Allotment Of Commercial Space By Corporate Debtor Through Unregistered Allotment Letter Remains Their Asset, Can't Be Excluded From Resolution Plan: NCLAT
The NCLAT New Delhi bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) has held that allotment of commercial spaces by the corporate debtor through unregistered documents like allotment letter, lease deed etc.cannot divest the CD of their ownership. They would continue to remain the assets of the CD therefore they cannot be excluded from the Resolution Plan.
Brief Facts
The Corporate Debtor – M/s IP Construction Pvt. Ltd., a real estate company, involved in development of Project. The Corporate Debtor (“CD”) has issued an allotment letter dated 04.07.2012 in favour of Appellant in Company Appeal (AT) (Ins.) Nos.40 and 45 of 2024, allotting the office spaces Nos.GF-08, GF-09 and GF-10 on the ground floor, each admeasuring 47.93 sq. mt. in the Project Coral Brio situated at C5, Sector-18, Vasundhara, Ghaziabad.
Similarly, the Appellant in Company Appeal (AT) (Ins.) No.61 of 2024 was allotted Commercial space/ office Nos. SF-02, SF03 and F-05 vide allotment letter dated 31.03.2013. On 07.05.2014, Nupur Garg issued a letter to the CD requesting cancellation of commercial spaces/ Office Nos. SF-02 and SF03 and sought refund of the booking amount.
The CIRP against the Corporate Debtor commenced on an application filed under Section 7 by the Union Bank of India. The Adjudicating Authority vide order dated 11.01.2019 initiated the CIRP by admitting Section 7 application.
The Appellant(s) in Company Appeal (AT) (Ins.) Nos.40 and 45 of 2024, filed their claims on 02.12.2019. The Appellant in Company Appeal (AT) (Ins.) No.61 of 2024 filed its claim on 14.02.2019. The Appellant – Nupur Garg again submitted a consolidated Form CA on 05.03.2019.
The RP verified the claim of Appellant and has issued a List of Financial Creditors in the class of Commercial Space Buyer, which included the name of the Appellants of Company Appeal (AT) (Ins.) No.40 of 2024 at Sl. No.21 and Appellant – Nupur Garg at Sl. No.17, admitting their claims.
In the CIRP of the Corporate Debtor, Resolution Plan was submitted by individual of consortium. The Committee of Creditors (“CoC”) on 16.01.2020/ 30.10.2020 approved the Resolution Plan with 87.49% vote shares. The Resolution Plan offers payment of 50% of the principal amount to the class of commercial space buyers and in alternate permitted them to opt for equivalent commercial space at alternate places on rates as mentioned in the Resolution Plan.
Contentions
The appellants in Company Appeal (AT) (Ins.) Nos.40 and 45 of 2024 submitted that the Appellants being commercial space buyers, who had paid substantial amount to the CD, were entitled for execution of Sale Deed for commercial spaces. In the Resolution Plan the claim of the Appellants for execution of the Deed has not been accepted and there were initial proposal only of 50% of principal amount in the Resolution Plan.
That the Appellant-Nupur Garg, having been allotted commercial space, with regard to which, Lease Deed was also executed by the CD and the Appellant was also entitled for the rent. The Lease Deed have been executed in favour of the Appellant only on the premise that the Appellant is owner of the commercial space. The Resolution Plan does not accept the claim of the Appellant that Appellant is the owner of the commercial space and the said space being SF-05, ought to have been excluded from the Resolution Plan.
Per contra, the respondent/RP submitted that the Appellants are commercial space buyers, whose claims as Financial Creditor of a class, i.e., commercial space buyers, were admitted in CIRP of the CD. The Appellant(s) being dissenting Financial Creditor have no right to challenge the Resolution Plan.
That the Resolution Plan having been approved by majority by 87.49%, the Plan is binding on all stake holders of the CD, including the Appellant(s). The Appellant(s) as dissenting Financial Creditors were entitled to the liquidation value as per Section 30, sub-section (2).
The SRA submitted that the Appellant(s) being dissenting Financial Creditors are entitled only for the liquidation value as per Section 30, sub-section (2). The liquidation value of both the Appellant(s) are 'zero', however, the SRA has proposed to pay the Appellant 100% of principal amount of claim admitted in the CIRP.
That the prayer of the Appellant – Nupur Garg that assets be excluded from the Resolution Plan, cannot be accepted. Nupur Garg and other Appellants cannot claim ownership of the commercial spaces. The ownership still lies with the CD, since no Deed of Title has been executed in favour of the Appellant(s).
Issues Before NCLAT
- Whether the units allotted to commercial space buyers (the Appellant(s) herein), required to be excluded from the assets of the Corporate Debtor?
- Whether the Appellant(s) on the basis of allotment of commercial spaces by the CD, by virtue of Lease Deed dated 24.12.2014 in respect to Appellant – Nupur Garg, the Appellant(s) are owners of the units allotted to them?
- Whether the Appellant(s) being dissenting Financial Creditors, entitled for the amount as per Section 30, sub-section (2)(b)?
