Consolidated Insolvency Resolution Process Could Be Initiated Against Joint-Developers Of Project: NCLT Delhi
Smita Singh
29 July 2024 8:00 AM IST
The National Company Law Tribunal VI, New Delhi bench of Shri Mahendra Khandelwal (Judicial Member) and Shri Rahul Bhatnagar (Technical Member) held that a joint insolvency resolution process against multiple entities who were involved in the development of the same construction project is recognized and could be initiated under the Insolvency and Bankruptcy Code,...
The National Company Law Tribunal VI, New Delhi bench of Shri Mahendra Khandelwal (Judicial Member) and Shri Rahul Bhatnagar (Technical Member) held that a joint insolvency resolution process against multiple entities who were involved in the development of the same construction project is recognized and could be initiated under the Insolvency and Bankruptcy Code, 2016.
Brief Facts:
The Financial Creditors were allottees of the retail space in the real estate project 'Festival City,' co-developed by the Corporate Debtors, namely, (i) Anand Infoedge, (ii) Mist Avenue, and (iii) Mist Direct Sales. The Corporate Debtors formed an independent corporate unit to develop and sell units in the project, leading to the joint petition against them.
On August 21, 2008, Anand Infoedge was allotted land in Noida under the Industrial Land Service Investment Policy, 2004. The lease premium for the land was to be paid in instalments, and the lease was for 90 years. Anand Infoedge was to set up an IT Park on the land and received possession on August 28, 2008. A collaboration agreement was signed on October 26, 2002, between Anand Infoedge and Mist Avenue for the development of the project land.
Mist Avenue was responsible for obtaining development licenses and permissions, bearing all related charges. In return, it was entitled to 85% of the total FSI available on the plot, with Anand Infoedge retaining the right to terminate the agreement if Mist Avenue became insolvent. On July 27, 2017, a second collaboration agreement transferred development rights to Mist Direct Sales. Mist Direct Sales was authorized to handle marketing, branding, pricing, and sales decisions, but needed consent from Anand Infoedge for selling units.
Despite these agreements, no substantial construction occurred. The project was de-registered as visible on the UP-RERA website. Mist Direct Sales is a subsidiary of Anand Infoedge, holding 99.99% of shares.
Feeling aggrieved, the Allottees filed a petition before the National Company Law Tribunal (NCLT) VI, Delhi against the Corporate Debtors for the default in payment of Rs. 51,64,74,251/-, under Section 7 of the IBC. The Allottees argued that the amount collected from them constituted a 'Financial Debt,' making them Financial Creditors. They claimed the application met the minimum threshold requirements under the Insolvency and Bankruptcy Code, but the Corporate Debtors failed to deliver possession within the stipulated time.
Anand Infoedge argued that it was only the landowner and had no privity of contract with the Financial Creditors. Therefore, it was not responsible for the project's construction delays due to land disputes and encumbrances. It also contended that it never received disbursements from the Financial Creditors and thus could not be considered a Corporate Debtor.
Mist Avenue contended that the application was barred by limitation and that the arrangement with Anand Infoedge had been terminated. It argued that it had already suffered losses and could not meet the desired pace of construction. The collaboration agreement was cancelled, and possession of the project land was handed back to Anand Infoedge.
Mist Direct Sales claimed that the petition was not maintainable as there was no provision in the Insolvency and Bankruptcy Code for joint insolvency of multiple entities. It argued that the application was filed with mala fide intentions and beyond the limitation period. It emphasized its independent responsibilities and noted that no objections were received from the allottees when they were informed about the new developer.
Observations by the NCLT:
The NCLT held that previously, the NCLAT and the Supreme Court have clarified that a consolidated insolvency resolution process could be initiated against Corporate Debtors who have jointly developed a project. Further, no settlement was reached between the parties as the Financial Creditors found the settlement offer too low. The NCLT noted that possession of the units which were booked in the year 2012 was not given to the Allottees, and the UPRERA had revoked the project's registration in 2019 due to non-compliance.
The Corporate Debtors were found to be passing blame among themselves. They raised several defences against the CIRP, including maintainability, limitation, allegations of fraudulent initiation, readiness to settle, defective land, disputes with the Noida Authority, force majeure, and doubts over the feasibility of resolution. However, these defences were rejected by the precious orders of the adjudicating authorities.
Therefore, the NCLT allowed the petition and initiated the CIRP against the Corporate Debtors with immediate effect. Mr Narendra Kumar Sharma was appointed as the interim resolution professional, after consulting the Allottees.
Case Title: Nitin Batra and Ors. vs M/s Anand Infoedge Pvt. Ltd. and Others and Connected Matters
Case No.: IA 293/2024, 2497/2024, IN IB-682/PB/2021
Advocate for the Petitioner/Financial Creditors: Mr Sahil Sethi, Mr Samriddh Bindal and Mr Vikash Kumar, Advs.
For the Applicant (in IA/2497/2024): Mr Vijay Agarwal, Mr NPS Chawla, Ms Veera Mathai, Mr Jasjeet Singh, Mr Praney Sharma and Mr Puneet
For the Respondent/Corporate Debtor: Mr Arvind Nayyar, Mr V.D'Costa, Ms Astha Ojha, Mr Akshay Joshi, Ms Mehreen Goel, Mr Himanshu Sharma, Ms Gauri Goel (for R-1); Ravinder Singh & Raveesha Gupta (for R-2); Mr P Nagesh, Mr NPS Chawla, Ms Veera Mathai, Mr Jasjeet Singh, Mr Lokesh Bhola, Ms Manisha Arora, Mr Praney Sharma (for R-3)
