Gopal Krishan Bathla vs Crown Realtech Pvt. Ltd. & Anr

(Arising out of Order dated 6th December, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi in CP(IB) No. 1565(PB) OF 2018)

IN THE MATTER OF:

Gopal Krishan Bathla Appellant

Versus

Crown Realtech Pvt. Ltd. & Anr. Respondents

Present:

For Appellant: Mr. Jeetender Gupta, Advocate.

For Respondents: Mr. Amit Goel, Advocate with Mr. Atul Kansal, RP. Mr. Harshal Kumar, Advocate for Homebuyer. Mr. Saurabh Gupta, Advocate for R-2. Mr. P.K. Sachdeva, Advocate for Applicant.

BANSI LAL BHAT, J.

Application of Respondent No.2- Shri Mohan Agarwal ('Financial

Creditor') under Section 7 of the Insolvency and Bankruptcy Code, 2016

("I&B Code" for short) came to be admitted in terms of the impugned

order dated 6th December, 2019 passed by the Adjudicating Authority 2

(National Company Law Tribunal), Principal Bench, New Delhi, setting

in motion 'Corporate Insolvency Resolution Process' against Respondent

No.1- 'M/s. Crown Realtech Private Limited'- ('Corporate Debtor').

2. Through the medium of instant appeal filed under Section 61 of

the 'I&B Code', Shri Gopal Krishan Bathla, Ex-Director of the 'Corporate

Debtor' seeks to assail the impugned order of admission on various

grounds set out in the memo of the Appeal. However, at the hearing of

this appeal, the arguments have been restricted to only one ground

adumbrated herein below.

3. For better understanding of the controversy raised in this Appeal,

it is apt to refer to the factual matrix of the case. It emerges from the

record that the 'Corporate Debtor' is a Real Estate Company.

Respondent No.2 had booked a commercial space comprised in Flat

Nos. 409, 410 & 411 on the 4th Floor in Tower B-2 at Village Sarai

Khawaja, Faridabad, Haryana for the total consideration of Rs.

2,08,98,830/- under the project namely "Abacus Technopark" of the

'Corporate Debtor'. Document in the form of Agreement to sell was

executed in this regard with Respondent No.2 having paid an amount of

Rs.2,08,60,2000/- to the 'Corporate Debtor' on various dates. The

'Corporate Debtor' had undertaken to deliver possession of the said unit

to the Respondent No.2 on or before December, 2012 with a grace

period of three months and upon failure to handover possession pay

Company Appeal (AT) (Insolvency) No. 28 of 2020 3

interest @ 20.50% per annum compounded annually. Admittedly, there

was delay in delivering the possession of the said unit as also in making

payment towards interest despite repeated demands made by

Respondent No. 2 culminating in filing of the application under Section

7 of the 'I&B Code' by Respondent No.2 against the 'Corporate Debtor'.

It is noticed from the impugned order that the possession was not

delivered till November, 2018 i.e., the date of filing of the application

under Section 7 by the Respondent No.2. The Adjudicating Authority

found that despite delay of almost 6 ½ years, the aforesaid unit had

been completed only to the extent of 80-85% and being satisfied in

respect of debt and default it proceeded to pass the impugned order

which has been assailed in this Appeal.

4. The only ground pressed at the hearing for setting aside the

impugned order is that the Respondent No.2 had arrived at a

Settlement with the 'Corporate Debtor' on 3rd December, 2019 and since

the same preceded the date of admission of the application under

Section 7 vide impugned order dated 6th December, 2019 and

constitution of the 'Committee of Creditors' on 3rd January, 2020, in

terms of the law laid down by the Hon'ble Apex Court in "Swiss

Ribbons Private Limited and Anr. V. Union of India and Ors.-

(2019) 4 SCC 17" and followed by this Appellate Tribunal's Judgement

in number of cases, this Appellate Tribunal should exercise its inherent

Company Appeal (AT) (Insolvency) No. 28 of 2020 4

powers to take on record the Settlement Deed executed inter se the

'Financial Creditor' and the 'Corporate Debtor' and set aside the

impugned order. It is submitted that the Respondent No.2- 'Financial

Creditor' admitted the factum of Settlement having been arrived at

between him and the 'Corporate Debtor'- a fact supported by record.

