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Judgment
Ashok Bhushan, J.
This Appeal has been filed by the Appellant challenging the Order dated 28th July, 2023 passed by the National Company Law Tribunal, Mumbai Bench, Court-II (hereinafter referred to as “The Adjudicating Authority”) rejecting the Section 7 Application filed by the Appellant.
Brief facts of the case are:-
On 15th February, 2011, the Appellant entered into an Agreement with Respondent for purchase of Flats bearing Flat No. 4201 and Flat No. 4202 on 42nd Floor of Shreepati Estate at Mumbai.
ii) Under the Agreement, the Appellant had paid an amount of Rs. 3,50,00,000/- to the Respondent. A Letter dated 31st March, 2015 was written by Respondent No. 1 to the Appellant informing that the investment made by the Appellant shall be transferred in the Loan Account on temporary basis till the project is approved and starts. Respondent No. 1 also wrote a letter dated 31st March, 2018 to the Appellant in continuation of Letter dated 31st March, 2015.
iii) Appellant filed CP(IB)4149(MB)(C-II)/2018 under Section 7 of Insolvency and Bankruptcy Code, 2016 alleging financial debt with regard to which default was committed by the Corporate Debtor. Amount claimed in Part-IV was Rs. 3,50,00,000/- with 15% cumulative interest. Section 7 Application was admitted by Order dated 29th October, 2021 passed by the Adjudicating Authority.
iv) Company Appeal (AT) Ins. No. 939 of 2021 was filed by the Suspended Director of the Corporate Debtor challenging the Order of the Adjudicating Authority. Company Appeal (AT) Ins. No. 939 of 2021 came to be decided by this Appellate Tribunal by Order dated 07th March, 2022. Appellate Tribunal took the view that issue of non-satisfaction of statutory provision of 3rd Proviso under Section 7(1) was not considered adequately by the Adjudicating Authority hence the matter was remanded to the Adjudicating Authority to consider the objection about the maintainability as required under 3rd Proviso to Section 7(1) of the Code.
Against order dated 07th March, 2022 passed by this Tribunal, Appellant filed an Appeal being C.A. No. 3184 of 2022 which came to be dismissed as withdrawn vide Order dated 05th September, 2022. After the remand order passed by this Tribunal, the Adjudicating Authority by the Impugned Order dated 28th July, 2023 heard the parties and held that application for initiation of Corporate Insolvency Resolution Process filed by the Appellant was required to be filed by not less than 100 allottees under same Real Estate Project or not less than 10% of total number of such allottees in pursuance of amendment which came into effect on 28th December, 2019, Applicant has not taken steps to comply with the amended provision of Section 7 hence the Application is not maintainable.
vi) Aggrieved by the order passed by the Adjudicating Authority on 28th July, 2023 holding the application filed by the Appellant as not maintainable, this Appeal has been filed.
We have heard Mr. Gopal Jain, Sr. Advocate for the Appellant as well as Learned Sr. Counsel-Mr. Arun Kathpalia appearing for the Respondent.
Mr. Gopal Jain, Learned Sr. Counsel submits that it is true that initially an agreement was entered between the Appellant and the Corporate Debtor for allotment of two flats in the project of the Corporate Debtor however project could not be commenced hence the Corporate Debtor himself vide his letter dated 31st March, 2015 offered to transfer the amount in the Loan Account hence the amount which was initially given for allotment in the Real Estate Project stood converted as financial debt in pursuance of Letter dated 31st March, 2015. The balance confirmation was also issued by the Corporate Debtor showing the amount as loan. It is submitted that the Adjudicating Authority committed error in rejecting the Application by the Appellant under Section 7 whereas Appellant was no more allottee and non-compliance of Section 7 of the Code as amended was not applicable. It is further submitted that remand made by this Tribunal vide its Judgment and Order dated 07th March, 2022 was open remand and all issues were required to be considered by the Adjudicating Authority and the Adjudicating Authority has not taken into consideration that Appellant is now a financial creditor by virtue of transfer of the amount in the Loan Account.
