Housing And Urban Development ... vs Ramnath Developers Pvt. Ltd

HOUSING AND URBAN DEVELOPMENT CORPORATION LTD. ...Appellant

Versus

RAMNATH DEVELOPERS PVT. LTD. & ORS. ...Respondents

Present: For Appellant : Mr. Rohit Sharma, Mr. Ashok Kumar, Advocates For Respondents : Mr. Himanshu Shekhar, Parth Shekhar, Shubham Singh, Advocates for Home Buyers Mr. Abhishek Anand, Mohak Sharma, Advocates for R3 Mr. Aditya Gauri, Amar Vivek, R1 and R2

JUDGMENT

Per: Justice Rakesh Kumar Jain:

This appeal is against the order dated 22.12.2021, by which the

Adjudicating Authority (National Company Law Tribunal, Allahabad Bench)

while deciding I.A. No. 178 of 2020 and I.A. No. 302 of 2020 has issued certain

directions.

2. The facts in brief, extracted from the memorandum of appeal, are that

Housing and Urban Development Corporation Ltd. (HUDCO) was approached

by M/s Ramnath Developers Pvt. Ltd. (Corporate Debtor), engaged in the

business of real estate, in June, 2008, seeking a loan of Rs. 19.80 Crores for

construction of a housing project comprising of 112 duplex houses/row

houses. The loan was sanctioned by HUDCO on 24.04.2009. The loan

assistance of Rs. 19.80 Crores was offered at a floating rate of interest of

15.50% per annum and the amount was payable within 36 months in 12 2

quarterly installments of Rs. 165 lakhs each. Pursuant thereto, a loan

agreement was executed on 30.06.2009 and on the same day, an escrow

agreement was executed amongst HUDCO, Corporate Debtor and Union Bank

of India (UBI). As per which, UBI was appointed as escrow agent to accept all

receivables and payments generated from project phase-1. The escrow

account was bearing no. 458101010036328.

3. The Corporate Debtor once again approached HUDCO in June/July

2010 for a loan of Rs. 12.50 Crores for construction of residential complex

'Ramnath City, Phase II'. The loan was sanctioned on 08.07.2010 and a loan

agreement was executed on 31.08.2010 between HUDCO and the Corporate

Debtor.

4. Pursuant to the agreement dated 31.08.2010, an escrow agreement was

executed amongst HUDCO, Corporate Debtor and UBI and UBI was appointed

as escrow agent for acceptance of all receivables and payments generated from

project phase II. This escrow account was bearing no. 4581010036355.

5. The Corporate Debtor entered into agreement for sale, of flats

constructed at the project site, with the allottees. One such agreement dated

21.04.2014 has been annexed as Annexure A-8. It is pleaded that the

Appellant/HUDCO, on the request of the Corporate Debtor, released its

security regarding 17 units i.e. Villa/Row House Nos. 5,8,9,12,14,16 of Bella

Casa and Villa/Row House Nos. 2,6,7,8,10,11,12,14,18,32&99 of Bella

Capanna by issuing NOC for execution of sale deed after receipt of

proportionate payment regarding those units. It has also come on record that

the Appellant issued 103 conditional NOCs to certain banks for facilitating

the allottees of the said respective units to avail home loans from the said

Company Appeal (AT) (Ins) No. 183 & 184 of 2022 3

banks/financial institutions but with the condition that HUDCO shall have

charge on entire project of the Corporate Debtor and that final transfer shall

take effect only after full cost of the flat is received in the escrow account and

when HUDCO conveys its decision to discharge the mortgage pertaining to

the specific flat in writing.

6. It is alleged that besides the aforesaid NOCs, HUDCO had issued 6

conditional NOCs to the allottees on the condition that the entire sale

consideration for the said 6 flats shall be directly deposited by the said

allottees into the bank account of HUDCO.

7. HUDCO disbursed a sum of Rs. 31.35 Crores of the sanctioned loan

amount under both the loan agreements dated 30.06.2009 and 31.08.2010

but the Corporate Debtor failed to maintain the financial discipline and thus

the loan accounts of the corporate Debtor were classified as NPA on

31.05.2013 and a recall notice was issued on 01.01.2014 calling upon the

Corporate Debtor to pay a sum of Rs. 16,48,75,573/-, which was outstanding

as on 31.12.2013 under the loan agreement for phase 1 of the project and Rs.

