Abhigyan Developers Pvt. Ltd. vs Shreepati Build Infra Investment Ltd.

Per: Shyam Babu Gautam, Member (Technical)

This is a Company Petition filed under section 7 (“the Petition”) of the Insolvency and Bankruptcy Code, 2016 (IBC) by Abhigyan Developers Pvt. Ltd. ("the Financial Creditors"), seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Shreepati Build Infra Investment Ltd. ("the Corporate Debtor").

The Corporate Debtor was on 29.03.2012 under the Companies Act, 1956. Its Corporate Identity Number (CIN) is U70109GA2012PLC007213. Its registered office is at Row House D, Castle Rock- Land Scape town, Odxel, Goa, Dona Paul Police Station, North Goa 403004.

The applicant has entered into an agreement with the Respondent for purchase of flat after the payment of a sum of Rs. 3,50,00,000/-(Three Crore Fifty Lakhs only) in on “Shreepati Estates”. However, as all the permissions and/or approvals were not sort properly, the Corporate Debtor was unable to commence the construction for the same. Subsequently, the said amount was converted into a loan account by the Corporate Debtor and the same was to be repaid along with agreed interest.

The breakup of payments made by the Applicant (Abhigyan Developers Pvt. Ltd.) to the Respondent (Shreepati Build infra Investment Ltd.) through RTGS is as under:

After recording of the receipt of a sum of Rs. 3,50,00,000/-, the Applicant and the Respondent came under an agreement dated 15.02.2011 for purchase of flats being Flat No. 4201 admeasuring 4232.15 sq. ft. (Built up area) and Flat No. 4202 admeasuring 4694.38 sq. ft. (Built up area) both on 42^nd flor of a proposed building named “Shreepati Estate”.

On 01.04.2012, the Respondent issued a letter confirming the receipt of Rs.3,50,00,000/- in its books of account to the Applicant. Subsequently, on 31.03.2015, a letter was issued by Shreepati Build Infra Investment Ltd. to Abhigyan Developers Pvt. Ltd that in case if the Respondent is unable to obtain requisite permission from the appropriate authorities the entire sum of Rs.3,50,00,000/- (Three Crore Fifty Lakhs only) shall be repaid along with 12% cumulative interest per annum. A Copy of letter is annexed as “Annexure – F”.

By letter dated 8^th July 2016, the Respondent confirmed conversion of payment made towards booking of flat to a loan account and assured the Applicant that the amount shall be repaid with a mutually agreed interest/compression before 30.08.2016. A Copy of letter is annexed as “Annexure – H”. However, no payment was received by the Applicant in this regard. On 30^th September 2017, the Respondent again admitted the amount due to the Applicant along with the cumulative interest that also remained unpaid, seeking further time to repay the same along with interest. A Copy of letter is annexed as “Annexure – I”.

On 31.03.2018, the Respondent informed the Applicant through letter confirming that the sum of Rs 3,50,00,000/- received during the period of 2009-2010 is due and would be repaid back with 15% cumulative interest, compounded quarterly from the date of investment till the date of Payment. However, no payment was made till date. A Copy of letter is annexed as “Annexure – J”.

The table mentioned herein beneath shows the outstanding loan amount along with interest:

Date of Default as submitted by the Applicants is on 30.08.2016.

The Applicant in his Application has provided with the following documents as Annexures:

The Applicant has relied on the judgement of the Hon’ble NCLAT in G. Sreevidhya v. M/s Karismaa Foundations Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 494 of 2018] (@paragraph 8 and 9) to submit that an advance for a flat, if converted to a loan by the Corporate Debtor, is a financial debt and if the same is unpaid, the application is liable to be admitted.

Further, the Financial Creditor has also placed reliance on the judgement of the Hon’ble Supreme Court of India in Orator Marketing Pvt. Ltd. v. Samtex Desinz Pvt. Ltd. (2021 SCC Online 513) (@paragraph 31) to demonstrate that default means a non-payment of debt in whole or in part. Further, the Hon’ble Supreme Court was pleased to hold that the “financial debt” in Section 5(8) of the IBC does not expressly exclude an interest free loan. In line to the above Judgement, the Financial creditor claims that the Corporate Debtor has admitted that the sum of Rs. 3,50,00,000/-will be paid along with 15% cumulative interest compounded quarterly, and therefore the argument that the Financial Creditor has not booked any interest under such loan amount has no merit.

Relying on the aforesaid grounds, the Applicant all ingredients of Section 7 of the IBC stand satisfied namely:

In order to establish that the Corporate Debtor is entitled to file the Petition, the Corporate Debtor relies on the Applicant’s submission in Paragraph 5b at Pg. 4 of Applicant’s Affidavit in Rejoinder that it is “an allottee within the meaning of Section 2(d) of the Real Estate (Regulation and Development) Act, 2016 and therefore is a ‘financial creditor’ who is owed a ‘financial debt’ as per provisions of Section 5(7) read with Section 5(8)(f) of the IB Code 2016.” This Affidavit was filed on 2^nd December 2019. The Corporate Debtor submits that as a result of amendment which came into effect from 28^th December 2019 into the Insolvency and Bankruptcy Code, 2016 as per provisions of Section 5(7) read with Section 5(8)(f), 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 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. In Paragraphs 7 to 9 of its Further Affidavit dated 6^th February 2021, the corporate debtor has given the details of the number of units to be constructed. A total of 2699 units are to be constructed, of which 2139 units have been allotted. Even if one was to consider only the free sale units, out of 631 free sale units only 71 units have in all been allotted. Therefore, at least 8 allottees ought to have filed the application. The present application has been filed by a single allottee. The Applicant has not taken any steps to comply with the amended provision of S. 7 of the Code, and the application is therefore deemed to be withdrawn before admission.