However, some other allottees of the project have filed an Intervention

Application being I.A. No. 425 of 2020 praying for dismissal of the

Appeal on the ground that the Settlement inter se the 'Corporate Debtor'

and the Respondent No.2 relied upon by the Appellant is designed to

defraud other 'Financial Creditors' i.e., allottees who had filed separate

applications under Section 7 of the 'I&B Code' and their claims are

pending consideration before the 'Committee of Creditors'.

5. Heard learned counsel for the parties and perused the record.

6. While dealing with the exit mechanism during the Resolution

Process under the 'I&B Code' by way of withdrawal or Settlement, the

Hon'ble Apex Court observed in Paragraph 82 of the Judgement

delivered in "Swiss Ribbons Private Limited and Anr. V. Union of

India and Ors." (Supra), as follows:

"82. It is clear that once the Code gets triggered

by admission of a creditor's petition under Sections

7 to 9, the proceeding that is before the

Company Appeal (AT) (Insolvency) No. 28 of 2020 5

Adjudicating Authority, being a collective

proceeding, is a proceeding in rem. Being a

proceeding in rem, it is necessary that the body

which is to oversee the resolution process must be

consulted before any individual corporate debtor is

allowed to settle its claim. A question arises as to

what is to happen before a committee of creditors is

constituted (as per the timelines that are specified,

a committee of creditors can be appointed at any

time within 30 days from the date of appointment

of the interim resolution professional). We make it

clear that at any stage where the committee of

creditors is not yet constituted, a party can

approach the NCLT directly, which Tribunal may,

in exercise of its inherent powers under Rule 11 of

the NCLT Rules, 2016, 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."

7. The dictum of the Hon'ble Apex Court is loud and clear. The

National Company Law Tribunal can exercise inherent powers vested in

Company Appeal (AT) (Insolvency) No. 28 of 2020 6

it under Rule 11 of the National Company Law Tribunal Rules, 2016 to

allow or reject an application for withdrawal or settlement prior to the

constitution of the 'Committee of Creditors'. However, such exercise of

power would depend on consideration of all relevant factors in each

individual case, after providing an opportunity of hearing to all

concerned parties. A similar power is vested in this Appellate Tribunal

under Rule 11 of the National Company Law Appellate Tribunal Rules,

2016 and it is not disputed that such power can be exercised in

appropriate cases on similar consideration as delineated by the Hon'ble

Apex Court. The question arises for consideration is whether the

instant case is a fit one for exercise of such power.

8. The project, in question, is a Housing Project which has missed

its deadline leaving the allottees high and dry. Despite inordinate delay

exceeding 6 years, the project is incomplete, as noticed by the

Adjudicating Authority. Other allottees clothed with the status of

'Financial Creditors' through a subsequent Amendment in the 'I&B

Code' have virtually been dragged from pillar to post. This fact is clearly

borne out from the application filed by several allottees seeking

intervention through I.A. No. 425 of 2020. It emerges that during the

hearing of CP(IB) No. 1565 (PB)/ 2018 i.e., the application filed by

Respondent No.2 against the 'Corporate Debtor' under Section 7 of the

'I&B Code' and until the pronouncement of the impugned order, neither

Company Appeal (AT) (Insolvency) No. 28 of 2020 7

of the parties approached the Adjudicating Authority to lay intimation

about Settlement of the claim of the Respondent No.2 and seek exit

from 'Corporate Insolvency Resolution Process' by allowing Settlement

inter se the parties. There is not even a whisper in the memo of the

Appeal that Respondent No.2 had arrived at a Settlement with the

'Corporate Debtor', manifesting in reducing of the Settlement to an

instrument i.e., the Settlement Deed. There is not an iota of evidence on

record to establish that the Respondent No.2 had arrived at a

Settlement with the 'Corporate Debtor' prior to order of admission of

application of Respondent No.2 in terms of the impugned order or

before the constitution of the 'Committee of Creditors'. Had such

development taken place, nothing would have prevented either of the

Respondents from bringing this fact to the notice of the Adjudicating

Authority even after passing of the impugned order and until

constitution of the 'Committee of Creditors'.