13,37,25,332/- outstanding as on 31.12.2013 under the loan agreement for

phase II of the project.

8. The Appellant also issued notice dated 13.06.2014 under Section 13(2)

of the SARFAESI Act, 2022 asking the Corporate Debtor to pay a sum of Rs.

16,97,01,689/- under the loan agreement for phase I and Rs. 14,48,58,545/-

under loan agreement for phase II of the project, both due as on 13.06.2014

and symbolic possession of the secured assets of the Corporate Debtor was

taken on 11.09.2014.

Company Appeal (AT) (Ins) No. 183 & 184 of 2022 4

9. The Corporate Debtor filed Securitization Application (S.A. No. 79 of

2014) before the DRT, Nagpur. The DRT Nagpur vide order dated 08.03.2016

held that the loan account of the Corporate Debtor was rightly classified as

NPA by the Appellant and the notice issued under Section 13(2) of SARFAESI

Act was in accordance with law. But DRT set aside the notice of possession

dated 03.09.2014 and dated 11.09.2014 issued under Section 13(4) of

SARFAESI Act and directed HUDCO to restore the symbolic possession of the

property to the Corporate Debtor within 30 days from the date of the said

order.

10. The said order dated 08.03.2016, passed by the DRT was challenged

before the DRAT, Mumbai which is stated to be pending.

11. The Appellant filed an application OA No. 139 of 2014 under Section 19

of the RDDB Act, 1993 before the DRT, Mumbai seeking recovery of the

amount of Rs. 31,74,32,071/- due as on 27.08.2014 under the loan

agreement for phase I and II of the project.

12. The DRT vide order dated 21.09.2015, directed the Corporate Debtor to

deposit the amount of Rs. 24,44,87,690/- with HUDCO within one month

from the date of the order otherwise an interim recovery certificate was

ordered to be issued in favour of the Appellant. But the Corporate Debtor

failed to comply with the aforesaid order dated 21.09.2015 and thus HUDCO

instituted an interim recovery proceedings vide recovery proceeding no. 103

of 2015 against the Corporate Debtor. In the said proceedings, notice dated

22.07.2016 was issued by the Recovery Officer of the DRT, who attached and

ordered for the sale of the project and several allottees of the project of the

Corporate Debtor approached the High Court of Bombay, Nagpur Bench by

Company Appeal (AT) (Ins) No. 183 & 184 of 2022 5

way of Writ petition No. 6066 of 2014 and Writ Petition No. 6917 of 2014

requesting that HUDCO be directed to issue NOC in their favour on the

ground that they have paid the entire sale consideration towards the purchase

of the said units, except the amount which were to be paid at the time of

execution of sale deed. The said writ petition was dismissed by the High Court

of Bombay, Nagpur Bench on 13.06.2016. The allottees challenged the order

dated 13.06.2016 by way of SLP (C) No. 5993 of 2017. The said SLP was

dismissed on 22.04.2019 by the Supreme Court.

13. It is also the case of the Appellant that it learnt through the report of

the auditors M/s Jain Khetan Agrawal and Associations that the Corporate

Debtor, acting through its directors Sudesh Chandra & Sandesh Chandra

Gupta, has fraudulently sold 60 units in the project without obtaining NOC

from HUDCO and diverted the sale proceeds of the said flats to some purpose

other than repayment of the outstanding dues payable to HUDCO in terms of

the loan agreements. The Corporate Debtor through its directors and

authorized signatory diverted sale proceeds of the units, including units in

which HUDCO has issued conditional NOCs to the bank of allottees, from the

escrow accounts held with UBI for personal benefits other than repayment of

the loans. Consequently, HUDCO instituted criminal proceedings against the

Corporate Debtor and its directors under Section 406,420,120,120 B and 34

of IPC.

14. While, the aforesaid proceedings were going on, on 23.01.2020 the

Adjudicating Authority admitted CP (IB) No. 451/ALD/2019 and ordered for

commencement of Corporate Insolvency Resolution Process (CIRP) against the

Company Appeal (AT) (Ins) No. 183 & 184 of 2022 6

Corporate Debtor and Ganga Ram Agarwal was appointed as an Interim

Resolution Professional (IRP).

