Nirmal Kumar Jain & Ors. vs Pushp Ratna Realty Pvt Ltd

The instant application was filed on 22.05.2024 by homebuyers through Nirmal Kumar Jain (Applicant), under Section 7 of the Insolvency and Bankruptcy Code, 2016 (CODE) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiation of Corporate Insolvency Resolution Process (CIRP) against Pushp Ratna Realty Private Limited (Respondent) for the default amount of Rs. 3,68,72,387/- (Principal- Rs.1,14,90,000/-& Interest- Rs.2,53,82,387/-).

The respondent is a private limited company incorporated under the provisions of the Companies Act, 1956 and is in the business of real estate activities.

The averments made by the homebuyers/applicant in its application and as argued by the learned counsel are summarised as under:

Thus all documents i.e. Account confirmations, allotment letters, audited balance sheets of the respondent, Filings with RERA Authority by the respondent, suffices that the present application is within limitation. Further, the applicant has also filed record of default of the respondent with the Information Utility (NeSL) and the same is deemed to be authenticated by the NeSL.

The objections raised by the corporate debtor/respondent in its reply dated 26.07.2024 and as argued by the learned counsel for the respondent are summarised as under:

The applicants through its rejoinder dated 26.07.2024 have submitted that they have made the payment in accordance with the terms as mentioned in the allotment letter. Moreover, the construction was stalled since 2014-15 and therefore, the respondent should not expect the home buyers to make any further payments; the respondent has also never demanded the home buyers to make further payments since it failed to undertake construction. It is further stated that the respondent has acknowledged and treated the applicant as allottees; and the amount disbursed by the applicant is reflected in the audited balance sheet of the respondent; further based upon the RERA filings made by the respondent it is evident that out of total 140 units 77 are sold and therefore, the application filed by 10 applicants is beyond the required threshold of 10% of 77.

We have heard the learned counsel for the applicant as well as for the respondent and perused the material available on record. It is noted that the applicants are home buyers and earlier to an application [CP(IB) 83 of 2023] against the same respondent was filed by some home buyers which was withdrawn with a liberty to file fresh application as some of the applicants/allottees in that application were barred by limitation to file their application.

It is noted that the applicants herein have enclosed a table detailing therewith the payments made by each of the applicant date wise towards the project of the respondent company named as “Lush by Pushpratna” situated at Kanadia Road, AB Bypass, Indore, Madhya Pradesh. For ready reference the relevant details as contained in the table at Annexure-4 of the application is given hereunder:

It is further noted that the respondent has issued the allotment letters and account confirmation in favour of the applicants onto the payments made by them as home buyers/allotees. For ready reference the details such as the flat number, date of allotment letter and dates of account confirmation as issued by the respondent to the respective applicants/allotees as provided in the application is given hereunder:

On perusal of these allotment letters, which are placed on records, it is noted that the said project was to be constructed within 30 months and thereafter possession was to be given to these allottees on payment of entire amount towards the cost of flats. However, we find that the applicant had made part payment only, since the construction was stalled. We also note that the respondent also never raised any demand to these applicants/ allottees to make balance payment and or taken any step to cancel their allotments on the ground of non-payment of the due instalments. For ready reference, one of the allotment letter & Confirmation of accounts issued by the respondent to the home buyer, as annexed in the application are placed hereunder:

Further, from the documents as enclosed in the application, it is noted that the respondent had also registered the said project with MP RERA and the registration order of the project was given by the said Authority from 19.02.2018 till 31.12.2019, according to which the project was to be completed till 31.12.2019. In case, the project was not expected to be completed by that date, the promoter was required to submit an application for extension prior to that date. However, the project was neither completed by the said date nor any application was filed before RERA within the given time limit for seeking extension of the period, due to which the project registration was suspended on 12.06.2019 itself. As a result of suspension of the project, ban was imposed on taking any new bookings as well as on registration of sale deed. Further, bank account of the promoter was also seized. Pursuant to the said suspension the respondent filed an application before RERA seeking extension of time to complete the said project. Subsequently, RERA vide its order dated 05.03.2021 set aside the suspension order of the project and also restored the project from suspension.

