The National Company Law Appellate Tribunal (NCLT), Principal Bench, New Delhi, has held that the Debenture Trustee having proved the debt and default, initiation of Corporate Insolvency Resolution Process (CIRP) against the corporate debtor cannot be faulted; however, CIRP against the corporate debtor is to be confined to only the specific project (Project Aspirations) for which the finance was extended and securities were provided, and the CIRP cannot be extended to other projects of the corporate debtor.
The Division Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) observed that there was a default on the part of the company to pay the amount of Rs. 29,72,29,959/- on the date when the Section 7 application was filed. The amount claimed in Part IV of the Section 7 application of Rs. 274 crore and odd was not the correct amount, as it incorrectly included the principal payment of debentures of Rs. 146 crore which was due only on June 30, 2024.
There was no action taken by the trustee after the notice dated Dec 29, 2023 requiring the payment of the principal amount of the debenture. However, the financial creditor fully proved the debt and default on the part of the corporate debtor, as the corporate debtor had not paid the quarterly interest amount from March 15, 2022. By payment of Rs. 37.2 crore during the pendency of the Section 7 application by the company to the financial creditor, it cannot be held that the default by the company has been liquidated and the default stood cured, added the Bench.
The Bench explained that the view of the adjudicating authority that insolvency cannot be project-wise in the case of a Real Estate Company and only resolution can be project-wise, is not in accordance with the law laid down by the NCLAT and the Supreme Court. The adjudicating authority failed to advert to binding judgments, including Mansi Brar Fernandes, Flat Buyers Association Winter Hills, and Gagan Tandon, which clearly held that when CIRP initiated by allottees or financial institutions under Section 7 relates to one project, the CIRP has to be confined to the said project and cannot take into its fold other real estate projects situated in other cities or other states.
The DTD dated June 30, 2017 contemplated payment of the amount of debenture amounting to Rs. 146 crores for a project on a property identified in the DTD as land situated in Sector 88 B area admeasuring to 12.212 acres, which subsequently got registered as Project ‘Aspirations’. The securities provided to the Debenture Trustees were with respect to the project in question, including equitable mortgage by deposit of title deeds on the project and the property on a first charge basis, and first exclusive charge by way of hypothecation over the hypothecated property.
In the facts of the present case, the Bench noted that the CIRP against the corporate debtor ought to have been confined only to the project in question ‘Aspirations’ and the CIRP cannot be extended to other projects of the corporate debtor, situated in the state of Haryana and other places.
Briefly, the corporate debtor, Vatika Limited, is a company engaged in the business of Real Estate Development, developing multiple residential and commercial projects across the state of Haryana and National Capital Territory Region. In 2017, the corporate debtor entered into a Debenture Trust Deed (DTD) with IDBI Trusteeship Limited (Debenture Trustee) for the issuance of 1,460 fully secured renewable and Non-Convertible Debentures having a value aggregating to a total of Rs. 146 crores, and the term of the debenture was extended till June 30, 2024.
In Dec 2023, a notice was issued by the Debenture Trustee seeking payment of Rs. 29,72,29,959/- towards outstanding interest along with an additional coupon @ 5% per annum within 15 days from the receipt of the said notice. No payment having been received, the Debenture Trustee filed an application under Section 7 of the IBC, claiming an amount of default of Rs. 274,13,45,241/-.
The corporate debtor pleaded that the application was filed prior to the date of redemption of debentures, and that an amount of Rs. 37.2 crore had been paid after the filing of the Section 7 application. The adjudicating authority admitted the Section 7 application, holding that the Insolvency & Bankruptcy Code recognises insolvency of the corporate debtor and not of an individual project, thereby rejecting the plea to confine the CIRP project-wise.
Appearances:
Senior Advocates Kapil Sibbal, Virender Ganda, and Arun Kathpalia, along with Advocates Vishal Ganda, Ayandeb Mitra, Manisha Singh, Diksha and Riya Palnitkar, for the Appellants
Senior Advocates Gopal Jain, Nalin Kohli, and Abhijeet Sinha, along with Advocates Meghna Mishra, Nikhil Ratti Kapoor, Yashodhara Gupta, Kevin Chadha and Saikat Sarkar, for the Respondent 1
Advocates Gaurav Mitra and Adhish Srivastava, for RP
Senior Advocate Rudreshwar Singh and Advocate Eklavya Dwivedi, for Omkara Assets
Advocates Akshay Srivastava, Vivek Kumar and Raveena Paniker, for Interveners.
Mr. Aditya Rathi, Sumesh Dhawan, Kartik Nayar and Divyansh Rai, for Intervener