15. The IRP invited claims from the creditors through publication of Form-

F on 25.01.2020. HUDCO in terms of Regulation 8 of the Insolvency and

Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016 (in short 'Regulations') submitted its claim to the

IRP on 05.02.2020 of a sum of Rs. 83,88,37,657/- in Form C. The said claim

was admitted by the IRP.

16. The CoC was constituted by the IRP and informed the Adjudicating

Authority. The CoC constituted by the IRP comprised of allottees of the

project, including the allottees in whose favour registered sale deed has not

been executed by the Corporate Debtor, as financial creditors in a class. It is

alleged that HUDCO is also a member of CoC with voting share of 83.97%.

17. Ganga Ram Agarwal was confirmed as Resolution Professional (RP) in

the 1st meeting of the CoC held on 20.02.2020. It is alleged that RP proceeded

to remove 169 residential units of the project of the Corporate Debtor from

the inventory of assets of the Corporate Debtor though the Appellant has a

charge over the same. It is further alleged that in the 4th meeting of CoC held

on 25.06.2020, HUDCO again requested RP to include the units in its

inventory for which the payment has not been made so that prospective

resolution applicant (PRA) can accordingly submit a resolution plan to get

discharge the security of HUDCO over the allotted units. It is alleged that this

aspect of the matter was not paid any attention by the RP and in 5th meeting

of CoC held on 29.07.2020, the RP suggested that the Appellant may move an

application before the Adjudicating Authority for redressal of its grievance.

Company Appeal (AT) (Ins) No. 183 & 184 of 2022 7

18. However, it is alleged that on 24.07.2020, 20 allottees of the project of

the Corporate Debtor i.e. Respondent No. 4 to 23 herein filed an application

bearing I.A. No. 178 of 2020 in CP (IB) NO. 451/ALD/2019 seeking NOC from

the Appellant for the execution of sale deeds to which reply was filed on

18.09.2020 pointing out that HUDCO has a prior charge over the project of

the Corporate Debtor and the constructions raised thereon. The Appellant

filed an application i.e. I.A. No. 236 of 2020 for inclusion of all the residential

units of the project in the inventory of the Corporate Debtor's asset that will

be offered to the PRA. While that application was pending, on 04.10.2020

other allottees i.e. Respondent No. 4 to 19 filed an application bearing I.A. No.

302 of 2020 praying for the similar relief as claimed in I.A. No. 178 of 2020.

It is further alleged that HUDCO filed an application i.e. I.A. No. 262 of 2020

in CP (IB) No. 451/ALD/2019 on 05.10.2020 seeking for setting aside the

CIRP of the Corporate Debtor on the ground that Operational Creditor i.e.

Khard Enterprise and the Corporate Debtor are related parties. It is also

alleged that 20 other allottees of the project filed an application bearing I.A.

No. 338 of 2021 before the Adjudicating Authority seeking to implead

themselves as co-applicants in I.A. No. 178 of 2020 and vide order dated

22.11.2021 the said application was allowed. The applications i.e. I.A No. 178

of 2020 and 302 of 2020 were ultimately allowed by the order dated

22.12.2021 and the following directions have been issued:

"I. HUDCO is directed to grant NOC for execution of sale deed in favour of all the applicants herein to RP within seven days from the date of uploading of this order on portal of NCLT, being Adjudicating Authority.

II. The RP shall complete all formalities for the execution of sale deed and take all necessary steps with the concerned authorities for execution of the same within 30 days from the date of uploading of this order on portal of NCLT being Adjudicating Authority.

Company Appeal (AT) (Ins) No. 183 & 184 of 2022 8

III. The applicant/homebuyers shall pay the applicable stamp duty and other charges in terms of their agreement with the Corporate Debtor to facilitate the process and enable the RP for execution of sale deed.

IV. RP shall also take necessary steps to obtain occupancy certificate for the project as required under relevant law/rules. V. The registry is directed to upload the copy of this order immediately on pronouncement.

