M/s. India Asset Growth Fund & Anr. vs M/s. Vikram Structures Pvt. Ltd.

The Applicants are bona fide purchasers of separate commercial units in the project known as VSPL Pinnacle, developed by the Corporate Debtor pursuant to the Joint Development Agreement dated 11.09.2013 and the Supplementary Agreement dated 05.02.2015 executed between the Corporate Debtor and the landowners. According to the Applicants, each of them had entered into agreements for sale with the Corporate Debtor and thereafter obtained duly registered Sale Deeds dated 03.10.2019, 27.11.2019, 20.12.2019, 24.12.2019 and 30.12.2019 in respect of their respective commercial units after payment of the entire sale consideration

The Corporate Debtor, Vikram Structures Private Limited, had undertaken development of a commercial project known as "VSPL Pinnacle" pursuant to a Joint Development Agreement entered into with the landowners. The project was marketed and commercial units were sold by the Corporate Debtor to various purchasers, including the Applicants.

In terms of the Joint Development Agreement, the Owners agreed to allot 50% of the constructed area together with corresponding undivided share in land in favour of the Corporate Debtor towards consideration for development of the project.

Pursuant to development of the project, the commercial complex constructed on the Schedule Property came to be known as “VSPL Pinnacle” and the Applicants contend that their respective sale deeds form part of the Corporate Debtor's legitimate allocation under the Joint Development Agreement and constitute priority registered sale deeds falling within the Corporate Debtor's entitlement of approximately 82,216.30 sq. ft. of super built-up area.

Although registered sale deeds were executed in their favour, actual possession of their respective commercial units was never handed over as the Corporate Debtor had sold commercial space in excess of its contractual entitlement under the Joint Development Agreement, resulting in multiple competing claims over the project. The project remained incomplete and became the subject matter of multiple civil disputes between the Corporate Debtor and the landowners, thereby depriving the Applicants of the benefit of their registered conveyances.

Thereafter, several purchasers of units in the project had approached this Tribunal by filing proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC/Code) and Corporate Insolvency Resolution Process came to be initiated against the Corporate Debtor vide order dated 17.02.2022 passed in Petition under Section 7 of the Code initiated by M/s India Asset Growth Fund and M/s Vistra (ITCL) India Limited and Mr. Surendar Devasani came to be appointed as Interim Resolution Professional and was subsequently confirmed as Resolution Professional and thereafter appointed as the Liquidator of the Corporate Debtor.

On commencement of the Corporate Insolvency Resolution Process, the Applicants had lodged their claims before the Interim Resolution Professional. However, their claims came to be rejected by the Respondent on 16.05.2022 on the ground that, being registered sale deed holders, title to the respective units had already passed in their favour and the assets therefore did not belong to the Corporate Debtor. According to the Applicants, this reasoning itself establishes the validity of their proprietary rights.

Even after rejecting their claims on the above basis, the Resolution Professional/Liquidator has initiated avoidance proceedings treating all registered sale transactions relating to VSPL Pinnacle as fraudulent or excess-space transactions, thereby adopting mutually inconsistent positions. He could not on the one hand recognise that title had already passed under the registered sale deeds and, seek to avoid those very transactions in proceedings under Section 66 of the Code, on the other.

The Resolution Professional has failed to distinguish genuine priority sale deed holders from purchasers whose transactions allegedly exceeded the Corporate Debtor's allocable share under the Joint Development Agreement. According to them, all registered sale deed holders were uniformly included in the avoidance proceedings without any examination of the chronology of registrations or the doctrine of priority under property law and despite knowledge of such over-selling and multiple transactions relating to the project, the Resolution Professional/Liquidator failed to identify and demarcate the units already sold and rejected the claim of the Applicant without undertaking proper verification of the assets and records of the Corporate Debtor.

The Applicants also contend that under Section 48 of the Transfer of Property Act, 1882, earlier registered conveyances enjoy priority over subsequent transfers. Therefore, even if excess sale transactions are ultimately held to be invalid, the Applicants' registered sale deeds, being within the Corporate Debtor's legitimate allocation and executed earlier in point of time, cannot be invalidated merely because subsequent fraudulent transactions were entered into by the Corporate Debtor.