9. In the backdrop of this factual position, the only conclusion

deducible is that the factum of Respondents having inter se arrived at a

Settlement prior to passing of the impugned order and constitution of

the 'Committee of Creditors' is nothing but a ploy designed to defeat the

legitimate interests of other stakeholders. This factual position is clearly

borne out by the sequence of events unfolded by record.

Company Appeal (AT) (Insolvency) No. 28 of 2020 8

10. One Sh. Puneet Kumar Jindal' had filed CP No. (IB)-769(PB)/2018

under Section 7 of the 'I&B Code' in respect of the same project. The

application of Respondent No.2 herein i.e. Shri Mohan Agarwal under

Section 7 of the 'I&B Code' was disposed of by the Adjudicating

Authority vide order dated 3rd December, 2018 with direction to file

claim in the 'Corporate Insolvency Resolution Process' set in motion by

Sh. Puneet Kumar Jindal through CP No. (IB)-769(PB)/2018. However,

such order came to be set aside by this Appellate Tribunal in terms of

the order dated 7th March, 2019 in Company Appeal (AT) (Insolvency)

No. 797 of 2018. As already stated, none of the parties reported any

development in regard to Settlement of claim of Respondent No.2 before

the Adjudicating Authority prior to passing of the impugned order or

even thereafter until constitution of the 'Committee of Creditors' on 3rd

January, 2020. It further appears from I.A. No. 425 of 2020 filed by the

Intervenors that as many as seven matters including the application of

the Respondent No.2 were pending when the impugned order was

passed by the Adjudicating Authority. As the 'Corporate Debtor', despite

commitments, failed to settle with all seven Applicants, this could

probably be the reason for the Respondents not to seek exit from the

'Corporate Insolvency Resolution Process' before passing of the

impugned order as the Settlement inter se them, though not proved to

have manifested in the form of a Settlement Agreement, was not all

encompassing. This factual position would not warrant exercise of

Company Appeal (AT) (Insolvency) No. 28 of 2020 9

inherent powers under Rule 11 to allow exit of the 'Corporate Debtor'

from 'Corporate Insolvency Resolution Process' as the legitimate

interests of all other stakeholders, including the Intervenors whose

claims have been admitted and the 'Committee of Creditors' is in seisen

of the same would be seriously jeopardised. This is apart from the fact

that in the event of settlement being entertained the Intervenors whose

claims have been admitted will have to face the prospect of garnering

the support of threshold limit for initiating de novo 'Corporate

Insolvency Resolution Process' against the 'Corporate Debtor' in terms

of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019

dated 28th December, 2019.

11. Viewed in this background, we have no doubt in our mind that

the ground urged, apart from not being established by any supporting

evidence, does not warrant exit from 'Corporate Insolvency Resolution

Process' on the projected ground of Settlement inter se the

Respondents, having been arrived at prior to the constitution of the

'Committee of Creditors'. Public interest would not warrant such course

to be adopted.

12. We find no merit in this appeal. No ground for exercise of inherent

powers under Rule 11 of the NCLT Rules, 2016 by the Adjudicating

Authority or Rule 11 of the NCLAT Rules, 2016 by this Appellate

Company Appeal (AT) (Insolvency) No. 28 of 2020 10

Tribunal is made out. We accordingly decline to interfere. The appeal

lacks merit and is accordingly dismissed.

[Justice Bansi Lal Bhat] Acting Chairperson

[Justice Anant Bijay Singh] Member (Judicial)

[Shreesha Merla] Member (Technical)

NEW DELHI 22nd May, 2020

AR

Company Appeal (AT) (Insolvency) No. 28 of 2020