Mr. Bijender Jain vs Idbi Trusteeship Services Limited

[Arising out of Order dated 29.04.2024 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench, Court - IV), in C.P. (IB) No.445/2023]

IN THE MATTER OF: Mr. Sandeep Jain Ex-Director, Shree Vardhman Buildprop Private Limited Having its Registered Office at: 301, Third Floor, Indraprakash Building, 21, Barakhamba Road, New Delhi-110001 Mr. Sandeep Jain Email: info@shreevardhmangroup.com ...Appellant

Versus

1. IDBI Trusteeship Services Limited Having its Registered Office at: Asian Building, Ground Floor, 1 7, R. Kamani Marg, Ballard Estate, Mumbai 400 001 Through its Power of Attorney Holder Mr. Piyush Chandra Email id: delhiitsl@idbitrustee.com ...Respondent No. 1

2. M/s. Ducturus Resolution Professional Private Limited Through its Director Mr. Jalesh Kumar Grover Available at: SCO 818, 1st Floor NAC Manimarja, Chandigarh Email id: j.kgrover27@gmail.com ...Respondent No. 2

Present: For Appellant : Mr. Rajat Joneja and Ms. Sakshi Kapoor, Advocates.

For Respondents : Mr. Abhirup Dasgupta, Advocate for R-2. Mr. Krishnendu Datta Sr. Advocate with Mr. Pranjit Bhattacharya and Ms. Salonee Shukla, Advocates for Financial Creditor.

WITH

Company Appeal (AT) (Insolvency) No. 1055 of 2024

[Arising out of Order dated 07.05.2024 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench, Court - IV), in C.P. (IB) No.446/2023]

IN THE MATTER OF: Mr. Bijender Jain Ex-Director, DSS Infrastructures Private Limited Having its Registered Office at: 309, Third Floor, Indraprakash Building, 21, Barakhamba Road, New Delhi- 110001 Email: bjainvardhan@yahoo.com ...Appellant

Versus

1. IDBI Trusteeship Services Limited Having its Registered Office at: Asian Building, Ground Floor, 1 7, R. Kamani Marg, Ballard Estate, Mumbai - 400 001 Through its Power of Attorney Holder Mr. Piyush Chandra Email id: delhiitsl@idbitrustee.com ...Respondent No. 1

2. M/s. Ducturus Resolution Professional Private Limited Through its Director Mr. Jalesh Kumar Grover Available at: SCO 818, 1st Floor NAC Manimarja, Chandigarh Email id: j.kgrover27@gmail.com ...Respondent No. 2

Present: For Appellant : Mr. Rajat Joneja and Ms. Sakshi Kapoor, Advocates.

For Respondents : Mr. Abhirup Dasgupta, Advocate for R-2.

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024 2 of 14 Mr. Krishnendu Datta Sr. Advocate with Mr. Pranjit Bhattacharya and Ms. Salonee Shukla, Advocates for Financial Creditor

JUDGMENT

ASHOK BHUSHAN, J.

These two appeals filed by suspended director of the corporate debtor,

challenges order dated 29.04.2024 and order dated 07.05.2024 passed by the

adjudicating authority (National Company Law Tribunal, New Delhi Bench,

Court-IV), admitting Section 7 application filed by the IDBI Trusteeship

Services Limited in C.P. (IB) No.445/2023 and C.P. (IB) No.446/2023,

respectively.

2. Brief facts giving rise to these appeals are:

i. Shree Vardhaman Buildrop Pvt. Ltd., the principal borrower entered

into Debenture Subscription Agreement with debenture holder

company, DSS Infrastructure Private Limited and the promoters.

ii. The debenture holder agreed to disburse a sum of ₹35 crore to Shree

Vardhaman Buildrop Pvt. Ltd. DSS Infrastructure Pvt. Ltd., the

subsidiary company of Shree Vardhaman Buildprop Pvt. Ltd. stood as

corporate guarantor in the above transaction.

iii. M/s. Shree Vardhman Buildprop Pvt. Ltd. has been developing a low

cost/affordable housing project called Shree Vardhman Mantra project

on land measuring 11.262 acres situated at Village Badshahpur, Sector

67, Gurgaon, Manesar.

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024

3 of 14 iv. In the project, there were 1203 units out of which 1199 units were

already sold, and there were four unsold units only.

v. In the year 2016, occupancy certificate was applied which could be

received only on 23.07.2021.

vi. The principal borrower could not make payment of interest or principal.