The Corporate Debtor submits that the amendments to Section 7 of the Code were challenged in the Hon’ble Supreme Court of India, and by a judgment dated 19^th January 2021, in the matter of Manish Kumar v. Union of India [(2021) 5 SCC 1], the Hon’ble Supreme Court of India upheld the amendments and gave a period of two weeks from the date of the judgment for Applicants to comply with the amended provisions.

The Corporate Debtor relies on the case of Nagindas Ramdas v. DalpatramIchharam [(1974) 1 SCC 242], where the Hon’ble Supreme Court of India held, at Paragraph 27:

The Corporate Debtor put reliance on an order date 16^th July 2021 in the case of Mrs. Rajshree Vora & Anr Versus Makwana Properties Pvt. Ltd., the NCLT Mumbai Bench III dismissed a similar case holding that a Petition filed by a single allottee is not maintainable. In line to this, the Corporate debtor request for Dismissal of the Petition on grounds that the same is deemed to be withdrawn before admission.

Coming on the issue of Claim of the Applicant that a Debt is due and owing to him is not correct, the Corporate Debtor relies on first letter dated 31^st March 2015 which according to him makes it very clear that the money would be transferred to a loan account only for a temporary basis till the project is approved and starts. The Respondent submitted that the letter in turn gave the Applicant an opportunity to exit from the project during the period of 3 months after the project had started. In such case, the earnest money would have to be repaid with interest. further, the Corporate Debtor Submitted that the letter clearly states “it has also been decided that, as soon as the project starts within 3 months the investments would be realized by giving an exit incase to be decided by the investor. Incase he decides to retain, it will be his choice. The Developer will not charge transfer fee or any sort of transfer charges would be taken by the Investor incase he decides to exit from the above project and transfer his rights to the purchaser or any 3^rd Party.” Moreover, “The above arrangement does not relinquish the right of the Investor from the Permanent Allotment of the Flat on the day the project if approved and commenced at the agreed rate”. The Corporate Debtor also enclosed a letter of loan confirmation was for the Applicant’s confirmation.

The Corporate Debtor was of a view that in order to exit from the project, the Applicant would necessarily have to cancel the agreement for purchase or transfer the same to a 3^rd Party who would then be liable to pay the balance consideration. It is only if the Applicant had exercised such option in writing and had cancelled the agreement dated 15^th March 2011 that could he seek repayment.

Relying on the aforesaid submissions, the Corporate Debtor submits that the Agreement for Sale continues to hold the field and the Applicant is bound and liable to pay the balance consideration as per the terms of the Agreement. The project is underway, and as stated at Paragraph 26 / Pg. 12 of the Affidavit in Reply dated 4^th November 2019, the flats will be constructed and delivered to the Applicant on the terms agreed by the parties.

Relying on paragraph 26 at page 13 of the Affidavit in Reply the Applicant, the Applicant has not treated the said amount as a debt but as a long-term capital advance and the same is not due. The Applicant has not shown any interest income towards the same in its Profit and Loss Account. Thus, The Corporate Debtor contends that neither the Applicant nor the Corporate Debtor have treated the said sum of Rs. 3.5 crores as a loan in their books of accounts.

The Corporate Debtor submits that the Applicant has wrongly claimed cumulative interest at 15%. The interest component was never expressly crystalised by & between the parties.

The Corporate Debtor submits that the reason for delay are not on account of the him and that if any orders are passed in the present Petition, great prejudice will be caused not only to the tenants and free sale purchasers, but also to the MCGM, MHADA and slum dwellers. The Corporate Debtor relies on the Hon’ble Supreme Court of India in Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors. [(2019) 8 SCC 416] which held in Paragraph 50 that “under S. 65 of the Code, the real estate developer can also point out that the insolvency resolution process under the Code has been invoked fraudulently, with malicious intent, or for any purpose other than the resolution of insolvency. This the real estate developer may do by pointing out, for example, that the allottee who has knocked at the doors of the NCLT is a speculative investor and not a person who is genuinely interested in purchasing a flat / apartment. They can also point out that in a real estate market which is falling, the allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/apartment under RERA but wants to jump ship and really get back by way of this coercive measure monies already by it.”

The Corporate Debtor submits that by this Petition, the Applicant is attempting to wriggle out of its obligation to pay the sum of Rs.9.57 crores against possession by seeking to recover a sum of Rs. 12,42,34,122 as on 30^th June 2018 against the earnest money paid by it of only Rs. 3,50,00,000 in terms of clause 16(1)(b) of the agreement. And submits that even if the application is not deemed to have been withdrawn, the same ought to be dismissed on account of the fact that it is filed for oblique purposes.

