IDBI Trusteeship Services Limited vs M/s Shree Vardhman Infraheights Private Limited

This is an Application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 by Financial Creditor IDBI Trusteeship Services Limited in the capacity of Debenture Trustee for and on behalf of Kautilya Finance BV (hereinafter referred as ‘FC’) seeking to initiate Corporate Insolvency Resolution Process (“CIRP”) against M/s Shree Vardhman Infraheights Private Limited (“Corporate Debtor” hereinafter referred to as ‘CD’) for the total amount of debt granted Rs. 125,00,00,000/- and amount claimed to be in default is Rs. 263,00,46,668/- as on 30.09.2023. The Registered Office of the Financial Creditor is at Concertgebouwplein, 13H, 1071 LL, Amsterdam, Netherlands. M/s IDBI Trusteeship Services Limited is the Authorized Person to submit this application on behalf of Kautilya Finance BV as its Debenture Trustee.

The CD was incorporated under the Companies Act, 1956 on 19.07.2011 having CIN: U70101DL2011PTC222557. Its Registered Office is at 302, Third Floor, Indraprakash Building, 21, Barakhamba Road, New Delhi-110001. The CD is a Company in the business of development, marketing and sale of Real estate Project. Its Corporate Office is at Raheja Mall, Sohna Road, Gurugram. The Authorized Share capital of CD is Rs. 1,00,000/- and its paid-up share capital is Rs. 1,00,000/-.

An IA namely IA 3961/2024 has been filed by Applicant/FC under Rule 11 of NCLT Rules, 2016 seeking the following reliefs:

Another IA namely IA 1527/2024 has been filed by Applicant/FC under Section 60 (5) of IBC r/w Rule 11, NCLT Rules, 2016 seeking replacement of proposed interim resolution Professional in Part III of the captioned petition. Both the IAs relate to the main petition, hence we are inclined to pass a common order for both the IAs as well.

BRIEF SUBMISSIONS OF LEARNED COUNSEL APPEARING FOR THE APPLICANT/FINANCIAL CREDITOR ARE AS FOLLOWS:

Hence, in the case of repeated and continuing default on the unpaid debt, the application for initiating IBC proceedings are filed.

We have heard the learned Counsels appearing for the Applicant and CD and perused the petition & its reply along with annexed documents. During the proceedings Respondents undertook to file an additional note on the all the proceedings pending between the parties before various courts and details of the amount lying in three escrow accounts as on date along with number of unsold units which are ready for sale. In compliance of the same, Applicant have filed two volumes of new documents dated 30.08.2024 and the Respondents have filed three volumes of new documents dated 23.08.2024. Thereafter both the parties were directed to file consolidated note and both the consolidated notes considered by this Adjudicating Authority and the submissions made by both parties are reproduced at relevant places in this section. List of pending proceedings between the parties as submitted in the consolidated note dated 20.09.2024 by the CD is reproduced below:

Applicant in its consolidated note dated 19.09.2024 submitted that CD had expressly acknowledged in the Acknowledgement letter dated 23.11.2020 that the debt is due and payable. Relevant portion of the acknowledgement letter is reproduced below:

Applicant in its consolidated note relied on clause II & IV of the acknowledgement letter. Further, Applicant cited relevant excerpt from the Amendment to the restated and amended DTD dated 23.11.2021 to contend the acknowledgement and obligation on part of CD. Relevant part is reproduced below:

Further, Applicant submitted that Settlement agreement does not amount to Applicant having any control over the project and that this contention is entirely misplaced. Clause 2.6 and 2.22 of the settlement agreement is reproduced below:

Further, as per the directions of this Adjudicating Authority, Applicants have given the details of the cash balance in the three escow accounts in their consolidated note which are reproduced below:

CD in its consolidated note cited the judgement of IDBI Trusteeship Services Limited versus Abhinav Mukherjee and Others [2022 SCC Online NCLAT 267] to contend that the person who is in a position to directly and indirectly control the management and the policy decisions of the CD are not the financial Creditor. Relevant paras of the judgement is reproduced below:

Further, CD strongly contended that the Applicant has filed multiple cases before various forums and that the Applicant is misleading this Adjudicating Authority by not disclosing/suppressing material facts. Thereby, CD in its note has provided the list of all the pending litigation inter se the parties( see para 5(i) (ibid)). CD also submitted that the application for the extension of registration of the project has been rejected by HRERA and had the Promoters of the Respondent Company been allowed to approach the Authority and rectified the defects, such situation would never have occurred. At this juncture, it is pertinent to cite the order of Ld. HRERA dated 20.03.2023. Relevant part of the Order dated 20.03.2023 is reproduced below:

It is the contention of the Applicant that it has made repeated request to CD to cure the deficiencies identified by HARERA. For the same, copy of emails and correspondences attached as Annexure 6 in additional documents. Relevant Email is reproduced below:

Further, CD contended that Applicant is controlling the whole project of the Respondent. That the Applicant is responsible for the delay in the project as it is the Applicant who was/is in the control of the project and Applicant is the sole signatory to the Utilization Escrow Account and Project Revenue Escrow Account. Also, CD in its consolidated note submitted that the initial approved Project was to comprise of 8 towers. However, subsequently the Respondent acquired additional FAR in the Project. The three towers, namely, Tower G1, G2 and J were supposed to be part of the Additional FAR. As far as construction and development on the Additional FAR is concerned, the Respondent vide Email dated 30.03.2023 (reproduced below) duly informed the Petitioner and their representatives to stop any work related to and sale of the units in Tower G1, G2 and J as neither any approval/revised plans had been received from the authorities nor were the said towers registered with RERA.