It is also noted from RERA order dated 03.01.2023 that subsequent to the project registration the respondent failed to publish the financial information for the quarter ending March 2021 and even after reminders and show cause notice, the respondent did not appear before the RERA. Therefore, an ex-parte action was taken against the respondent vide order dated 15.12.2022 and for violation of section 37 of the Act by the promoter, RERA vide its order dated 03.01.2023 imposed penalty on the promoter of the respondent along with the direction that no new booking in the said project, no issuance of allotment letter to any new allottee, no execution of sale deed in favour of new allottee and no creation of interest for any third party in relation to the said project can be done by the promoter without prior permission from RERA or until any other order is given by RERA Authority.

It is further noted that one of the applicant namely Nirmal Kumar Jain had sent a notice to the respondent on 03.05.2024 seeking answer regarding the compliances made under RERA; action taken post expiry of the date of completion of the project i.e. 31.12.2019; steps taken to resolve issues with respect to completion of project. In response to which the respondent through letter dated 12.05.2024 replied that the company is facing certain difficulty and is unable to comply with the relevant laws of RERA; however, the respondent ensured to comply the same.

It is further noted that an Intervention Application (Inv. P/8 of 2024) and Interlocutory Application (IA 371 of 2024) was filed by Mr. Rajeev Agnihotri seeking direction to array him as respondent in the present application to provide an opportunity to defend his family’s interest (as shareholders) in the respondent company and to object the maintainability of the present application under section 7.

This Adjudicating Authority vide its order dated 11.09.2024 had dismissed both the applications as not maintainable holding that the individual shareholder does not have any locus to file such application. It was also observed that the issue of limitation as pointed out by the said intervener in IA 371 of 2024 would in any case be examined by the Adjudicating Authority in section 7 application. It was also noted in the said order that there appears dispute between the shareholders and prima-facie that could be a matter of oppression & mismanagement. For ready reference the relevant paragraphs of the said order are reproduced as under:

It is also noted that after the present application under section 7 was heard and reserved for order, another Interlocutory Application (IA 386 of 2024) has been filed by the shareholder of the respondent company namely Jayshree Agnihotri (mother of Shri Rajeev Agnihotri) stating that the present application under section 7 is a proxy application sponsored by Mr. Ashok Jain and his group who control the affairs of the company. Once again in this application also it is alleged that the respondent had issued back dated acknowledgement letters dated 16.06.2017 & 23.10.2019 to the 10 home buyer acting in collusion with them subsequent to the withdrawal of the first application [CP(IB) 83 of 2023] to bring the present application under section 7 within the limitation period. It is also stated therein that Mrs. Jayshree Agnihotri, being 50% shareholder, looking to conspiracy and connivance between the present board of directors and the applicant homebuyers, is willing to discharge the liabilities as claimed by the applicant homebuyers of section 7 petition within 30 days to save the respondent company from CIRP. Through that application the direction of this Adjudicating Authority is sought to direct the applicant homebuyers to accept the amount of their dues towards respondent company from Mrs. Jayshree Agnihotri and thereby, to dismiss the present section 7 petition. However, the said IA through a separate order of even date is also being rejected on the ground that in the absence of any documentary evidence, based upon her assertion, it cannot be inferred/concluded that the present section 7 application is filed by the applicant / allottees in collusion with the respondent. Rather on perusal of the documents as enclosed with section 7 petition, it can be inferred that the respondent indeed had raised the funds from the applicant allottees under a real estate project and as such the payment so made by these applicants fall within the meaning of ‘financial debt’ as defined under section 5(8)(f) read with the explanation given thereunder in clause (i) & (ii); however the respondent corporate debotor has failed to complete the construction of the said real estate project. The financial debt still exists and as such the applicant allottees as home buyers have the right to file the present application under section 7 of the Code. Furthermore, in the matter of section 7 petition, the direction to the promoter and/or shareholder for discharging their liability or direction to the petitioners to accept their dues from such promoters / shareholders cannot be issued and the promoter and/or shareholders are at liberty to make any settlement with their creditors; and as such no such direction as prayed for by Mrs. Jayshree Agnihotri in the said IA 386 of 2024 could be made in the matter of section 7 petition.

