Neeraj Arora & Ors. vs Real Tech Constructions Private Limited

PER: SH. ASHOK KUMAR BHARDWAJ, MEMBER (J)

Stating succinctly, the captioned company petition has been preferred under Section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by Mr. Neeraj Arora (hereinafter, referred to as the “Financial Creditor/ FC/ Allottees”) who is one of the Allottees of the Corporate Debtor and has been authorized by all the Applicants herein through Affidavit to sign and execute documents for the filing of the present application, with prayer to initiate the corporate insolvency resolution process qua Real Tech Constructions Private Limited (hereinafter, referred to as the “Corporate Debtor/ CD”).

The brief facts as stated in the captioned petition reads thus: -

The Corporate Debtor initiated the process of developing and constructing a Retail Mall & Multiplex which was to be known as the City Emporio Mall ("Project"). The land on which the Project was to be developed by the Corporate Debtor is situated at 143-A, Industrial Area Phase-I, Chandigarh-160002 admeasuring to an area of approx. 9702.89 Sq. Yds (“Land"). Land on which the Project was to be developed were owned by one Meters & Instrument Pvt. Ltd.(“Landholder”).

The Corporate Debtor executed a Property Development Agreement dated 02.03.2006 (“Agreement”) with Landholder, wherein the latter agreed to collaborate and develop the Land. Along with that, the licenses required for the purpose of development and the possession of the land were handed over to the Corporate Debtor.

Agreement was executed between the Landholder and the Corporate Debtor by way of which the Corporate Debtor was authorized by the Landholder to build and construct the said Project. It was agreed that after the complete construction of the Project, the total saleable area would be divided into a ratio of 45:55 between the Landholder and Corporate Debtor.

The said Project was completed in accordance with the plans mentioned in Notification No. 28/8/51/UTFI (3)2005/6658 dated 19.09.2005 issued by Chandigarh Administration, Finance Department, UT, Chandigarh and received Occupancy Certificate on. 02.01.2012. The Corporate Debtor after acquiring exclusive rights from the Landholder floated a scheme for the sale of commercial units/ entertainment space/ commercial shops etc. and was made available for the general public at large.

The Corporate Debtor also transferred some of the units belonging to itself in favour of Mr. Pankaj Dayal, who was the director and beneficial owner of the said Project by virtue of the Memorandum of Understanding dated 02.06.2011 executed between promoters of Corporate Debtor. The units that fell to the share of the Corporate Debtor by virtue of the 55:45 ratio under the Agreement, and were allotted to the present Financial Creditors by the Corporate Debtor. That 2 Financial Creditors herein were allotted units by the Corporate Debtor along with Mr. Pankaj Dayal as co-signatory.

The disputes arose between the Landholder and the Corporate Debtor in respect of the rights under the Agreement dated 02.03.2006 and the same are subsisting. It was informed to the Applicants by Mr. Pankaj Dayal that due to the dispute arising between the Landholder and the Corporate Debtor, the Landholder on 12.02.20218 had fraudulently terminated the Agreement.

The Corporate Debtor on various instances assured the Applicants that the Corporate Debtor would soon resolve the dispute with the Landholders and transfer possession along with executing sale deed. That as such, although all the Financial Creditors received possession letters from the Corporate Debtor in 2012 and in 2016, and at the time of entering into respective agreements, it was projected as if the project was ready for handover and execution of the sale deed would be carried out immediately, however the same has not been done till date.

On the assurance of the Corporate Debtor and Mr. Pankaj Dayal, that the disputes between the Landholder and the Corporate Debtor would be resolved in due course, the Applicants have been waiting for their units, however the same has not been handed to the Applicants to date. That in the meanwhile Mr. Pankaj Dayal was in judicial custody in FIR/53/2018 registered at Police Station-Economic Offence Wing, Delhi for more than two years and the Applicants had no other option but to wait for his release.