Project Revenue Escrow Account dated 18.07.2016 was also executed

among the promoters of the corporate debtor and Kautilya Finance

through its debenture trustee IDBI Trusteeship Services Limited.

vii. Between the period June 2016 and January 2021, various amount

became due and payable towards the principal and interest in respect

of the debentures from the principal borrower. Shree Vardhaman

Buildrop Pvt. Ltd., however, the payment was being delayed on one

pretext or another.

viii. Default notice dated 05.08.2019 and 18.11.2020 was issued against

Shree Vardhaman Buildrop Pvt. Ltd. who failed to honour the

repayment commitment.

ix. Vardhman approached the debenture holders and requested to revise

the repayment schedule in respect of debenture by executing a fresh

Debenture Trust Deed (DTD).

x. On 02.02.2021, debenture trustee, Shree Vardhman Buildrop Pvt. Ltd.,

suspended director of the corporate debtor and corporate guarantor

entered into fresh debenture trust deed (second DTD), where parties

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024 4 of 14 revised the repayment schedule for payment of interest and redemption

amount of the 35 debentures. Even after revision of the repayment

schedule, Shree Vardhman Buildrop Pvt. Ltd. failed to repay in terms

of the second DTD from first due date i.e., 31.03.2021.

xi. The debenture holder presented the post-dated cheques handed over

by Shree Vardhman Buildrop Pvt. Ltd. towards the payments of interest

and redemption amount, which got dishonoured for reasons of funds

insufficient.

xii. Legal notice was issued on 20.01.2023, under Section 138 of the

Negotiable Instrument Act. Reply to legal notice was issued where

Shree Vardhman Buildrop Pvt. Ltd. admitted liability towards

debenture holders.

xiii. The IDBI Trusteeship Services Ltd. vide notice dated 16.06.2023 called

upon Shree Vardhman Buildrop Pvt. Ltd. to discharge outstanding

liability of ₹57, 87,76,971/- as on 31.03.2023.

xiv. The IDBI Trusteeship Services Ltd. vide notice dated 06.07.2023,

invoked the corporate guarantee given by the DSS Infrastructure Pvt.

Ltd. and ask them to pay an amount of ₹60,07,19,783/- along with the

future interest within seven days.

xv. Section 7 application was filed against Shree Vardhman Buildrop Pvt.

Ltd. on 21.07.2023, on which C.P. (IB) No. 445/2023 was registered.

Section 7 application was filed against DSS Infrastructure Pvt. Ltd. on

02.08.2024 on which C.P. (IB) No. 446/2023 was registered.

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024 5 of 14 xvi. In Section 7 application notices were issued by the adjudicating

authority. Shree Vardhman Buildrop Pvt. Ltd. and DSS Infrastructure

Pvt. Ltd. filed their replies in respective Section 7 application.

xvii. Adjudicating authority after hearing both the parties vide order dated

29.04.2024, admitted C.P. (IB) No. 445/2023 against the corporate

debtor, Shree Vardhman Buildrop Pvt. Ltd. and by order dated

07.05.2024, admitted Section 7 application in C.P. (IB) No. 446/2023

against the corporate guarantor, DSS Infrastructure Pvt. Ltd. The

suspended Directors of Shree Vardhman Buildrop Pvt. Ltd., as well as,

DSS Infrastructure Pvt. Ltd. have filed these two appeals.

3. It shall be sufficient to refer to the pleadings in Comp. App. (AT) (Ins.)

No.1026/2024, for deciding both the appeals. Facts and submissions in both

the appeals being common.

4. Learned counsel for the appellant challenging the order, admitting

Section 7 application submits that when the DTD was executed on

14.06.2016 out of 1203, 1199 units were already sold and the payment to

debenture trustee was to be made from sale of commercial unit and new

tower. Observation of the adjudicating authority that occupancy certificate

having been issued on 23.07.2021 and possession has also been handed over

to 1024 allottees in the project the corporate debtor has failed to regularise

the payment is incorrect observation, amount was not to be paid out of the

units which were already completed and sold. It is submitted that under the

DTD, the movement of money was in the control of debenture trustee. All

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024 6 of 14 monies which are received in the RERA Accounts and Escrow Accounts were

to be operated by debenture trustee itself. Occupancy was applied in 2016

and was received in 2021. A period from 01.11.2017 to 30.09.2020 has been

declared as "zero period" by Director General Town and Country Planning.