The Applicants have been shown as respondents or their transactions have been questioned in the pending proceedings initiated by the Liquidator under Sections 43, 45 and 66 of the Code. According to the Applicants, any adjudication in those proceedings is likely to directly affect their proprietary rights under the registered sale deeds and, therefore, they seek appropriate participation and protection in those proceedings.

The affairs of the Corporate Debtor are presently the subject matter of investigation pursuant to an order passed under Section 213 of the Companies Act, 2013. The outcome of the investigation may have a direct bearing upon the validity of the impugned transactions and the competing rights asserted by various stakeholders in the VSPL Pinnacle project and the Liquidator, despite being in control and custody of the records and assets of the Corporate Debtor, failed to undertake proper demarcation of sold and unsold portions of the project. As the Liquidator, ought to have identified the units sold under registered Sale Deeds and taken appropriate measures either for handing over possession to purchasers or for resolving their claims in accordance with law.

The Liquidator has failed to properly examine the status of completed sales, the rights of registered purchasers and the legal consequences arising from execution of registered Sale Deeds. He has mechanically rejected the claims of all purchasers without undertaking any independent examination in collusion between certain stakeholders including the Financial Creditor and has questioned various transactions undertaken prior to commencement of CIRP, contending that the affairs of the Corporate Debtor warrant forensic scrutiny.

Despite being a purchaser under a registered Sale Deed, the Applicants have not been granted possession. Aggrieved by the actions of the Corporate Debtor and rejection of the claim by the Liquidator, the Applicants have filed this Application for enforcing Applicant's rights flowing from the registered Sale Deed, failed to handover the possession and to direct the Liquidator to recognize the distinction between genuine priority registered sale deed holders and alleged excess purchasers, appropriate protection of their proprietary rights, impleadment in the pending avoidance proceedings, exclusion of their sale transactions from the avoidance applications and such other consequential directions as this Tribunal may deem fit in the facts and circumstances of the case

The present Application is highly belated and has been filed by a registered Sale Deed holder of the VSPL Pinnacle project, which had already been completely sold, or rather oversold, prior to commencement of CIRP

The Applicants never became creditors of Corporate Debtor whose claim stood admitted during the Corporate Insolvency Resolution Process or the liquidation proceedings because they themselves admitted that they are registered sale deed holders of commercial units in the VSPL Pinnacle Project and that such sale deeds were executed long prior to commencement of the Corporate Insolvency Resolution Process. Their claims were never admitted during the CIRP or liquidation proceedings and, therefore, they neither formed part of the Committee of Creditors nor the Stakeholders' Consultation Committee. They have no locus standi to maintain the present Application under Section 60(5) of the Code.

Pursuant to an order passed by this Tribunal in IA No. 508/2024, the Corporate Debtor has already been sold as a going concern and possession thereof has been handed over to the Successful Auction Purchaser on 15.03.2025. Clause 10 of the Sale Certificate contemplates substitution of the Successful Auction Purchaser in pending proceedings and, consequently, the Liquidator no longer exercises control over the affairs of the Corporate Debtor.

While denying the allegation that the Applicants' claims were rejected arbitrarily, it is submitted that after receipt of the claims, the Interim Resolution Professional had addressed communications dated 12.03.2022 seeking clarification from each of the Applicants as to whether they intended to relinquish their proprietary rights under the registered sale deeds and would instead pursue monetary claims in the CIRP. No clarification was furnished by the Applicants despite the opportunity granted and, consequently, their claims were classified as "not admitted" by communication dated 16.05.2022. Further, the Applicants were advised to seek appropriate remedies before this Tribunal, but they failed to challenge the rejection of their claims at the relevant point of time.