The Financial Creditors invested huge sums of money in the procurement of units from the Corporate Debtor/Pankaj Dayal from 2011-2016 and to the present date they have not received possession of the Units which was promised to them by way of the Builder Buyer Agreement/ Agreement to Sell/Space Buyer Agreement executed on behalf of the Corporate Debtor.

The Corporate Debtor has failed to provide physical possession of the Units in the said Project irrespective of receiving the entire consideration against the sale of certain units and partial consideration in respect of some units.

The total number of units allotted in the said Project till today is around 45 as per the knowledge of the Financial Creditors. As such, the present application meets the threshold of 10% of 45 allottees, being 6 unit held by 9 allottees and co-allottees. Further, the Corporate Debtor has failed to pay its dues and running under economic stress. The last filed Balance Sheet of the Corporate Debtor is for the Financial Year 2008-2009, and till today no other financial statements have been filed with the Registrar of Companies.

The Financial Creditors submit that the registered office of the Corporate Debtor is in Delhi and therefore, this Hon'ble Tribunal has the requisite jurisdiction to entertain and adjudicate the instant petition. The Financial Creditors submit that the instant petition is well within the period of prescribed limitation as the units against the respective bookings are not provided to the allottees and therefore, the default is a continuous arising.

On behalf of the Respondent/ Corporate Debtor, the following submissions were made: -

The petition filed by the 5 Allottees is not maintainable against the Corporate Debtor as the same is against the provisions of law / IBC, without any cause of action and is vague, misconceived, based on wrong facts. These 5 Allottees while filing the present petition under the garb of Financial Creditors have concealed various material facts including details of various pending litigations which are necessary for proper adjudication of present matter and in view of same present petition deserves to be dismissed with costs.

The present petition is not maintainable as its being filed by only 5 Allottees out of hundreds of Allottees, the number of Allottees filing the application is below the threshold prescribed under the second proviso to Section 7(1) of the Insolvency and Bankruptcy Code, 2016 (IBC), as amended by the Insolvency and Bankruptcy (Amendment) Act, 2020.

The Para (h) of the Brief Synopsis filed by these 5 Allottees, thought they have claimed ignorance on the number of Allottees but having malicious intentions falsely claimed that:

The Project i.e. City Emporio Mall, Chandigarh is a huge Mall spread over more than 2,25,000 Sq. Ft. having 6 (Six) Floors and Terrace and has hundreds of Allottees. The Area has been divided into many Units where the average size of a Unit ranges from 500 Sq. Ft. to 2000 Sq. Ft. & a Multiplex and barring some Units, the Project has been sold to hundreds of Allottees from the year 2006 to 2017.

The Project was completed in the year 2011 and even its Occupancy Certificate dated 02.01.2012 was issued by Estate Office, Chandigarh way back in the year 2012 which is annexed by the Allottees as Annexure A – 3 with petition.

5 Allottees have falsely claimed themselves to be 9 Allottees by claiming the Joint Allottees of a Single Unit to be different Allottees whereas as per law joint allottees of a single unit are to be treated as only one Allottee and thereafter under the garb of “as per the knowledge” falsely claimed the total number of allotted units to be “around 45” just to frivolously meet the threshold and falsely pretend before this Hon’ble Tribunal that petition is maintainable in law whereas in reality the Allottees themselves fully knowing that it’s a huge Mall spread across more than 2,25,000 Sq. Ft. having 6 (Six) Floors, terrace and a Multiplex. Further even the Maps annexed by the Allottees themselves with the Petition would show that it’s a huge Mall where there are more than 30 (Thirty) Units on each floor of different sizes.

The present Allottees have failed to demonstrate the statutory threshold under the IBC. The petition is defective and liable to be dismissed in light of the ruling in Manish Kumar v. Union of India (2021) 5 SCC 1, wherein the Hon’ble Supreme Court upheld the constitutional validity of the threshold limit for filing Section 7 petitions by Allottees.

As per the law, in case of financial debt owed to Allottees under a real estate project, an application under Section 7 can be filed only if at least 100 allottees or 10% of the total allottees in a project, whichever is lesser, join in the petition. The present application does not meet this requirement and is thus liable to be dismissed at the threshold.

