is raised or application is filed before the Adjudicating Authority, obviously, it has to be dealt with in accordance with law. The plea of collusion could not have been raised for the first time in the appeal before the NCLAT or before this Court in this appeal. Thus, we relegate the appellant to the remedy before the Adjudicating Authority.

8. In case, a proper application is filed, aspect whether the proceedings have been initiated in collusive manner will be looked into, in accordance with law and the appropriate orders have to be passed, considering the facts and circumstances of the case. We have made it clear that we have not commented on the merit of the case. We set aside the impugned order passed by the NCLAT and dispose of the appeal in accordance with the aforesaid direction." [emphasis supplied]

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -14-

11. The application by the Appellant was competent application filed

under Section 60(5) of the Code r/w Rule 11 of NCLT Rules, 2016 and

under Section 65 of the Code and the Adjudicating Authority was obliged

to look into the allegations to find out if there is any ground to grant any of

the prayers made in the application. The finding of the Adjudicating

Authority that the Appellant has no locus cannot be sustained. When the

Appellant claims to be the Financial Creditor who is assignee of the

Financial Creditor and the application records sequence of events and

various proceedings prior to the application under Section 7, the

allegations ought to have been looked into and could not have been

brushed aside by observing that the applicant has no locus.

12. We, thus, are of the view that the order dated 08.06.2021 is

unsustainable and the Adjudicating Authority has committed error in

rejecting the application I.A. No. 572 of 2021. The order dated 08.06.2021

is set aside.

13. Now, we come to the order dated 01.11.2021 by which the

Adjudicating Authority admitted the Section 7 application. The

Adjudicating Authority in the impugned order has noticed the submission

made by the Respondent No.1 - Financial Creditor. The Corporate Debtor

in its reply dated 07.11.2020 has accepted the loan and its liability to pay

to the Financial Creditor. The order indicates that the order was passed

with no contest. As observed above, the Adjudicating Authority committed

error in rejecting the application of the Appellant, who vide application I.A.

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022 -15-

572 of 2021 has brought materials for consideration under Section 7

application. We, thus, are of the view that order dated 01.11.2021 cannot

be sustained and is set aside. In result, I.A. No. 572 of 2021 is allowed,

the Appellant is allowed to intervene in the matter. I.A. No. 572 of 2021 as

well as C.P. No. 395/IBC/NCLT/MAH/2021 are revived before the

Adjudicating Authority which need to be considered afresh after hearing

the parties. Both the Appeals are allowed accordingly.

[Justice Ashok Bhushan] Chairperson

[Justice M. Satyanarayana Murthy] Member (Judicial)

[Barun Mitra] Member (Technical)

NEW DELHI

19th September, 2022

Archana

Company Appeal (AT) (Insolvency) No. 24 of 2022 & 56 of 2022