Mr. Arun Kathpalia, Learned Sr. Counsel for the Respondent refuting the submissions of Learned Sr. Counsel for the Appellant submits that Appellant was allottee with whom corporate debtor entered into an agreement for allotment of two flats and amount of Rs. 3,50,00,000/- was paid towards the aforesaid real estate project for booking of two flats. It is submitted that Letter dated 31st March, 2015 given by the Corporate Debtor did not change the status of Appellant. It is further submitted that issues sought to be raised in this Appeal are fully covered and concluded by this Appellate Tribunal in its judgment dated 07th March, 2022. In view of the Judgment of this Tribunal dated 07th March, 2022 it is not open for the Appellant to claim that he is not an allottee. It is further submitted that against the Judgment of this Tribunal dated 07th March, 2022, Civil Appeal 3184 of 2022 was filed where all the issues were raised by the Appellant which Appeal has been dismissed as withdrawn by Order dated 05th September, 2022.
We have considered the submissions of Learned Sr. Counsel for the parties and have perused the record.
Application under Section 7 which was filed by the Appellant was on the strength of amount of Rs. 3,50,00,000/- which was paid by the Appellant for allotment of two flats bearing Flat No. 4201 and 4202 in 42nd Floor in the proposed building namely Shrepati Estate. An agreement dated 15.02.2011 was also entered between the parties.
Learned Counsel for the Appellant has placed much reliance on Letter dated 31st March, 2015 sent by the Corporate Debtor. It is submitted that Letter dated 31st March, 2015 was considered by this Tribunal in Appeal which was filed by the Respondent in C.A.(AT) Ins. No. 939 of 2021 decided on 07th March, 2022. This Tribunal has taken the view that application filed by the Appellant under Section 7 was required to fulfil the requirement as provided under 3rd Proviso to Section 7(1) of the Code. Learned Counsel for the Respondent has rightly referred to Paragraph 18 and 19 of the Judgment of this Tribunal where agreement dated 15.02.2011 as well as Letter dated 31st March, 2015 was noted and considered. Paragraph 18 and 19 are as follows:
“18.We have noticed that Respondent No.1 signed an agreement with the Corporate Debtor on 15.3.2011(supra) for purchase of two flats. Admittedly, the agreement provided that the flat purchaser will be given occupation/possession of the flat after construction, when the flat purchaser shall pay to the Corporate Debtor the balance amount of Rs. 9,57,00,000 and also a sum of Rs. 23,47,500 towards membership of the project. The letter dated 31.3.2015 states that the project could not take off for want of approvals from various authorities especially jail authorities, and since no sales should be done prior to approval of the project, it is in such a situation that the corporate debtor made an arrangement to transfer the amount deposited by the Respondent into a loan account in favour of Shreepati Investment (RRC) on temporary basis till the project is approved and starts.
19.Furthermore, the same letter dated 31.3.2015 mentions that this arrangement will not relinquish the right of the investor from the permanent allotment of the flat on the day the project is complete at the agreed rate. In view of such statements in the letter dated 31.3.2015, we are of the view that since the requisite and necessary approvals for starting the Shreepati Estates project could not be obtained by the corporate debtor, and since it had already accepted an advance of Rs. 3.50 crores from the Respondent No. 1, it had to take recourse to transferring the said amount of 3.50 crores on a temporary basis in a loan account. That no interest either accrued or was applicable on this loan amount is evidenced by the fact that no such interest amounts are included in the account statements maintained by the corporate debtor which are attached from page 112 to page 116 of the Appeal Paperbook. Further, the promise of the corporate debtor for making good the principal booking amount alongwith interest, as mentioned in the letter dated 31.3. 2015 (supra), is incumbent on the situation if the proposal of Shreepati Estate is not approved for any reason. Thus, it is quite clear to us that the amount of Rs. 3.50 crore was not a loan given by Respondent No.1 to the Corporate Debtor which would have earned a pre-decided rate of interest, but was a deposit amount against booking of two flats which had been transferred on temporary basis in a loan account for saving the Corporate Debtor from falling foul of any law or accounting standards, and the same amount would have been transferred back as booking amount for flats upon completion and handing over possession of the flats.”
This Tribunal noted the amendment in Section 7 which came in to effect on 28.12.2019, at the time when Section 7 Application filed by the Appellant was pending. This Tribunal in its judgment in paragraph 24 and 25 laid down following:
“24.On the basis of aforementioned discussion, we are of the clear opinion that third proviso to Section 7 (1) of IBC which lays down that if the applicant does not modify his application to comply with the requirements of the first or second proviso within 30 days of the commencement of the said Amendment Act to IBC, which came into effect on 28.12.2019, the application shall be deemed to be withdrawn before its admission. This statutory provision is quite 24. On the basis of aforementioned discussion, we are of the clear opinion that third proviso to Section 7 (1) of IBC which lays down that if the applicant does not modify his application to comply with the requirements of the first or second proviso within 30 days of the commencement of the said Amendment Act to IBC, which came into effect on 28.12.2019, the application shall be deemed to be withdrawn before its admission. This statutory provision is quite clear and makes it obligatory on the part of their real estate allottee to modify his application in accordance with the first and second proviso of Section 7 (1). As facts of the case, and the arguments advanced by the parties, show that it was not done by the real estate allottee/applicant. In our view, this is a basic infirmity which strikes at the very root of the maintainability of Section 7 application.