Even prior to rejection of the Applicant's claim, other registered sale deed holders had themselves addressed legal notices and emails requesting that the VSPL Pinnacle Project should not be treated as forming part of the assets of the Corporate Debtor since ownership had already passed under registered conveyances. As the project had ceased to form part of the estate available for insolvency resolution, the relief sought by the Applicants directing inclusion of the project within the liquidation estate cannot now be granted particularly when the Corporate Debtor as a going concern has already been sold and custody thereof handed over to the Successful Auction Purchaser.

The books of accounts of the Corporate Debtor, as on the insolvency commencement date i.e. 17.02.2022, did not reflect the VSPL Pinnacle project as part of the liquidation estate as it had already been sold prior to commencement of CIRP, the same did not form part of the liquidation estate of the Corporate Debtor and this treatment had been accepted by the CoC and SCC. The Applicants have never challenged the exclusion of project from the liquidation estate and, therefore, cannot now seek inclusion of the same after disposal of the Corporate Debtor in an auction. The relief sought by the Applicants directing inclusion of the project within the liquidation estate cannot now be granted since the Corporate Debtor has already been disposed of and custody handed over to the Successful Auction Purchaser. It is pertinent to state that Clause 10 of the Sale Certificate required the Successful Auction Purchaser to seek substitution in all pending litigations and, consequently, the Liquidator no longer retained control over the affairs of the Corporate Debtor.

The Respondent contends that the registered sale deeds themselves record delivery of possession of the respective units and that, in terms of the conditions contained therein, all purchasers are required to enjoy the common areas jointly without claiming partition. Since the project had already been alienated before commencement of CIRP, there was no occasion for the Liquidator to assume possession or exercise control over the project.

Regarding forensic investigation and examination of alleged fraudulent transactions of the Corporate Debtor, a comprehensive transaction audit has already been undertaken and proceedings under Sections 43, 45 and 66 of the Insolvency and Bankruptcy Code, 2016 initiated in respect of preferential, undervalued and fraudulent transactions for recovery of amounts exceeding Rs.230 Crores and recoveries, if any, arising from the same will be ultimately be dealt with in accordance with directions of this Tribunal. The admitted claims in liquidation aggregated to Rs.121.02 Crores and that investigations under Section 213 of the Companies Act, 2013, as directed vide order dated 07.12.2023 in CP 14/2022 is also underway before the RoC, Karnataka.

Lastly, the Respondent contended that the dispute raised by the Applicants emanated from a pre-CIRP contractual transactions and did not fall within the scope of insolvency proceedings. All grievances of the Applicants regarding enforcement of contractual rights would lie before the competent civil court or under the provisions of the Real Estate (Regulation and Development) Act, 2016 and not before this Adjudicating Authority under Section 60(5) of the Code after completion of the liquidation process.

The Applicants submit that they are bona fide purchasers holding valid registered sale deeds in respect of commercial units in the VSPL Pinnacle project and that their transactions were executed within the Corporate Debtor's legitimate allocable share under the Joint Development Agreement. They submit that despite their claims being rejected during the CIRP on the ground that title had already passed under the registered sale deeds, the Resolution Professional and the Liquidator subsequently included those very sale deeds in the Section 66 avoidance application seeking recovery of approximately ₹104.11 crore for distribution amongst creditors. According to the Applicants, this amounts to inconsistent and discriminatory treatment, as they have neither been recognised as creditors nor protected as lawful owners. They further rely upon Section 48 of the Transfer of Property Act, 1882 to contend that earlier registered conveyances enjoy priority over subsequent transactions and seek exclusion of their sale deeds from the avoidance proceedings, impleadment in the pending Section 66 proceedings, and protection of their proprietary rights.

The Applicants further allege serious irregularities in the conduct of the CIRP and liquidation process, asserting that the Resolution Professional failed to verify material records such as encumbrance certificates, conducted inadequate due diligence while admitting the claim of Essel Finance, and wrongly treated genuine sale deed holders as beneficiaries of fraudulent transactions. On this basis, they submit that intervention in the pending Section 66 proceedings is necessary to safeguard their rights and to prevent their genuine sale transactions from being treated as avoidable transactions.