Supreme Court: In a case where out of the total 128 home buyers, 82 were against the insolvency proceedings of the Corporate Debtor of a Gurgaon based housing project, the bench of MR Shah* and BV Nagarathna, JJ has allowed the original applicants (three home buyers) to withdraw the CIRP proceedings as the same shall be in the larger interest of the home buyers who are waiting for the possession since more than eight years. The Court observed that this decision will also be in line with the object and purpose of the IBC i.e. not to kill the company and stop/stall the project, but to ensure that the business of the company runs as a going concern.
Case Trajectory
- Corporate Debtor – Jasmine Buildmart Pvt. Ltd. had come out with a Gurgaon based housing project, namely, Krrish Provence Estate but could not complete the project even after a period of eight years.
- Three home buyers preferred Section 7 application before the Adjudicating Authority/NCLT, Delhi seeking initiation of CIRP against the Corporate Debtor. They also sought refund of an amount of Rs.6,93,02,755/- due to an inordinate delay in the completion of the project and failure to handover possession within the stipulated time. The said application was filed on 06.12.2018, i.e., prior to the amendment to Section 7 of the IBC, which now permits 100 or 10% of the home buyers/allottees to apply under Section 7 of the IBC.
- NCLT directed commencement of CIRP. NCLAT upheld the said order.
- By order dated 03.12.2020, Supreme Court, while issuing notice in the appeal, stayed the operation and implementation of the impugned order, subject to the appellant depositing the amount of 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.
- Meanwhile, Krrish Provence Flat Buyers Association had filed a caveat apprehending that if any order is passed in the present proceedings, it may affect them as home buyers.
- On 04.02.2022, it was brought to the Court’s notice that the original applicants as well as 79 other home buyers have settled the dispute with the Corporate Debtor and a settlement has been entered into, under which, it is agreed that the Corporate Debtor shall complete the entire project and hand over the possession to the home buyers (who want the possession), within a period of one year.
Analysis and Ruling
The Court noticed that although the COC was constituted on 23.11.2020, there has been a stay of CIRP proceedings on 3.12.2020 (within ten days) and no proceedings have taken place before the COC. Also, the COC comprises 91 members, of which 70% are the members of the Flat Buyers Association who are willing for the CIRP proceedings being set aside, subject to the Corporate Debtor company honouring the settlement plan.
In such facts and circumstances, where out of 128 home buyers, 82 home buyers will get the possession within a period of one year, as undertaken by the appellant and Corporate Debtor, coupled with the fact that original applicants have also settled the dispute with the appellant/Corporate Debtor, the Court was of the opinion that it was a fit case to exercise the powers under Article 142 of the Constitution of India read with Rule 11 of the NCLT rules, 2016 and to permit the original applicants to withdraw the CIRP proceedings.
Explaining the reasoning behind it’s ruling, the Court observed that 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 Court further explained the legislative intent behind the amendments to the IBC which is to secure, protect and balance the interests of all home buyers. The interest of home buyers is protected by restricting their ability to initiate CIRP against the builder only if 100 or 10% of the total allottees choose to do so, all the same conferring upon them the status of a financial creditors to enable them to participate in the COC in a representative capacity.
“Being alive to the problem of a single home buyer derailing the entire project by filing an insolvency application under Section 7 of the IBC, the legislature has introduced the threshold of at least 100 home buyers or 10% of the total home buyers of the same project to jointly file an application under Section 7 of the IBC for commencement of CIRP against the builder company.”
The Court, hence, held that the settlement arrived at between the home buyers and the appellant and corporate debtor – company shall be in the larger interest of the home buyers and under the settlement and as undertaken by the appellant/corporate debtor, out of 128 home buyers, 82 home buyers are likely to get possession within a period of one year, for which they are waiting since last more than eight years after they have invested their hard earned money.
Directions
(1) The entire project shall be completed within one year from 01.03.2022 and respective home buyrers shall be offered the possession;
(2) Corporate Debtor shall complete the entire project including all the apartments, common areas, amenities, etc. as specified in the ABA;
(3) all demands be raised and timely paid, strictly in terms of ABA;
(4) Company shall continue the provisions of all maintenance services as per the ABA; and
(5) Company will make the application for obtaining Occupancy Certificate within six months, before the competent authority.
[Amit Katyal v. Meera Ahuja, 2022 SCC OnLine SC 257, decided on 03.03.2022]
*Judgment by: Justice MR Shah
Counsels
For appellant: Senior Advocate Kapil Sibal,
For original applicants: Advocate Lokesh Bhola
For Impleaders: Senior Advocate K.V. Vishwanathan
For Home Buyers Association: Senior Advocate Nakul Diwan
For Resolution Professional: Advocate Yogesh Mittal
For intervenors: Advocate Radhika Gupta