NCLAT's Analysis
The tribunal noted that the allotment letter and Lease Deed executed in favour of the Appellant is an unregistered document. The transfer of title is contemplated by registered documents. It is well settled that allotment which is a contract between parties at best lead to as specific performance of contract. However, the allotment itself does not transfer any title in favour of the Appellant(s).
The tribunal further observed that the fact that title do not vest with the Appellant(s) is fully established from the prayers made in the IAs, which were filed by the Appellant(s) before the Adjudicating Authority, seeking directions to the CD through RP to execute a Sale Deed in favour of the Appellant(s). The prayer by the Appellant(s) to execute a Sale Deed in their favour, itself recognize that the title do not vest with the Appellant(s).
In Suraj Lamp and Industries Pvt. Ltd. vs. State of Haryana & Ors.,2012 the Supreme Court has held that a transfer of immovable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immovable property can be transferred,the tribunal noted.
The tribunal further noted that in Jaypee Kensingston Boulevard Apartment Welfare Association & ors. Vs. NBCC (India) Ltd. & Ors. – (2022) , Hon'ble Supreme Court has held that Resolution Plan has to comprehensively deals with all the assets and liabilities of the Corporate Debtor and no housing project could be segregated for the reason that the same has been completed or is nearing completion.
Based on the above, the tribunal came to the conclusion that by virtue of allotment of commercial space in favour of the Appellant(s), including the Lease Deed dated 24.12.2014 in favour of Nupur Garg, the Appellant(s) cannot claim to have become owners of the commercial spaces. The CD continues to own the assets and the plea of the Appellant(s) that assets be excluded from CIRP of the CD, or the Appellant(s) are owners of the commercial space/ units allotted to them, cannot be accepted.
A perusal of result of voting on Resolution Plan, indicate that Financial Creditors in case of commercial space buyers have dissented. The Appellant(s) are also part of Financial Creditors in class of commercial space buyers. Financial Creditors being a dissenting Financial Creditors are entitled as per Section 30, sub-section (2) sub-clause (b),the tribunal noted.
The tribunal referred to section 30(2) of IBC which states that amount to be paid to the Financial Creditors, who do not vote in favour of the Resolution Plan shall not be less than the amount to be paid to such creditors in accordance with subsection (1) of Section 53 in event of a liquidation of the Corporate Debtor.
Based on the above, the tribunal noted that when the total plan value offered by SRA is looked into and compare with the amount, which is admitted with regard to Financial Creditors – secured and unsecured, the liquidation value of the unsecured Financial Creditors in a class of commercial space buyers is 'zero'.
The tribunal further noted that the Appellant(s) under Section 30, sub-section (2)(b) were entitled for only liquidation value, which according to the Resolution Plan is 'zero'. However, the SRA having offered 100% refund of the principal amount with alternative proposal for commercial space, the entitlement of Appellant(s) as per the Resolution Plan is of 100% refund of the principal amount or the option for alternate commercial space.
The law with regard to interference with the commercial wisdom of the CoC approving the Resolution Plan is well settled. The limited ground on which the Adjudicating Authority or the Appellate Tribunal can interfere with the approval of the Resolution Plan is only to examine as to whether the Resolution Plan is in compliance of Section 30, sub-section (2) of the IBC. The present is not a case that Appellant(s) have pleaded or proved any ground that Resolution Plan is in violation of provisions of Section 30, sub-section (2) (b), the tribunal noted.
The tribunal further noted that the prayer of the Appellant to exclude the commercial space from the Resolution Plan, could not have been accepted, nor any direction could have been issued for registration of Sale Deed.
However, the tribunal observed that the claims, which were admitted pertained to the claim of the Appellant upto the date of commencement of the CIRP. There has been no consideration of the claim of the rent by the Appellant from July 2019, which was one of the prayers made in the application, therefore ends of justice will be served in granting liberty to the Appellant – Nupur Garg to file an appropriate application for claim of rent subsequent to commencement of CIRP.
The tribunal concluded:
- Company Appeal (AT) (Ins.) No.40 of 2024 is dismissed upholding the order dated 30.10.2023 passed by Adjudicating Authority approving the Resolution Plan.
- Company Appeal (AT) (Ins.) No.45 of 2024 is dismissed.
- Company Appeal (AT) (Ins.) No.61 of 2024 is disposed of upholding the order dated 30.10.2023 passed by Adjudicating Authority in IA No.3524 of 2020, subject to liberty granted to the Appellant – Nupur Garg to file fresh application before the Adjudicating Authority for prayer (iv) made in IA 3524 of 2020, i.e. claim of the Appellant for lease rent from July 2019.
Case Title: Praveen Arya & Ors. Versus Anju Aggarwal (RP of Corporate Debtor ) & Anr
Case Reference: Company Appeal (AT) (Insolvency) No. 40 of 2024 With Company Appeal (AT) (Insolvency) No.45 of 2024 & Interlocutory Application No.140 of 2024
Judgment Date: 21/11/2024