The Allottees have concealed the material fact that there are various pending litigations between the Allottees the Developer and the Land Owner i.e. M/s Meters & Instruments Pvt. Ltd. at Chandigarh and at New Delhi. The details of pending litigations are herein reproduced from para 10 and 11 of the reply:

The present petition filed by the allottees under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) is not maintainable as the alleged debt is disputed and cannot be adjudicated in summary proceedings. Furthermore, the alleged default pertains to a delay in the delivery of possession, which does not constitute a financial debt under the provisions of the IBC. Additionally, certain allottees, namely Sh. Rajesh Wason, Sh. Anmol Wason (Unit No. FF–05), and Sh. Ayan Pandey (FF–17), have themselves submitted documents acknowledging possession of their respective units, as evidenced on Pages 118 and 127 of the petition. The existence of a financial debt and default is a sine qua non for admission under Section 7 of the IBC. Since this case involves complex disputes regarding obligations, payments, and timelines requiring detailed evidence, it cannot be decided summarily by this Hon’ble Tribunal.

The Allottees before this Hon’ble Tribunal are part of a project developed by the Corporate Debtor, but their claims are contentious as they either seek refunds due to alleged delayed possession or have failed to fulfill their financial obligations under the Agreement. Consequently, the present petition under Section 7 of the IBC is not maintainable, as the alleged default does not meet the criteria of a financial debt under the IBC. The Hon’ble Supreme Court, in various judgments, including Pioneer Urban Land and Infrastructure Ltd. & Anr. v. Union of India, has clarified that the IBC is not a substitute for RERA and that allottees should seek remedies under RERA rather than initiating insolvency proceedings.

Landowner i.e. M/s Meters and Instruments Pvt. Ltd. which Is the necessary party and epicenter of all the disputes had not been made a party due to selective persecution and malice on behalf of the Allottees

The Corporate Debtor, a reputed developer, had completed the Project in 2011, and the Occupation Certificate (OC) was issued on 02.01.2012. Despite fulfilling its obligations by fully constructing the Mall, the Land Owner, M/s Meters and Instruments Pvt. Ltd., failed to demarcate the Corporate Debtor’s 55% share, leading to frivolous disputes. As a result, the Corporate Debtor was compelled to file FIR No. 3/2024 under Sections 406, 420, and 120-B at P.S. EOW, Chandigarh, against M/s Meters and Instruments Pvt. Ltd. and its management, which is currently under investigation alongside other pending litigations.

The Corporate Debtor maintained its office and sales office in the Said Mall (Unit Nos. GF 28, GF 29, and GF 29A) until February 2018, when M/s Meters and Instruments Pvt. Ltd. allegedly trespassed into these offices and dishonestly took away original papers and records without the Corporate Debtor’s knowledge or consent.

The two joint Allottees, Sh. Rajesh Wason and Sh. Anmol Wason (Unit No. FF-05), along with another Allottee, Sh. Ayan Pandey (FF-17), have already filed documents acknowledging possession of their respective units (as recorded on Pages 118 and 127 of the Petition). However, they have still proceeded with the present petition without ascertaining whether M/s Meters and Instruments Pvt. Ltd. had dispossessed or prevented them from taking possession. Given the complexity of disputes regarding obligations, payments, and timelines, this case necessitates detailed evidence and cannot be summarily adjudicated by this Hon’ble Tribunal.

The matter originates from a Property Development Agreement dated 02.03.2006 between Realtech Constructions Pvt. Ltd. and M/s Meters & Instruments Pvt. Ltd. for constructing a shopping mall on Industrial Plot No. 143-A, Industrial Area, Phase-I, Chandigarh-160002, which was initially allotted to M/s Meters & Instruments Pvt. Ltd. by the Estate Office, Chandigarh, through a Deed of Conveyance dated 11.07.1960. Additionally, two irrevocable General Power of Attorneys (GPAs), dated 08.03.2006, were executed and registered with the Sub-Registrar, Chandigarh, authorizing Realtech Constructions Pvt. Ltd. as the true and lawful attorney of M/s Meters & Instruments Pvt. Ltd.

