No default under IBC by Real-Estate Developer if possession is delayed due to reasons beyond its control, NCLAT
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No default under IBC by Real-Estate Developer if possession is delayed due to reasons beyond its control, NCLAT

The NCLAT has also stated that penalty can be imposed on allottees if they are found to have initiated fraudulent and malicious insolvency proceedings against a developer.

Aditi Singh

The NCLAT has held that a real-estate developer cannot be said to have committed a ‘default’ under the Insolvency & Bankruptcy Code, 2016 when the possession of an apartment/flat/premise is delayed due to reasons beyond its control.

"If the delay is not due to the ‘Corporate Debtor’ but force majeure..it cannot be alleged that the ‘Corporate Debtor’ defaulted in delivering the possession.", NCLAT has held.

The NCLAT has also stated that penalty can be imposed on allottees under Section 65 IBC if they are found to have initiated fraudulent and malicious insolvency proceedings against a developer.

The order was passed by a three-member bench of Chairperson, Justice SJ Mukhopadhaya, Member (Judicial) Justice AIS Cheema and Member (Technical) Kanthi Narahari while setting aside the corporate insolvency resolution process (CIRP) against Raheja Developers Ltd.

The National Company Law Tribunal had initiated CIRP against Raheja Developers (Corporate Debtor) pursuant to an application filed by two allottees, Shilpa Jain and Akash Jain, under Section 7 of IBC.

The Respondents-allottees had booked an apartment in Coprorate Debtor’s residential Project- ‘Raheja’s Sampada’. A Flat Buyer’s Agreement was executed in August 2012 and a total sum of Rs.86,62,691 was paid to the Corporate Debtor on different dates.

It was submitted that as per the Agreement, possession of the Apartment was to be provided within 36 months commencing from August 3, 2012. It was alleged that the construction, however, was not completed in time and the possession was delayed.

Challenging the order initiating CIRP, the Corporate Debtor contended that the notice of possession was issued as back as on November 15, 2016 and in spite of repeated request to take possession, the allottees had refused to take possession.

The Corporate Debtor added that as per the terms of the Agreement, the possession of the apartment was to be handed over to the allottees within a period of thirty-six months from the date of execution of the said Agreement, subject to the force majeure conditions.

The NCLAT was informed that in the present case, the construction was completed in all respects in advance and the Allotment letter was also issued on August 3, 2012. Thereafter, the Corporate Debtor had applied for Occupation Certificate by the year 2013.

However, in spite of all impediments and the constant efforts of the Corporate Debtor, the Occupation Certificate was duly obtained only in the year 2016 and possession of the unit was offered in November, 2016, it was argued.

Corporate Debtor submitted that the processing of its application for obtaining an Occupation Certificate was under the control of the concerned Government/ Competent Authority and any delay on account of the actions, inactions and omissions on the part of the Government/ or Authority it was beyond its reasonable control.

It was asserted that instead of accepting the notice of possession which was issued in November 2016 and completing the remaining formalities, the Respondents-allottees very cleverly and conveniently chose to file a petition under Section 7 two years.

The Corporate Debtor also placed on record a Demand Letter seeking payment of an outstanding amount of Rs.8,62,851 from the Respondents-allottees.

The NCLAT was also informed that apart from offering possession to the allottees, alternatively, money was offered to allottees if they did not intend to take the possession on payment of dues.

After hearing the parties, the NCLAT perused the Supreme Court’s decision in Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors and noted that as per Section 19(4) of the RERA Act, an allottee was entitled to claim the refund of amount paid along with interest if the promoter failed to comply or was unable to give possession of the apartment in accordance with the terms of agreement for sale.

It further noted that as per the decision, a Corporate Debtor could refer to Section 65 of IBC and point out that insolvency resolution process was invoked fraudulently, with malicious intent, for any purpose other than the resolution or insolvency.

It stated,

"The Real Estate developer may do so by pointing out, for example, that the allottee who has knocked at the doors of the NCLT is a speculative investor and not a person who is genuinely interested in purchasing a flat/ apartment. The Developer can also point out that in a Real Estate market which is falling, the allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/ apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it."
NCLAT

In view of the above, the NCLAT opined that the Adjudicating Authority i.e. NCLT before admitting a case can find out whether the insolvency application is filed by “trigger-happy allottees”.

It further took the opportunity to state that in a large number of cases, the allottees are not persons who are not genuine buyers but are the ones who want the money paid by them by way of coercive measures.

It observed,

“It has come to our notice that in large number of cases, in the language of the Hon’ble Supreme Court, the allottees are speculative investor and not a person who is genuinely interested in purchasing a flat/ apartment. They do not want to go ahead with its obligation to take possession of the flat/ apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it.”
NCLAT

In the present case, the NCLAT noted that the Corporate Debtor had agreed to pay the amount with interest but the Respondents- allottees refused to accept the payment and wanted higher percentage of money @ 18% p.a. which was even higher than the actual principal amount paid by them.

It further noted that the fact that the Respondents-allottees first refused to take possession in 2016 and then wanted money back after two years was not disputed .

The NCLAT thus remarked,

“The aforesaid facts also make it clear that the 1st and 2nd Respondents filed the application under Section 7, fraudulently with malicious intent for the purpose other than for the resolution or liquidation and they knocked at the doors of the Adjudicating Authority for refund of money and not for the Flat/ premises and thereby wanted to jump ship and really get back the amount, by way of coercive measure..”
NCLAT

In view of the facts of the case, the NCLAT concluded that the Corporate Debtor could not be made responsible for delay due to factors beyond its control. It stated that since the occupation certificate by the Government/ Central Government/ Competent Authority was not given within time, the situation was squarely comes within Clause 4.4 of the Flat Buyer’s Agreement on Force Majeure.

The NCLAT also held that the case of the Respondents-allottees was covered by Section 65 of IBC and they were liable for imposition of penalty.

However, in the facts and circumstances of the case, the NCLAT chose not to impose such penalty on the Respondents-allottees “who even in presence of this Appellate Tribunal refused to accept the money in terms of the Agreement and also refused to take possession of the flat”.

In view of the above, the CIRP against Raheja Developers was set aside.

After concluding the findings, the NCLAT also referred to the "developments" in IBC i.e the December 2019 IBC Ordinance and observed that many applications under Section 7 were filed fraudulently or with malicious intent for purposes other than for the resolution of insolvency, or liquidation.

It, therefore, opined that before admitting such cases, it would be desirable to find out whether the allottees seek refund of their money or possession of their apartment by way of resolution.

If the intention of the allottees is only for refund of money and not possession, the Corporate Debtor may bring it to the notice of the Adjudicating Authority i.e NCLT, it added.

The Appellant, Corporate Debtor was represented by Senior Advocate Salman Khurshid with Advocates Abhijeet Sinha, Saurabh Kalia, Amna Darakhshan, Saloni Purohit, Saikat Sarkar, Kamesh Ved, Rohan Mazumdar and Aditya Shukla.

The Respondent-allottees were represented by Advocates Arunav Patnaik, Mahima Sinha, Shikha, Anandini Kumar.

Read the Judgment:

Raheja Developers - CIRP order NCLAT.pdf
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