A Division Bench of the Hon’ble Supreme Court of India comprising of Justices MR. Shah and B.V. Nagarathna passed a Judgment dated 03-03-2022 in the case of Amit Katyal v. Meera Ahuja and Others Civil Appeal No.3778 of 2020 and held that CIRP proceedings initiated by the home buyers (unsecured creditors) under Insolvency and Bankruptcy Code, 2016 (IBC) can prejudice their rights and interests as this would impose a restriction/bar on initiation of proceedings for claiming compensation due to delayed possession or refund.
In the present case, the Corporate Debtor, Jasmine Buildmart Pvt. Ltd. (Appellant before the Supreme Court) constructed a Gurgaon based housing project, namely, Krrish Provence Estate (Project). The Appellant could not deliver the timely possession of the Project and there was a delay of more than 8 years. Subsequently, Respondent No.1 to 3 (Original Applicants/Homebuyers) preferred an Application under Section 7 of the IBC before the Adjudicating Authority/National Company Law Tribunal, Delhi (NCLT) being CP No. 1722/ND/2018 and sought for an initiation of Corporate Insolvency Resolution Process (CIRP) against the Appellant. Further, the Original Applicants also sought refund of an amount of Rs.6,93,02,755/- since there was an inordinate delay in the completion of the Project and a failure to handover possession as stipulated in the Apartment Buyer’s Agreement (ABA). However, the said Application was filed on 06-12-2018 i.e., prior to the amendment to Section 7 of the IBC, according to which 100 or 10% of the home buyers/allottees can apply under Section 7 of the IBC.
Thereafter, the NCLT/Adjudicating Authority admitted the Application on 28-11-2019 and appointed an Interim Resolution Professional (IRP) and declared a moratorium. Such an admission of the Application was challenged by the Appellant before the NCLAT/Appellate Authority being CA (AT) (Insolvency) 1380 of 2019. The NCLAT by Impugned Judgment and Order dated 09-11-2020 dismissed the said Appeal and upheld the Admission Order and directed the commencement of CIRP.
The IRP issued the public announcement on 10-11-2020 and constituted the Committee of Creditors (COC) on 23-11-2020. Meanwhile, the Appellant filed an Appeal before the Hon’ble Supreme Court of India and vide Order dated 03-12-2020, the Apex Court issued Notice in the Appeal and stayed the operation and implementation of the Impugned Order, subject to the condition that the Appellant deposits Rs.2,75,55,186/- plus interest at the rate of 6% per annum in the Registry of the Court within two weeks from that date. That the Appellant deposited an amount of Rs. 3,36,02,000/- on 17-12-2020 with the Registry of the Court.
Also, Krrish Provence Flat Buyers Association had filed a caveat before the Apex Court on the apprehension that if any Order is passed in the present proceedings, it may affect them as home buyers.
On 04-02-2022, it was reported that the Original Applicants along with 79 other had settled the dispute with the Appellant and a settlement was reached between the Parties that the Corporate Debtor/Appellant shall complete the entire project and hand over the possession to the home buyers (who want the possession), within a period of one year. Therefore, a request was made to record the settlement and permit the Original Applicants to withdraw CIRP proceedings pending before the NCLT/Adjudicating Authority.
Therefore, in pursuance to Order dated 04-02-2022, the Original Applicants preferred IA No. 18679 of 2022 under Article 142 of the Constitution of India read with Rules 11 and 12 of the National Company Law Tribunal Rules, 2016 and prayed for permitting the Original Applicants to withdraw CIRP proceedings on their being paid a sum of Rs.3,36,02,000/- along with applicable interest, out of the amount deposited by the Appellant in the Registry of the Apex Court. Furthermore, they also prayed to dismiss all matters pending between the Appellant and Original Applicants mentioned in IA No. 18679 of 2022 and close the CIRP proceedings of Corporate Debtor/Appellant initiated by Respondent Nos. 1 to 3 (Original Applicants).
The Bench after perusing the facts of the case and arguments advanced by the Parties to the dispute, placed reliance on Section 12 A of the IBC. The said provision which has been inserted by the Insolvency and Bankruptcy (Second Amendment) Act, 2018 with retrospective effect from 06-06-2018 is reproduced below for easy reference:
“12A. The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent voting share of the committee of creditors, in such manner as may be prescribed.”
Under this provision, the Adjudicating Authority may allow the withdrawal of Application admitted under Section 7 or Section 9 or Section 10, on an Application made by the Applicant with the approval of ninety per cent voting share of the COC, in such manner as may be specified.
The Bench opined that since in this case 82 home buyers will be getting the possession within a period of one year, as undertaken by the Appellant-Corporate Debtor, coupled with the fact that Original Applicants also agreed to settle the dispute with the Appellant/Corporate Debtor, therefore powers can be exercised under Article 142 of the Constitution of India, 1950 read with Rule 11 of the NCLT rules, 2016 to permit the Original Applicants to withdraw the CIRP proceedings.
The Court held that “10. If the original applicants and the majority of the home buyers are not permitted to close the CIRP proceedings, it would have a drastic consequence on the home buyers of real estate project. If the CIRP proceedings are continued, there would be a moratorium under Section 14 of the IBC and there would be stay of all pending proceedings and which would bar institution of fresh proceedings against the builder, including proceedings by home buyers for compensation due to delayed possession or refund. If the CIRP is successfully completed, the home buyers like all other creditors are subjected to the pay outs provided in the resolution plan approved by the COC. Most often, resolution plans provide for high percentage of haircuts in the claims, thereby significantly reducing the claims of creditors. Unlike other financial creditors like banks and financial institutions, the effect of such haircuts in claims for refund or delayed possession may be harsh and unjust on homebuyers. On the other hand, if the CIRP fails, then the builder-company has to go into liquidation as per Section 33 of the IBC. The homebuyers being unsecured creditors of the builder company stand to lose all their monies that are either hard earned and saved or borrowed at high rate of interest, for no fault of theirs.”
The Hon’ble Supreme Court therefore, issued inter alia the following directions:
- The Appellant shall complete the entire Project including all the apartments, common areas, amenities, etc. as specified in the ABA within one year from 01-03-2022 and offer the possession to the respective home buyers.
- Further it permitted the home buyers to withdraw the Application filed by them under Section 7 of the IBC, 2016 bearing CP No. 1722/ND/2018 pending before the NCLT, New Delhi.
- Respondent Nos. 1 to 3 shall be paid an amount of Rs.3,36,02,000/- along with accrued interest, out of the amount deposited by the Appellant, pursuant to the earlier Order passed by the Court dated 03-12-2020.
Mostly in home buyer’s cases, the Apex Court tries to balance the equities while passing an Order. The judges understand that home buyers put their entire life savings into booking a flat. This case is yet another example where the Hon’ble Supreme Court has considered the importance of providing completed flats to home buyers as oppose to appointment of a Resolution Professional and initiation and finalisation of the corporate insolvency resolution process.
The Indian Lawyer & Allied Services
Sushila Ram Varma
The Indian Lawyer & Allied Services