In terms of the Property Development Agreement dated 02.03.2006, Corporate Debtor constructed and developed a Shopping Mall-cum-Multiplex known as “City Emporium Mall,”. The entire construction was undertaken at its own expense, amounting to over ₹50 Crores, without any financial contribution.

Corporate Debtor also facilitated the change of land use from industrial to commercial and obtained all requisite statutory permissions from the competent authorities. The completion/occupation certificate for the project was received from the concerned authority on 02.01.2012.

Under the terms of the Property Development Agreement dated 02.03.2006 and the irrevocable General Power of Attorney (GPA) dated 08.03.2006, Corporate Debtor is entitled to a 55% share of the total Floor Area Ratio (FAR) on each floor, including basements, terrace, common areas, facilities, and amenities, along with 55% of the undivided, indivisible, and impartible ownership rights in the total land underneath the mall.

This entitlement includes offices, shops, flats, showrooms, storage spaces, and parking areas, with all associated easement rights. Furthermore, as per the irrevocable GPAs, Corporate Debtor has the authority to negotiate, enter into agreements for sale, mortgage, transfer, and create liens or charges on its allocated share in the mall.

The Property Development Agreement executed between Meters & Instruments Pvt. Ltd. and Corporate Debtor required Corporate Debtor to deposit ₹7.5 Crores as an interest-free refundable security with Meters & Instruments Pvt. Ltd. Additionally, Corporate Debtor was responsible for applying for the conversion of land use from industrial to commercial, preparing construction plans, and coordinating with consultants, as agreed upon in the Property Development Agreement.

The agreement stipulated that if the building plans were not sanctioned within a reasonable period, Meters & Instruments Pvt. Ltd. could terminate the agreement. However, Corporate Debtor fulfilled its obligations, obtained plan approvals, and no steps for termination were taken by Meters & Instruments Pvt. Ltd.

In consideration of bearing all costs for conversion fees, construction, and labor, Corporate Debtor was entitled to 55% of the total saleable space in the project, while Meters & Instruments Pvt. Ltd. was entitled to 45%, with the same ratio applied to common areas and facilities.

In terms of Clause 17 of the Property Development Agreement, the saleable space was to be earmarked for allocation between the owners and developers under joint signatures from both parties. While both parties had been jointly selling areas in the Mall to different Allottees or selling units from their respective shares by mutual consent from 2006 to 2017, Meters & Instruments Pvt. Ltd. has consistently refused to demarcate the entire area despite repeated requests from Corporate Debtor. As a result, Corporate Debtor was compelled to initiate multiple legal proceedings, which remain pending before various forums in Chandigarh.

The alleged default claimed by the Financial Creditors is unsustainable since any delay in handing over certain units arose due to circumstances beyond the control of the Corporate Debtor. Furthermore, the Corporate Debtor had sent a Legal Notice dated 28.08.2023 to M/s Meters and Instruments Pvt. Ltd., invoking arbitration, and Arbitration Petition No. ARB-471-2024 is currently pending before the Hon’ble Chandigarh High Court, where the matter has been referred to mediation for an amicable resolution. Copies of the Legal Notice and the Hon’ble High Court’s Order dated is annexed as Annexures P-9 and P-10, respectively.

The Corporate Debtor has already completed the project and has not willfully defaulted, if any default exists, in fulfilling its obligations. Initiating an insolvency resolution process would be detrimental to all stakeholders, including the Financial Creditors/Allottees themselves, as it would jeopardize their investments rather than provide any effective remedy.

The Hon’ble Supreme Court and the National Company Law Appellate Tribunal (NCLAT) have consistently held that the IBC is not a debt recovery mechanism and should not be misused by Financial Creditors/Allottees to exert undue pressure on developers, the Financial Creditors have come to this Tribunal with unclean hands and has suppressed material facts. Therefore, the petition is liable to be dismissed.

