NCLAT Delhi: Pending Scheme Under Section 230 Of Companies Act, Against CD, Can't Be A Ground To Deny Admission Of CIRP

Background Facts:

On 12.10.2021, homebuyers (Respondents) of the Festival City Project filed a petition for a Corporate Insolvency Resolution Process ('CIRP'), citing a failure to complete the project and hand over possession to the financial creditors. The petition involved three Corporate Debtors: M/s. Anand Infoedge Pvt. Ltd. (Corporate Debtor No.1), the land-owning company; M/s. Mist Avenue Pvt. Ltd. (Corporate Debtor No.2), the developer; and M/s. Mist Direct Sales Pvt. Ltd. (Corporate Debtor No.3), another developer following the cancellation of the previous Development Agreement.

The Corporate Debtors filed several appeals challenging the maintainability of the CIRP petition. However, both the NCLAT and the Supreme Court dismissed these appeals, affirming that the CIRP application filed under Section 7 of the IBC was maintainable.

After the dismissal, the Corporate Debtors also filed an interlocutory application and three separate applications seeking to dismiss the main Company Petition and alleging misconduct by the financial creditors. These applications were also dismissed, with the Adjudicating Authority criticizing the Corporate Debtors for attempting to delay the proceedings and cautioning them against filing frivolous applications.

Following these proceedings, another interlocutory application was filed by Grand Developers Pvt. Ltd. (Appellant) claiming to hold 102 units in the Festival City Project and seeking intervention in the Company Petition. The said application was rejected by NCLT New Delhi via Order dated 27.02.2024, which resulted in the filing of the appeal.

Contentions of the Appellant:

The Appellant argued that, despite the CIRP application not being admitted, it has every right to intervene as there is no prohibition under IBC against intervention before admission.

The Appellant claimed that its interests would be harmed by the CIRP's admission against the Corporate Debtor. It is optimistic about the project's completion since the Corporate Debtor has submitted a Scheme under Section 230 of the Companies Act, 2013 to the NCLT New Delhi, which is still pending. If approved, the Corporate Debtor would proceed with the construction according to the Scheme. Thus, initiating the CIRP under Section 7 would negatively impact the proposed Scheme.

NCLAT Verdict:

The NCLAT New Delhi dismissed the appeal, ruling that the pendency of a Section 230 scheme under the Companies Act, 2013, does not prevent the admission of a Section 7 CIRP application under the IBC.

The Appellate Tribunal noted that the Appellant relied upon the decision in Krrish Realtech Private Limited to argue that its intervention application shall be allowed as it has a vested interest in the proceedings. However, NCLAT rejected the contention stating that the said judgment was based on its own facts.

NCLAT distinguished the present scenario with the facts of the judgment and observed that presently, the application has been filed by the Appellant to fraudulently defeat the rights of the homebuyers. It observed that in the CIRP petition filed by 115 homebuyers, the Corporate debtor and other applicants have made numerous attempts to have the petition dismissed. These objections have been consistently rejected, with decisions upheld up to the Supreme Court.

It also laid down that on 11.12.2023, the Supreme Court dismissed appeals challenging this Tribunal's order and noted that the Section 7 application had been pending for two years. The Supreme Court requested the NCLT to expedite the application and aim for disposal within two months. The time period has since expired, and ongoing objections have continued to obstruct proceedings. The Appellate Tribunal noted that given the history of these proceedings, NCLT Delhi's decision to reject the intervention application is justified.

NCLAT also pointed out that although the petition relating to the Scheme under Section 230 of the Companies Act, 2013 by the corporate debtor is an independent proceeding, its filing cannot be a ground to deny the admission of the CIRP proceedings under Section 7 of IBC. It ruled that the CIRP proceedings have been repeatedly delayed and obstructed by the corporate debtor and other applicants to the detriment of the interests of the homebuyers.

In conclusion, NCLAT upheld NCLT Delhi's decision dated 27.02.2024 rejecting the intervention application and observed that the CIRP proceedings under Section 7 of IBC should proceed as per law despite the pendency of the Scheme under Section 230 of the Companies Act, 2013.

Case Title: Grand Developers Pvt. Ltd. vs. Nitin Batra & Ors.

Case No.: Company Appeal (AT) (Insolvency) No. 899 of 2024 & I.A. No. 3250 of 2024

Counsel for Appellant: Mr. Anupam Lal Das, Sr. Advocate with Mr. Anmol Joshi, Mr. Anant Bajpai, Advocates.

Counsel for Respondent: Mr. Sahil Sethi, Mr. Samriddh Bindal and Mr. Vikash Kumar, Advocates for R-1to3. Mr. Ramji Srinivasan, Sr. Advocate with Mr. NPS Chawla, Ms. Mahima Shekhawat, Mr. Jasjeet Sinha, Mr. Praney Sharma, Mr. Surekh Kant Baxy, Advocates. Mr. Gaurav Mitra, Sr. Advocate with Mr. Gaurav H. Sethi, Mr. Deeptanshu Chandra, Mr. Rahul Pawar, Advocates for allottees. Mr. Saurab Kalia, Advocate for Mr. Dheeraj Sharma.

Date of Judgment: 15^th May, 2024

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