The first is that of the NCLAT in the case of G. Sreevidya v. M/s Karismaa Foundations Ltd. [Order dated 19^th March 2019 in Company Appeal (AT) (Insolvency) No. 494 of 2018]. The Corporate Debtor submits that the facts of that case are totally different from the present facts. In that case, the real estate developer could not complete the project and agreed to repay the earnest money deposit with interest. Some amount of interest was actually repaid. A cheque dated 30^th June 2015 for the balance loan amount of Rs. 1.35 crores was issued but was dishonored. It was in view of the dishonor of the cheque on the grounds of “insufficient funds” that it was held that the applicant therein was a financial creditor. See paragraph 3 of the judgement.

The next judgment relied upon by the Applicant is in the case of Orator Marketing Pvt. Ltd. v. SamtexDesinzPvt. Ltd. [2021 SCC OnLine SC 513]. Reliance was placed upon paragraph 31 thereof in support of the proposition that a ‘Financial Debt’ would have to be construed to include interest free loans advanced to finance the business operations of a corporate body. It is submitted that the said judgment has no application to the present case as in the present case, the said sum of Rs. 3.5 crores was not taken by the corporate debtor in order to finance the project.

The Financial Creditor submits that Corporate Debtor has made a misplaced reliance to paragraph 5 (b) (@pg. 4 of rejoinder) of the rejoinder filed by the Financial Creditor to contend that the FC has purportedly admitted to be an “allottee”. This submission as to the Financial Creditor is false and would appear from the records of the case.

Furthermore, reference is made to paragraphs 5(c) to 5(i) (@pg 4-6 of the rejoinder) 6(a) to 6(d) (@pg. 7-8 of rejoinder) of the Rejoinder by the Applicant to demonstrate that the Financial Creditor has consistently maintained that it is the Corporate Debtor’s acts that rendered the amount given as advance consideration for a flat as a “financial debt” under Section 5 (8) of the IBC and the FC is a “Financial Creditor” under Section 5(7) of the IBC.

The Financial creditor submits that the Corporate Debtor has failed to explain the admissions contained in the aforesaid Admission Letters. Further, in the reply filed by the Corporate Debtor, the Corporate Debtor has admitted to the issuance of the Admission Letters. It is respectfully submitted that, upon such admission, there is no plausible defence that the Corporate Debtor can have.

During the course of arguments, the CD had relied on Nagindas Ramdas v. DalpatramIchharam [(1974) 1 SCC 242] at paragraph 24 to state that admissions, if true and clear, are by far the best proof of facts admitted. This judgement was ostensibly relied upon to falsely demonstrate that the Financial Creditor had purportedly admitted to being an ‘allottee’. As stated aforesaid, this submission of the Corporate Debtor is false, misplaced and contrary to the records. On the other hand the Financial Creditor relies on this judgment to state that in light of the pleadings of the Corporate Debtor, the Corporate Debtor has admitted that there has been a default of a financial debt due and payable to the Financial Creditor.

It is further submitted that the defence put forth by the Corporate Debtor that the Financial Creditor is an “allottee” in a real estate project is merely a red herring. The reference to Pioneer Urban Land and Infrastructure Limited v. Union of India is entirely misplaced since, these judgments deal with the rights and obligations of an ‘allottee’ in a real estate project. As stated above, the CD has admitted converting the advance amount into a loan payable and the CD has admitted that the flats will not be handed over and the allotment of flats in favour of the FC stands cancelled.

We have heard the arguments of Financial creditor and Corporate Debtor and perused the records.

From the face of all the arguments advanced by the Applicant, it is clear that there exist a Debt and Default. The documents relied upon namely letter dated 31.03.2015 annexed as “Annexure F” is a substantial proof that Debt is there when, the Applicants amount was transferred to loan account and subsequently Default is clearly attributable from letter Dated 08.07.2016 Annexed as “Annexure H”.

We also consider the facts of the case in the lights of the Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. & Ors. Vs. Union of India & Ors. [Writ Petition (Civil) No. 99 of 2018] upholding the Constitutional validity of IBC, the position is very clear that unlike Section 9, there is no scope of raising a ‘dispute’ as far as Section 7 petition is concerned. As soon as a ‘debt’ and ‘default’ is proved, the adjudicating authority is bound to admit the petition.

The Financial Creditor has proposed the name of Mr. Rakesh Kumar Tulsyan, Registration No. IIBI/IPA-001/IP-P01144/2018-19/11970, as the Interim Resolution Professional of the Corporate Debtor. He has filed his written communication in Form 2 as required under rule 9(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 along with a copy of his Certificate of Registration.

The application made by the Financial Creditor is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is in excess of minimum amount stipulated under section 4(1) of the IBC. Therefore, the debt and default stands established and there is no reason to deny the admission of the Petition. In view of this, this Adjudicating Authority admits this Petition and orders initiation of CIRP against the Corporate Debtor.

It is, accordingly, hereby ordered as follows: -