It is pertinent to mention the order dated 20.03.2023 of Ld. HRERA which rejected the CD’s application for registration of the Additional FAR. Relevant portion of the Order dated 20.03.2023 is reproduced below:

On perusal of both the orders dated 20.03.2023 of Ld. HRERA i.e.( rejection of application for extension of Registration of existing FAR and rejection of application for registration of additional FAR), it is clear that opportunities were given to promoter to cure deficiencies but promoter failed to do so. It is only after the rejection of application for extension of registration for existing FAR and rejection of the application for additional FAR, CD started making request for stopping the work related to additional FAR. Applicant in its consolidated note also submitted that as as a pre-cursor to the Order dated 20.03.2023, the Applicant has made repeated requests to the Corporate Debtor to cure the deficiencies identified by Ld. HRERA and to attend the proceedings before it. A copy of the emails and WhatsApp correspondence exchanged between the parties from April, 2022 to February, 2023 is also annexed in the additional submissions as ANNEXURE 6. BE THAT AS IT MAY, we are not reviewing the mistakes committed by the parties or who is more or less at fault for the rejection of the extension of Registration Certificate. On perusal of the records, it is found that Ld. Appellate Authority for RERA has set aside the order dated 20.03.2023 of Ld. RERA passed w.r.t extension of registration. However, what happened after the setting aside of the order is not known. Also, there is no record as to whether any appeal was preferred against the other order of HRERA dated 20.03.2023 with respect to the registration of additional FAR. Therefore, this Adjudicating Authority vide order dated 16.12.2024 passed a clarification order. Relevant part of the Clarification order is extracted below:

Applicant/FC submitted clarification dated 26.12.2024 stating that “vide order dated 07.10.2024, the Ld. HRERA has refused to grant any extension of the registration but has only granted continuation of registration on the basis that Occupation Certificate has already been received for the existing FAR.” Relevant part of the order dated 07.10.2024 of Ld. HRERA is extracted below:

Additionally, Applicant/FC in its clarification submissions submitted that “the promoter was unwilling to file an appeal before the Ld. Appellate Tribunal, Haryana. The Applicant was constrained to file an application bearing E.A. No. 1113 of 2023 before Delhi High Court in OMP (1) (COMM) No. 166 of 2023 seeking liberty to file an appeal before the Ld. Appellate Tribunal, Haryana.”

The Applicant has also filed an appeal before the Ld. Haryana Real Estate Appellate Tribunal with respect to the Additional FAR, which is pending before the Registry of the forum.

At this juncture it is also relevant to mention that Applicant and CD both with their mutual consensus entered upon the Debenture Trust Deed dated 04.11.2019 for additional FAR in terms of settlement agreement dated 04.11.2019. Therefore, the plea of CD with respect to stopping of construction for additional FAR is not tenable.

With regard to clarification regarding correspondences showing dominance of Applicant/FC, Respondent in its clarificatory submissions submits that Purchase orders/work orders were issued and signed by representatives of the Debenture holder. Further, delivery/invoices/material receipt notes of purchase items monitored by the debenture holder. On perusal of document it is clear that Board Resolution dated 05.11.2019 has been passed by CD only for the constitution of PMC. Further Purchase Order has been signed on behalf of CD by the member of PMC which itself has been formed by Board of Directors. Prima facie, on the careful examination of the email correspondences between the parties, it cannot be said that Applicant is controlling the project. Also it is the responsibility of the CD for successful completion of the project and CD cannot absolve itself of its liability with respect to the project by alleging the mistakes on part of Applicant.

On perusal of the contentions and submissions by the parties and on perusing the documents, it cannot be denied that CD and Applicant had entered into Debenture Subscription Agreement (DSA) and Debenture Trust Deed (DTD) and CD had issued the debentures in favour of the Applicant/FC (KFBV) for the development of the group housing project. On the failure of the obligation to pay the agreed interest and principal amount, Applicant and CD had amended the DSA and DTD and amended the terms of repayment and rescheduled the payment structure. On further failure to fulfill its obligations by CD, Applicant has filed the case before Hon’ble High Court of Delhi wherein they have entered into settlement agreement and on the same date namely 04.11.2019 they have amended the previously amended DTD. If one outlines the hierarchy of the contracts entered upon between the parties, it is clear that, firstly for raising the finance for the project, CD issued debentures in the name of Applicant/FC and thereby, revised and amended the DTDs for rescheduling the payments and in 2019, a settlement agreement was entered and a Project Monitoring Committee (PMC) was formed presumably for the successful completion of the project.