VI. In the result, I.A. No. 178 of 2020 and I.A No. 302 of 2020 stand allowed in terms of directions given as above. I.A. No. 179/2020 stands dismissed as infructuous in view of our order in I.A. No. 178 of 2020.

VII. Certified true copy of this order, if applied for, be issued upon compliance with all requisite formalities."

19. Aggrieved against the aforesaid order, the present appeal has been filed.

20. Counsel for the Appellant has submitted that the Appellant is aggrieved

against the impugned order in respect of directions issued to it to grant NOC

for execution of sale deed in favour of all the applicants and further directions

to the RP to complete all formalities for the execution of sale deed and take all

necessary steps with the concerned authorities for their execution.

21. It is submitted that the Appellant advanced a loan of Rs. 31.35 Crores

vide two loan agreements dated 30.06.2009 and 31.08.2010. As per loan

agreements, the entire project land together with buildings, superstructure,

constructions, etc. thereon, both present and future were duly mortgaged

with the Appellant. It is further submitted that two escrow agreements were

also executed on 30.06.2009 and 31.08.2010. UBI was the trustee of the

escrow accounts and as per Article 5.5 of escrow agreement, all receipts

accruing to the borrower (CD) from the project was to be deposited by the

borrower in the escrow account. It is categorically stated that the Corporate

Debtor committed a default in payment of the loan amount and also violated

the escrow agreement by failing to deposit the amounts received from the

home buyers including the applicants in the escrow account. It is further

Company Appeal (AT) (Ins) No. 183 & 184 of 2022 9

argued that the amount deposited in the escrow account may also have been

siphoned off by the Corporate Debtor. It is submitted that the homebuyers

have no privity of contract with the Appellant who have entered into an

agreement to sell with the Corporate Debtor after the mortgage was created

in favour of the Appellant which is duly recorded in the agreements. It is also

recorded in the agreements that final transfer of the units shall be made only

after the entire payment of the apartment is made by the purchaser and the

payable amount for the concerned unit is paid to the Appellant. It is also

argued that conditional NOCs granted by the Appellant to individual home

buyers for obtaining loan for their individual unit provides that permission to

final transfer of the flat shall be granted by the Appellant only after its decision

to discharge the mortgage is conveyed and that flat was not to be transferred

until payment of proportionate loan amount is made and the approval of

discharge of mortgage from the Appellant is obtained. However, it is not

denied that in 17 other cases, where entire consideration amount for the

individual units was received, the Appellant had given NOC for final transfer

of unit but the case of the Appellant is not similar to the said cases because

the consideration amount has not been received by the Appellant.

22. Counsel for the Appellant has further argued that the Adjudicating

Authority has committed an error in passing the impugned order as it has no

jurisdiction to issue directions. It is further submitted that even Section 14 of

the Code prohibits the disposal of assets of the Corporate Debtor and there is

no provision which permits the RP to sell the mortgaged assets of the

Corporate Debtor.

Company Appeal (AT) (Ins) No. 183 & 184 of 2022 10

23. It is also submitted that the impugned order is contrary to the priority

specified under Section 30(2) r/w Section 53(1) of the Code because a secured

creditor is placed above the unsecured creditors and in case of resolution

plan, the priority is to be given to the secured creditor whereas the home

buyers are not the secured creditors.

24. It is also argued that the Appellant could not be directed to comply with

the directions issued by the Adjudicating Authority without its fault. It is

submitted that basis for not granting NOC is that it has not received the entire

consideration amount.

25. On the other hand, Counsel for the home buyers has submitted that

the loan was obtained by the Corporate Debtor from the Appellant and

pursuant thereto an escrow account was opened. The answering

Respondents/home buyers are not privity to the contract/agreement rather

escrow account was to be operated under the guidelines of the Appellant in

which all the sale proceeds of the project was to be deposited and the payment

of loan, principal and interest was to be made out of it. It is further submitted

that auditors of the lenders (Appellant) had certified the receipt of the price in

