Amit Katyal vs Meera Ahuja and Others

100 or 10% of the home buyers/allottees to apply under s.7 of the IBC – NCLT admitted s.7 application and appointed the Interim Resolution Professional (IRP) and declared a moratorium – Appellant challenged the order of admission of s.7 application before the NCLAT – During the hearing before the NCLAT, the appellant tried to settle the matter with the original applicants, however, the settlement did not go through – By impugned order, NCLAT dismissed the appeal and upheld the admission order and directed commencement of CIRP – The IRP issued the public announcement on 10.11.2020 and constituted the Committee of Creditors on 23.11.2020 – In the meantime, instant appeal filed – This Court, while issuing notice, stayed the operation and implementation of impugned order, subject to appellant depositing the amount of Rs.2,75,55,186/- with interest in the Registry of this Court – Appellant deposited an amount of Rs. 3,36,02,000/- with the Registry – Three home buyers preferred IA No. 105732 of 2021 for impleadment – When the present appeal was taken up for further hearing on 04.02.2022, it was reported that the original applicants as well as 79 other home buyers settled the dispute with the Corporate Debtor whereby it was 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 – It was also submitted on behalf of the original applicants that they have also settled the dispute with the corporate debtor and they had agreed to refund the amount of Rs.3,36,02,000/- with applicable/accrued interest to the original applicants – Therefore, it was requested to record the settlement and permit original applicants to withdraw CIRP proceedings pending before the NCLT – Pursuant to order dated 4.2.2022, the original applicants preferred IA No. 18679 of 2022 under Art.142 of the Constitution of India r/w rr.11 and 12 of the National Company Law Tribunal Rules, 2016, praying for permitting original applicants to withdraw CIRP proceedings on their being paid a sum of Rs.3,36,02,000/- along with applicable interest, out of the amount deposited by the appellant in the Registry of this Court and also dismiss all matters pending between the appellant and original applicants and close the CIRP proceedings – Held: In the peculiar facts and circumstances of the case, 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, this is a fit case to exercise the powers under Art.142 of the Constitution of India r/w r.11 of the NCLT rules, 2016 and to permit the original applicants to withdraw the CIRP proceedings – The same shall be in the larger interest of the home buyers who are waiting for the possession since more than eight years – Even the object and purpose of the IBC is not to kill the company and stop/stall the project, but to ensure that the business of the company runs as a going concern.

Disposing of the matters, the Court

HELD: 1. The original applicants (respondent Nos. 1 to 3) now have moved before this Court by way of an interlocutory application No. 18679/2022, praying for permitting them to withdraw the CIRP proceedings initiated by them against respondent no.4 – Corporate Debtor by submitting, inter alia, that the appellant has agreed to pay to the original applicants Rs.3,36,02,000/- with applicable/accrued interest thereon and they do not propose to thereafter proceed further with the insolvency proceedings. Similarly, 82 (79+3) home buyers out of the total 128 home buyers, who are also represented before this Court, have stated that they are satisfied with the undertaking given by the appellant and respondent no.4 before this Court recorded in the joint statement regarding the proposed settlement plan dated 3.2.2022, under which the appellant and respondent No.4 (Corporate Debtor) have undertaken to complete the project within a period of one year and to hand over the possession to them. Thus, out of 128 home buyers of 176 units, 82 home buyers + three original applicants have agreed to the settlement and agreed to withdraw the CIRP proceedings and/or have no objection if the CIRP proceedings initiated by respondent Nos. 1 to 3 are permitted to be withdrawn. [Para 5.1][399-D-H]

2. Immediately on constitution of COC, this Court has stayed the impugned order. No further steps are taken by the IRP/COC pursuant to the admission of the CIRP proceedings except the IRP was appointed and the COC was constituted. Under Section 12A of the IBC which has been inserted by the Insolvency and Bankruptcy (Second Amendment) Act, 2018 with retrospective effect from 06.06.2018, the Adjudicating Authority may allow the withdrawal of application admitted under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of ninety per cent voting share of the COC, in such manner as may be specified. [Para 6][399-H; 400-A-B]

3. In the present case, 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. 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 appellant and the Corporate Debtor – company honouring its undertaking given to this Court as per the settlement plan dated 3.2.2022. [Para 8][401-A-B]

4. Therefore, in the peculiar facts and circumstances of the case, 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 respondent No.4 – Corporate Debtor, coupled with the fact that original applicants have also settled the dispute with the appellant/Corporate Debtor, this is 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. The same shall be in the larger interest of the home buyers who are waiting for the possession since more than eight years. [Para 9][401-B-D]

5. 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. [Para 10][401-E-G]

6. Even the legislative intent behind the amendments to the IBC 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. [Para 11][402-A-C]

7. In the present case, out of the total 128 home buyers of

176 units, 82 homebuyers are against the insolvency proceedings and the original applicants have also settled their dispute with the appellant and corporate debtor. Even the object and purpose of the IBC is not to kill the company and stop/stall the project, but to ensure that the business of the company runs as a going concern. [Para 12][402-F-G]

8. In view of the aforesaid facts and circumstances, more particularly when the withdrawal of the CIRP proceedings initiated by the original applicants is allowable by the NCLT in exercise of its powers under Rule 11 of the NCLT rules, 2016 and in the peculiar facts and circumstances of the case, instead of relegating the original applicants to approach the NCLT/Adjudicating Authority by moving an application under Section 12A of the IBC, this is a fit case to exercise powers under Article

142 of the Constitution of India as the settlement arrived at between the home buyers and the appellant and corporate debtor 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. This shall be in furtherance of the object and purpose of IBC. [Para 13][402-G-H; 403-A-B]

Swiss Ribbons Private Limited and Another v. Union of India and others (2019) 4 SCC 17 : [2019] 3 SCR 535; Kamal K. Singh v. Dinesh Gupta & Another (Civil Appeal No. 4993 of 2021, decided on 25.08.2021; Brilliant Alloys Pvt. Ltd. v. S. Rajagopal 2018 SCC Online SC 3154 – referred to.