Section 7 application has been filed by the trusteeship only with an object to

take the project land. There is insufficient money in the project and if the

project is allowed to be completed by the promoters, the project shall be

completed within 12 months and entire amount/liabilities of the financial

creditors shall be discharged under second DTD, additional money was taken

to pay Department of Town and Country Planning. Initiation of Corporate

Insolvency Resolution Process (CIRP) by the financial creditor is with

malicious intent for mala fide purpose. The financial creditor is keen to push

the principal borrower and corporate guarantor in CIRP. Sufficient amount

is receivable from sale of commercial unit and the new tower. There is also

sufficient cash flow to repay the debt amount of Respondent No.1 with

interest. Mere existence of financial debt and default is not sufficient to

initiate the CIRP. Adjudicating authority was required to apply its mind to

the relevant factors, including the feasibility of initiation of the CIRP.

5. Learned counsel for the financial creditor refuting the submissions of

the appellant submits that the present is a case where after execution of the

DTD on 14.06.2016, no payment towards principal or interest were received

from the principal borrower. The principal borrower again approached for

additional finance on basis of which DTD dated 02.02.2021 was executed by

providing a fresh repayment plan, even after execution of DTD dated

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024 7 of 14 02.02.2021, default was committed and no payments were made by the

principal borrower. Appellant in the appeal is not questioning the debt and

default. When the debt and default is proved as per the law laid down by the

Hon'ble Supreme Court, the Section 7 application has to be admitted.

Corporate guarantor having also failed to make the payment in spite of

invocation of guarantee the CIRP against the corporate guarantor has also

been rightly initiated. Learned counsel for the respondent has referred to the

judgement of the Hon'ble Supreme Court in the matter of 'E.S.

Krishnamurthy & Ors.' Vs. 'Bharathi Hi-Tecch Builders Private Limited'

reported in (2022) 3 SCC 161 and in the matter of 'M. Suresh Kumar Reddy'

Vs. 'Canara Bank & Ors.' reported in (2023) 8 SCC 387. The reason due

to which the corporate debtor could not complete the construction cannot be

a reason for resisting the admission of Section 7 application. The debt and

default is an admitted fact, not a single instalment of principal or interest was

paid in last five years. In the year 2021, additional money was disbursed of

₹15 crore again. No payments have been received, tenure of debenture have

already expired and after giving default notice, proceedings have been

initiated.

6. We have considered the submissions of the counsel for the parties and

perused the records.

7. The present is a case where under the Debenture Trust Agreement,

14.06.2016, debentures of ₹35 crore were issued by the corporate debtor, the

principal borrower and by the second DTD dated 02.02.2021 debentures of

₹15 crore were further issued. No amounts from 2016 to 2023, till the date

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024 8 of 14 of filing the application has been paid by the principal borrower, even after

invocation of the guarantee, the corporate guarantor also did not make any

payment. The debt and default is an admitted fact in the present case to

which even no submissions have been made before this tribunal during

hearing.

8. The submission which has been pressed by the counsel for the

appellant is that in the project which was low cost/affordable housing project,

out of 1203 units, 1199 units were already sold, which fact is captured in the

DTD, hence the payment of the interest and principal was not to come from

the projects which were already completed rather the payment was to come

from sale of the commercial units and new tower, which could not be

constructed due to delay in issuing necessary approvals and permissions.

Submissions which has been pressed by the counsel for the appellant is that

under the DTD money in the different project amount was to be moved on the

instructions by the debenture trustee itself and no money has been siphoned

off by the promoters.

9. The facts as noticed above indicate that for last more than five years,

no payment towards interest or principal has been made. It was principal

borrower who has issued debentures and the liability to pay the principal and

interest cannot be washed of on the ground that project accounts were to be

operated by IDBI Trusteeship Services Ltd.