escrow account and it is also an admitted fact that the Appellant had, in the

past, issued NOC in respect of 17 such units for the purpose of registration

of the sale deed from whom the amount was received. The said unit holders

had deposited sale price in the escrow account, therefore, the Appellant

cannot discriminate between the same home buyers in this regard. It is

further submitted that the homebuyers had performed their part of the

contract by depositing the amount of the sale consideration and had no

control or role in the operation of the escrow account which was opened with

Company Appeal (AT) (Ins) No. 183 & 184 of 2022 11

the understanding of the Appellant, CD and the UBI. Funds from the escrow

account could not have been released without permission of the Appellant

and if any such thing has happened, as alleged by the Appellant that the

amount has been siphoned off from the said account at the instance of the

Corporate Debtor, the Appellant has to blame itself instead of blaming the

home buyers who are already in possession of their units but are waiting for

the conveyance deeds to become the absolute owner.

26. Counsel for Respondent No. 1 & 2 has submitted that as soon as the

impugned order was passed, the requests was sent to the Appellant to execute

the sale deed. It is further urged that a resolution plan was also received from

one resolution applicant M/s Jerry Profits which was rejected by the CoC in

the 12th Meeting held on 16.02.2021.

27. Counsel for Respondent No. 3 has denied the allegation of siphoning off

the funds rather it is submitted that it has sufficient asset base of unsold

units to repay the Appellant's justifiable due amount of Rs. 24.44 Crores.

28. We have heard Counsel for the parties and perused the record with their

able assistance.

29. The basic facts emerged from the narration is that the Appellant has

disbursed a total loan amount of Rs. 31.35 Crores out of sanctioned amount

of Rs. 32.30 Crores to the Corporate Debtor by way of two loan agreements

executed on 30.06.2009 and 31.08.2010 and also executed similar escrow

agreements on the same date when the loan agreement was executed. UBI

was the trustee of the escrow account and it was provided in the escrow

agreement that all the receipts accruing to the borrower from the project shall

be deposited by the borrower in the escrow account from where the payment

Company Appeal (AT) (Ins) No. 183 & 184 of 2022 12

shall be made to the lender (Appellant). It is also a fact that the Appellant had

issued NOC in the past in respect of 17 units of the similarly situated home

buyers i.e. Villa/Row House Nos. 5,8,9,12,14,16 of Bella Casa and Villa/Row

House Nos. 2,6,7,8,10,11,12,14,18,32&99 of Bella Capanna by issuing NOC

for execution of sale deed after receipt of proportionate payment due regarding

those units. Meaning thereby, the Appellant can still issue the NOC for the

execution of sale deed with the receipt of entire payment dehors Section 14 of

the Code. The whole emphasis of the Appellant is on the issue that since the

loan agreements categorically provides that the Appellant shall have a charge

over the property together with building, superstructure, construction etc.

both present and future owned and possessed by the borrower and prior

approval of the Appellant is to be taken for the sale and entire sale proceeds

are deposited with the Appellant for reduction of total amount of outstanding

and that an escrow account was opened with a clear understanding with the

borrower that all receipts accruing to the borrower from the project shall be

deposited in the escrow account for which the loan has been sanctioned.

30. On the other hand, the case of Respondents (Homebuyers) is that since

they have made the payments of the entire sale consideration, therefore, they

are entitled to get the sale deed registered in their favour with the NOC to be

issued by the Appellant as they are not at all at fault because they had no

control over the escrow account and had discharged their liability as a

prospective buyer in terms of the agreement to sell, to pay sale consideration

which was either to be credited to the account of the Appellant by the borrower

or agent of the escrow account.

Company Appeal (AT) (Ins) No. 183 & 184 of 2022 13

31. The Adjudicating Authority has also recorded its findings in para 3 of

the impugned order that the home buyers have paid entire sale consideration,

therefore, they would be at par with 17 such other home buyers to whom NOC

was issued by the Appellant after receipt of the entire sale consideration and

if the equities are to be balanced on the same scale, we find weight in the case

of the home buyers.

32. Thus, in view of the aforesaid discussion, we do not find any error in

the approach of the Adjudicating Authority which requires any kind of

interference in this appeal. Hence, the present appeal is hereby dismissed.

However, with no order as to costs.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Kanthi Narahari] Member (Technical)

New Delhi 04th January, 2023

Sheetal

Company Appeal (AT) (Ins) No. 183 & 184 of 2022