Housing And Urban Development Corporation Ltd. vs Ramnath Developers Pvt. Ltd. & Ors.

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.

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 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.

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.

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.

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 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.

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.

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.

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.

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.

The said order dated 08.03.2016, passed by the DRT was challenged before the DRAT, Mumbai which is stated to be pending.

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.

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 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.

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.

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 Corporate Debtor and Ganga Ram Agarwal was appointed as an Interim Resolution Professional (IRP).

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.

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%.

Ganga Ram Agarwal was confirmed as Resolution Professional (RP) in the 1^st 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 4^th 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 5^th 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.

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:

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

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.

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 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.

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.

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.

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.

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 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.

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 12^th Meeting held on 16.02.2021.

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.

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

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 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.

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.

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.

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.