25.In view of our inference that issue of non-satisfaction of statutory provision of third proviso to section 7(1) was not considered adequately and dealt with in the Impugned Order, we set it aside and remand the case to the Adjudicating Authority to consider the objection about maintainability as required under third proviso of Section 7(1) and any other objection/issues raised by the parties and pass a speaking order regarding admission/rejection of the section 7 application. Needless to add, it shall be open to the parties to enter into any settlement in case they so desire.”
In the Appeal which was filed by the Corporate Debtor challenging the admission order under Section 7 it was held that maintainability of the Application has to be examined as per Section 7 (1) as amended and the Adjudicating Authority after the Order dated 07th March, 2022 examined the issue of maintainability of application and held that Appellant having not complied with the provisions of Section 7(1) as amended, application is not maintainable. It is useful to extract the paragraph 5 of the Impugned Order which is as follows:
“5.After hearing the parties and on perusal of the main company petition (CP(IB)4149(MB)/2018) including other material on record and the order dated 07.03.2022, passed by Hon’ble NCLAT in Company Appeal (AT) Ins. No. 939 of 2021, we are of the opinion that the actual nature of transaction between the parties was in the capacity of builder and allottee, based on the agreement dated 15.02.2011. Further any agreement cannot change the basic nature of transaction and the Financial Creditor over here will remain an allottee within the meaning of Section 2(d) of the Real Estate (Regulation and Development) Act, 2016. Therefore, it will also remain as a “financial creditor” who is owed a “financial debt” as per provisions of Section 5(7) read with Section 5(8) of the IB Code 2016. However, as a result of amendment in Section 5(7) read with Section 5(8)(f) of the IBC, 2016 which came into effect on 28.12.2019, 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. The main Company Petition in the instance case was filed by a single allottee. The Applicant has not taken any steps to comply with the amended provisions of Section 7 of the Code, and the application is, therefore, deemed to be withdrawn before admission or the petition could have been filed jointly by not less than one hundred allottees or not less than 10% of the total number of allottees under the same real estate project. So, in view of the above, CP(IB)/4149/2018 is dismissed as non-maintainable. Accordingly, IA/739/2022 is allowed as disposed of in aforesaid terms.”
The Adjudicating Authority rightly held that Company Petition has been filed by a single allottee and there is non-compliance of provision of Section 7 of the Code as amended with effect from 28.12.2019, the application is not maintainable. Section 7(1) of the Code is as follows:
“Section 7: Initiation of corporate insolvency resolution
process by financial creditor.- (1) A financial creditor either by itself or jointly with 1[other financial creditors, or any other person on behalf of the financial creditor, as may be notified2 by the Central Government] may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.
[Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6A) of section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent. of the total number of such creditors in the same class, whichever is less:
Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less:
Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission.]
Explanation.—For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.”
Application filed by the Appellant being pending at the time when amendment under Section 7 sub-section (1) was enforced with effect from 28/12/2019 it was incumbent on Appellant to comply with the provisions as required under statutory provisions. Appellant having not complied with the said provision, no error has been committed by the Adjudicating Authority in holding the Section 7 Application not maintainable.
Learned Counsel for the Appellant submitted that in pursuance of the remand order passed by this Tribunal dated 07th March, 2022, all issues were required to be examined by the Adjudicating Authority including that Appellant is no longer allottee after Letter dated 31st March, 2015. The submission on basis of Letter dated 31st March, 2015 was also noticed by this Tribunal in its judgment dated 07th March, 2022 and despite the said Letter this Tribunal took the view that that maintainability has to be examined as per Section 7(1) as amended.
The Adjudicating Authority in the Impugned Order has considered the submissions raised by the Appellant in support of the Application and has rightly negated the submission of the Appellant that he is no longer an allottee. The Adjudicating Authority held that basic nature of transaction cannot be changed and the Appellant shall remain as allottee.
We do not find any error in the Order impugned passed by the Adjudicating Authority holding the Application filed by the Appellant as not maintainable. There is no merit in the Appeal, the Appeal is dismissed.