We have perused the contentions made on behalf of both the parties. As can be seen from Section 7(1) of the Code r/w the explanation provided therein, a Financial Creditor may file an application for initiating CIRP against a Corporate Debtor when a default occurs in respect of a financial debt. The said provision reads thus: -

In the facts of the present case, the primary objection raised by the Respondent is that the application is not maintainable as the threshold for filing such Petition by Financial Creditors/Allottees in terms of second proviso to Section 7 of the Code has not been satisfied.

At this stage, it is pertinent to refer to the definition of the expression of ‘financial debt’, as provided under Section 5(8) of the Code, means disbursal of any debt against the consideration for the time value of money and includes money borrowed against the payment of interest. The Section 5(8) of the Code reads thus: -

In Pioneer Urban Land & Infrastructure Ltd. vs. Union of India [(2019) 8 SCC 416], the Hon’ble Supreme Court held that for the purposes of Section 5(8) of the Code, the disbursal must be against consideration for “time value of money” from the lender to the borrower who then utilizes the money. The relevant excerpt of the judgment reads thus: -

Examining whether the Applicants, being the Financial Creditors/ allottees fulfil the threshold limit as prescribed under section 7 of IBC, 2016. At this stage, we consider it appropriate to refer to the Proviso of Section 7(1) of the IBC, 2016, which lays down as under:

For better understanding of the preceding paragraph, we may refer to the definitions of “Allottee” defined under Section 2(d) and “Real Estate Project” defined under Section 2(zn) of the RERA Act, 2016. Section 2(d) and Section 2(zn) reads thus:

The project in question namely “City Emporio Mall”, a Commercial, situated at 143-A, Industrial Area Phase-I, Chandigarh-160002, as per the Financial Creditor/Allottees knowledge the project have 45 units out of which 6 units are held by 9 allottees and co-allottees. The details of Allottees are read thus:

As per the Contentions of the Respondent it has been stated that the Project i.e. City Emporio Mall, is a huge Mall spread over more than 2,25,000 Sq. Ft. having 6 (Six) Floors and Terrace and has hundreds of Allottees. The Area has been divided into many Units where the average size of a Unit ranges from 500 Sq. Ft. to 2000 Sq. Ft. & a Multiplex and barring some Units, the Project has been sold to hundreds of Allottees from the year 2006 to 2017. Further Respondent has contended that 5 Allottees have falsely claimed themselves to be 9 Allottees by claiming the Joint Allottees of a Single Unit to be different Allottees. However, Respondent has failed to substantiate it’s claim and nothing has been provided by the Respondent to prove its contentions that there are more than 45 units in the Project. The Respondent has neither given a specific number of allottees nor submitted any document which indicates the number of allottees/units.

The present application has been preferred over by 9 allottees of the aforesaid project. Even if the Respondent’s claim of 5 allottees is considered, the application is maintainable under the threshold limit established in Section 7 of the Code. As per the settled law, the Financial Creditors/homebuyers are entitled to file petition under Section 7 of the Code against the Corporate Debtor for its failure to hand over the possession in terms of the Buyer Agreement by claiming the Principal Amount along with Interest payable (delay penalty as well as Interest payable for the delay). In the present case, as a matter of fact, the Corporate Debtor is liable to make payment to all the allottees for the delay in handing over the possession along with the Interest. Apparently, the threshold limit as prescribed under the provisions of the code is satisfied.

Before considering this petition for admission, it would not be out of context to refer to the default amount in the Petition to satisfy the threshold limit of the code. Part IV of the Petition read thus:

Further, as can be seen from the provisions of Section 7(3) of IBC, 2016, while considering admission of the application filed under Section 7, we need to satisfy ourselves as to whether the record of default is enclosed with the petition. The Section 7(3) reads thus: -

In the facts of the present case, the Financial Creditor has enclosed the Space Buyer Agreements of the allottees from Annexure 5 to 12 to the petition as evidence of the default.