Considering the above, we find that the respondent has defaulted in giving the possession of the flats as allotted to the home buyers. The applicant disbursed the amount to book the flats in the project of the respondent on various dates between the years 2010 to 2016 against which the allotment letters were issued by the respondent on different dates between the years 2014 to 2016 and the three Account Confirmation to 10 home buyers were also issued on 16.06.2017, 23.10.2019 & 09.11.2021 by the respondent. We also find that the amount paid by the homebuyers are reflected under the head Other current liability as advances from customers (i.e. home buyers) in the audited balance sheets of the respondent for the financial years 2013-14 to 2019-20. Though the said balance sheets do not contain the list of customers (homebuyers) as regards the advance amount reflected under the head ‘advance from customers’, however the respondent has also not denied that these 10 applicants have not made any advance towards the real estate project and that the amount so reflected in the balance sheet does not include the payments made by these applicants. Rather, the respondent has by issuing the account confirmation statement, confirmed the payments made by the applicants to the respondent. Admittedly, the genuineness of account confirmation statement dated 09.11.2021 has not been questioned even by the intervener Shri Rajeev Agnihotri and/or the shareholder Smt. Jayshree Agnihotri in Inv P. 8 of 2024, IA 371 of 2024 & IA 386 of 2024 respectively. As such on considering the said account confirmation dated 09.11.2021 and the balance sheets together, it is inferred that the balances shown year after year in the balance sheet under the head advance from customer also includes the amount paid by these applicants as advance towards the real estate project of the respondent. Thus, we are of the view that these balance sheets for the financial years 2013-14 to 2019-20 constitute the acknowledgement by the respondent of the advance payment made by the applicants.

We note that as per the application the date of default for all the 10 applicants based upon the timeline given in the legal notice sent by the applicant to the respondent, based upon the date of reply of respondent to the legal notice or the date as per certified documents received from RERA are given as under:

Based on the above dates the learned counsel for the applicant had argued that the application is filed within 3 years from the date of default and as such the present application is not barred by limitation. Whereas, learned counsel for the respondent submitted that the default date would be as per the terms and conditions given in the allotment letter, whereby, the project was to be constructed within 30 months; that if the default date is taken into consideration as the date from 30 months from the issuance of the allotment letter, then the application would be barred by limitation. We have looked into the issue of limitation from the date of default based on the expiry of 30 months from the issuance of allotment letter also and we find that in respect to all these Applicant No.1 to 10, the 30 months’ period expired between 2016-2019

The table below reflects the date of issuance of the allotment letter and the date of default based on the expiry of the 30 months’ period:

It is evident from the table above that the date of default varies from 2016 to 2019; however, as stated herein above, the applicant has also enclosed the balance sheet for the financial year 2013-14 to 2019-20 and considering these balance sheets as an acknowledgement of the dues of these homebuyers, the limitation gets extended till 2023. Moreover, in view of directions of the Hon’ble Supreme Court in suo moto petition regarding limitation, the period from 15.03.2020 till 14.03.2021 is also excluded in computing the period of limitation. Thus, the present application having been filed on 22.05.2024, the same is within the limitation period, even without considering the acknowledgement dated 16.06.2017 & 23.10.2019 issued by the respondent.

Moreover, the reply dated 12.05.2024 of the respondent to the applicant categorically states that the respondent failed to comply with the relevant laws of the RERA. Thus the respondent failed and is unable to construct and complete the said project.

The claim of the applicant stands established and prima facie there is default on the part of the respondent. The default amount meets the threshold limit of Rs.1 crore as per Section 4 of the IB Code, 2016 and the application is well within the limitation, as discussed herein above.

In the view of facts, it is clear that respondent has defaulted. The application is otherwise defect free & on record. Accordingly, we admit this application and order as under:

The IRP shall be under duty to protect and preserve the value of the property of the ‘Corporate Debtor Company’ and manage the operations of the Corporate Debtor Company as a going concern as a part of obligation imposed by Section 20 of the Insolvency & Bankruptcy Code, 2016.