10. Learned counsel for the respondent has also placed reliance on the

judgement of this Tribunal in Comp. App. (AT) (Ins.) No.146/2025, 'Sandeep

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024 9 of 14 Jain' Vs. 'IDBI Trusteeship Services Ltd. & Anr.', which was also an appeal

filed by suspended director of M/s. Shree Vardhaman Infra Heights Pvt. Ltd.,

challenging an order admitting Section 7 application filed by the same

financial creditor. The submission was raised on behalf of the appellant in

the said case that there was project managing committee constituted to

monitor the project and project monitoring committee consists of financial

creditor who were in majority, hence the corporate debtor could not have been

held liable to discharge of the debt. It was held by this Tribunal that the

constitution of project managing committee to assist and improve the

operation and construction in no manner diminish the obligation of the

corporate debtor to fulfil its payment obligation. In paragraphs 17, 18 & 19

of the judgement following was laid down:

"17. The PMC was constituted for the purpose and object to monitor the project, to improve the sales and collections from the project and completing the construction of the project. PMC was constituted to improve the functioning of company qua the construction of the project. PMC in no manner has undertaken the obligation of the obligors towards repayment which is clearly reflected in Clauses 2.6 and 2.22 as extracted above. We, thus, do not find any substance in the submission of Shri Arun Kathpalia that after constitution of PMC in which there are three members of the financial creditors i.e. majority, blame for non-payment of due amount can be put on the financial creditor itself. The PMC was constituted to assist and improve the operations and construction of the project which in no manner diminish the obligation of the corporate debtor to fulfil its payment obligation. The default in repayment of the obligation by obligors cannot in any manner be put on the financial creditor nor constitution of PMC in any manner affect the obligation or absolve the corporate debtor from its default for repayment of the debt.

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024

10 of 14

18. Counsel for the Respondent is right in his submission that in Section 7 application the Adjudicating Authority was obliged to determine whether default has occurred or whether debt was due as remained unpaid. The Hon'ble Supreme Court in "E.S. Krishnamurthy and Others vs. Bharath Hi- Tech Builders Private Limited- (2022) 3 SCC 161"

referring to the earlier judgment of the Hon'ble Supreme Court in "Innoventive Industries Ltd. vs. ICICI Bank- (2018) 1 SCC 407" held following in paragraph 32:-

"32. In Innoventive Industries [Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, paras 28 and 30 : (2018) 1 SCC (Civ) 356] , a two- Judge Bench of this Court has explained the ambit of Section 7 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 Rohinton F. Nariman, J., the Court has observed : (SCC pp. 438-39, paras 28 & 30) "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 [Ed. : The word between two asterisks has been emphasised in original.] any [Ed. : The word between two asterisks has been emphasised in original.] financial creditor of the corporate debtor -- it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024 11 of 14 proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be.

* * *

30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e. payable unless interdicted 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

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024 12 of 14 proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise."

(emphasis supplied)

19. Subsequent judgment of the Hon'ble Supreme Court in "M. Suresh Kumar Reddy vs. Canara Bank and Ors.-(2023) 8 SCC 387" also decode the same proposition. It is useful to extract paragraph 11 of the judgment which is as follows:-

"11. Thus, once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the application under Section 7. "Default" is defined under sub-section (12) of Section 3 IBC which reads thus:

"3. Definitions.--In this Code, unless the context otherwise requires--

* * * (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;" Thus, even the non-payment of a part of debt when it becomes due and payable will amount to default on the part of a corporate debtor. In such a case, an order of admission under Section 7 IBC must follow. If NCLT finds that there is a debt, but it has not become due and payable, the application under Section 7 can be rejected. Otherwise, there is no ground available to reject the application."

11. The appeal was dismissed by this Tribunal by the judgement dated

10.01.2025 against which Civil Appeal No.2640/2025, 'Sandeep Jain' Vs.

'IDBI Trusteeship Services Ltd.' has also been dismissed by Hon'ble

Supreme Court on 21.02.2025.

12. We thus do not find any substance in the submission that the project

account was to be operated under the instruction of IDBI Trusteeship, hence

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024 13 of 14 the corporate debtor is not liable for its payment obligation. The present is a

case where after receiving the amount by virtue of issuance of debentures in

the year 2016 and again in 2021 no payment towards principal and interest

have been made. The adjudicating authority has not committed any error in

admitting Section 7 application against the principal borrower and the

corporate guarantor by the impugned orders dated 29.04.2024 and

07.05.2024.

We thus do not find any merit in any of the appeals. Both the appeals

are dismissed.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

NEW DELHI

24th April, 2025

himanshu

Comp. App. (AT) (Ins.) No. 1026 & 1055 of 2024 14 of 14