The Applicant/ Financial Creditors has espoused that the date of default is 01.03.2011, 29.11.2011, 13.04.2016, and 09.05.2012 as per Unit Buyer Agreement/ Possession Letter.

In view of the aforesaid contentions and documents relied upon by the parties, this Tribunal is of the view that there was a default in repayment of the financial debt owed to the Financial Creditor by the Corporate Debtor. The documents filed by the Financial Creditor constitute ‘record of default’ in terms of Section 7(3)(a) of the Code.

In Innoventive Industries Limited vs ICICI Bank Ltd [(2018) 1 SCC 407], the Hon’ble Supreme Court had observed the scope and extent of the powers conferred with the Adjudicating Authority under Section 7 of the Code and held that in case of a Corporate Debtor who commits default, the Adjudicating Authority merely has to see from the records or evidence produced by the FC to satisfy itself that a default has occurred in order to . Relevant excerpt of the judgment reads thus: -

(Emphasis Supplied)

Furthermore, the Hon’ble Supreme Court in the matter of M. Suresh Kumar Reddy V. Canara Bank, [(2023) 8 SCC 387] held that once the Adjudicating Authority is satisfied that the default has occurred, there is hardly a discretion left with it to refuse the admission of the application under Section 7 of the Code. The relevant extract of the aforesaid judgement reads thus: -

In Part- III of the application, the Applicant has proposed the name of Mr. Pankaj Khetan to act as the Interim Resolution Professional. Relevant excerpt of the same reads thus: -

It is also pertinent to mention that the aforementioned proposed IRP has submitted a declaration under Rule 9 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by way of Form 2 to indicate that no disciplinary proceedings are pending against him and he is eligible to be appointed as the RP qua the Corporate Debtor. The relevant excerpt of the same reads thus: -

As a sequel to the above discussion and in terms of sub-section (5) of Section 7 of IBC, 2016, where this Adjudicating Authority is satisfied that a default has occurred and the application filed under Section 7(2) is complete and there are no disciplinary proceedings pending against the proposed Resolution Professional, it may admit the application. Section 7(5) of the Code reads thus: -

Thus, it is clear that when a default takes place i.e., the debt becomes due and is not paid, the Insolvency Resolution Process shall begin against the corporate debtor. Therefore, on the basis of discussion in the aforesaid paragraphs, we are satisfied that the present application is complete in all respects. The Applicant/financial creditor is entitled to move the application against the corporate debtor in view of outstanding financial debt in default above the pecuniary threshold limit as provided under Section 4 of the Code, 2016. In the facts and circumstances of the case, as noted above we are left with no option but to admit the present application. Ordered accordingly.

In the wake, moratorium as provided under Section 14 of IBC, 2016 is declared qua the CD and as a necessary consequence thereof the following prohibitions are imposed, which must be followed by all and sundry:

As proposed by the Petitioner, Mr. Pankaj Khetan, having Registration No. IBBI/IP A-002/IP-N00010/2016-17/10014, is hereby appointed as IRP. It is further ordered that Mr. Pankaj Khetan, shall take charge of the CIRP of the Corporate Debtor with immediate effect and would take steps as mandated under the IBC, 2016 specifically under Section 15, 17, 18, 20 and 21 of the Code read with extant provisions of CIRP Regulations, 2016.

The Petitioner is directed to deposit Rs. 2,00,000/- with the IRP to meet the immediate expenses. The amount, however, will be subject to adjustment by the Committee of Creditors as accounted for by Interim Resolution Professional and shall be paid back to the Financial Creditor.

A copy of this Order shall immediately be communicated by the Registry/Court Officer of this Tribunal to the Petitioner /Financial Creditor, the Respondent/Corporate Debtor and the IRP mentioned above.

In addition, a copy of this Order shall also be forwarded by the Registry/Court Officer of this Tribunal to the IBBI for their record.