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While considering an application under Section 7 of the IBC, only the financial debt being defaulted should be the criteria: NCLT, New Delhi

When deciding whether an application under  section 7 of the insolvency and bankruptcy code must be allowed, reliance must be placed only and only on the financial debt being defaulted and not the reason behind the default or the factors that led to the default. This was held by the tribunal bench comprising of Hon’ble Member Deepti Mukesh and Hon’ble Member Sumita Purkayastha in the matter of Mr. Suraj Kumar Kaushal & ORS. Vs. M/S Sarvottam Realcon Pvt. Ltd. [Company Petition No. IB 901/ND/2020] in the National Company Law Tribunal, New Delhi (Court No. IV) on the 09th of July 2021.

The brief facts of the matter are, the Applicants, collectively are home buyers and allottees of 2/3/4 BHK apartments in the project named as “Sarvottam Shree” and are financial creditors within the meaning of explanation to Section 5(8)(f) of the IBC. The corporate debtor is a company involved in the business of construction and development of real estate projects. he applicants state that from 2013 onwards, they started booking flats in the project of corporate debtor and accordingly allotment letters were issued on payment of initial amount, the applicants opted for construction linked plan. It is further stated that the amount paid by the applicants along with accumulated interest thereon constitutes “Debt” within the meaning of Section 2(11) of IBC. Further as per clause 6, of the allotment letter issued by the corporate debtor, it is stated that the title of the apartment shall be transferred after completion of construction, by way of sale deed. The said clause imply that the payments made and interest thereon till sale deed is executed is a debt on the corporate Debtor. The applicants submit that as per clause 42 of the allotment letter, the corporate debtor undertook to build, handover and sell apartments/flat with car garages within a stipulated period. Further states that the possession of the flat was promised within by the year 2017 and payment were being made by the applicants up to the year 2019. The corporate debtor in violation of the said clause, failed to deliver flat and also refused to refund the money with interest. The applicants further state that they approached the corporate debtor time and again for refund of the deposited amount with interest but the same was not paid off despite promises. The present application is filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 with a prayer to trigger Corporate Insolvency Resolution Process against the corporate debtor.

The corporate debtor submitted that, That no amount remains due and payable to the applicants, as per the allotment letter and that the applicants are not the creditors of the corporate debtor. The corporate debtor states that he is financially sound and solvent, hence CIRP should not be allowed. He also submitted that the applicants have defaulted in payment of various demand raised by the corporate debtor, but stated that the applicant failed to adhere the demands and defaulted in payments of instalments qua the purchase of the said flats. The applicant submitted that, the corporate debtor has not disputed that the 43 applicants have paid a sum of Rs.19,12,52,673/-, i.e. approximately, more than 45 Lakh per person and which is higher than the actual cost of construction. The applicants state that there is possibility that the funds of applicants have been used for construction of flats of ALT society. That if there is non-payment of certain instalments, as per the timelines has been caused due to the conduct of the corporate debtor.  The applicants state that payments were linked to the stage and progress of construction, hence payments have been made accordingly and even after that a substantial amount has been paid by each applicant.

The bench heard the submissions of both the parties. Relying on the judgement in  Innoventive Industries Ltd. vs. ICICI Bank & Another (AIR 20l7 SC 4084), wherein the court held that, “as we have seen, in the case of a corporate debtor who commits a default of financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the Financial Creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date.

 The bench admitted the present petition and decreed that, “the corporate debtor has failed to fulfil its contractual obligation as per the allotment letter signed with the applicants and failed to handover the timely possession of flats, leading to default on part of the corporate debtor. Thus, the amount paid by the applicant to the corporate debtor against the allotment of apartment, which falls under the category of financial debt has remained unpaid. The corporate debtor has raised objection stating the hindrances with respect to non- payment by ALT society to the corporate debtor and also changes in the government policies that they had to face for completion of the said project, but the same has no relation with the applicant. It is a settled law that while dealing with the application under Section 7 the reason behind default or the factor leading to default need not be considered and only the financial debt being defaulted should be the criteria to decide while admitting the application filed under Section 7 of the code by a financial creditor. Hence the applicants should not be made to suffer for the default of the corporate debtor.”

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