On perusal of the cash balance of three escrow accounts, the balance against the accrued liability is very low. The account balance has been reproduced in para 5(ii) (ibid). As far as the ongoing litigation before various forums between the parties is concerned, nexus between the litigation and debt and default cannot be made. It has not been shown by the CD that Applicant in any way thwarted the CD’s appearance before the various forums. Nevertheless, the multiple proceedings between the parties and the merit of those proceedings are not relevant for the purpose of determining the existing debt and default on the part of CD. In fact, once the CIRP is initiated, all the proceedings before various forums will stayed by the moratorium envisaged under section 14 of the code which will prevent the multiplicity of proceedings and be beneficial for the interest of both the parties. We also are not commenting upon the extent of the liability of the CD for which the various clauses of the contract are reproduced by the Applicant. The only conclusion this Adjudicating authority is relying upon is the existence of contract, failure to pay and acknowledgement of the liability by CD. The initiation of CIRP is not the execution of the settlement rather the settlement agreement prima facie establishes the liability of the CD and nothing more. Under the Insolvency and Bankruptcy Code, 2016, while entertaining an application under section 7 by financial creditor, the foremost requirement is to see whether there is any debt, the nature of the debt, and whether the debt is due and payable. We have to also see whether the Applicant has annexed any record of default or any other evidence to establish default. In the instant case, Applicant has annexed the record of default as well. Also, Applicant has placed on record the document acknowledging the debt. On perusing the settlement agreement between the parties para 5(ii)(ibid), clause 2.22 specially states that the payment of interest and principal in respect of Debentures and new NCDs shall remain the obligation of promoter/CD. So far as the repayment of debt due is concerned, it has not been done and thereby CD is in default. We do not agree with the contention of CD that this section 7 application is actually the execution of Settlement agreement. It is the debt due which remains unpaid and acknowledged by the CD itself.

As far as the contention of the CD regarding FC being the controlling authority of the project is concerned, it is pertinent to mention here that the agreement has been entered upon with free consent of the parties. Also, according to the terms of the agreement, initially the obligation for the development of the project is of the CD and after the settlement agreement, presumably to improve the completion timeline of the project, applicant came into picture. It is not the case here that since inception, CD and Applicant were joint developers. In usual business practice, in event of failure to pay, parties mutually try to cover the losses and restructure the contract in order to fulfill mutual obligations. Contending that applicant did not let CD handle the affairs of the project is not tenable. The fact of the failure of CD to pay the accrued interest to Applicant and issuance of legal notice, default notice, initiation of proceedings by Applicant gives clear indication that CD is in continuous default. At this juncture, it is pertinent to note here that HRERA has also cancelled the registration of whole project owing to the default committed by the parties. BE THAT AS IT MAY, the debt is subsisting, payments has not been done, there are many unsold units, project registration has been cancelled and it cannot be said that Applicant is liable for these wrongs done to the project.

The inability of CD is apparent and evident on all aspects leading to insolvency. The CD plea of settlement and applicant becoming part of ownership of the project is belied by their statement as under:

Therefore, on the basis of arguments advanced and documents on record, the DSA and DTD as amended on 04.11.2019 and 23.11.2021 shall stand as valid and enforceable. That is the underlying factor for the debt and default that remains unpaid. All other interim arrangements basis court proceedings in multiple forums does not vanguish the debt. It lends credence to the continuing default and attempt to extricate but in vain. There are other additional documents like emails, letters exchanged between the parties, we find that there is clear debt due and default on the part of the CD. The debt has been acknowledged by CD as well. The ingredients of Section 7 are fulfilled and therefore, we don’t find any impediment in commencement of CIRP against the CD. Accordingly, we are inclined to Allow this Company petition namely CP(IB)/751 of 2023.

Further, Applicant has moved the application IA 1527 of 2024 to seek for the replacement of the name of IRP proposed that is to replace the name of Mr. Harvinder Singh having IBBI Regd. No. I88I/IPA-001/IP-P00463/2017-2018/10806 and propose the name of M/s Ducturus Resolution Professionals Pvt. Ltd. through its Director Mr. Jalesh Kumar Grover having registration No. IBBI/IPA-001/IP-P00200/2017- 2018/10390 as the proposed IRP in Part Ill of the captioned Petition. Copy of the Written Consent under Form 2 stating that no disciplinary proceedings are pending against him. along with the valid AFA and IBBI Registration Certificate of Ducturus Resolution Professionals Pvt. Ltd. through its Director Mr. Jalesh Kumar Grover has been annexed as ANNEXURE 2 - (Colly) of IA 1527/2024. Accordingly, IA 1527/2024 is Allowed and Disposed of.

In view of our order as allowed IA 3961/2024 seeking the interim relief against the CD is thereby Disposed of as unnecessary.

In light of the above facts and circumstances, it is hereby ordered as follows: -

The registry is further directed to send the copy of the order to the IBBI also for their record.

Certified copy of the order may be issued to all the concerned parties, if applied for, upon compliance with all requisite formalities.

List the matter on 10.02.2025.