The New Delhi bench of the National Company Law Appellant Tribunal (NCLAT) has held that Status status report submitted in a criminal proceeding regarding allegations of fraud and forgery can have no bearing while deciding a Section 7 application under the Insolvency Bankruptcy Code (IBC),2016. The bench stated that the status report is not a piece of evidence on which it can be pronounced that the threshold of 100 allottees was not complete in filing the Section 7 application.
The Suspended Directors of Mist Direct Sales Pvt. Ltd., Anand Infoedge Pvt. Ltd., and Mist Avenue Pvt. Ltd., filed the appeal challenging the decision passed by the NCLT by which an application under section 7 was admitted. The application was filed by 115 allottees of the Festival City Project against the three Corporate Debtors (CDs) collectively.
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The NCLT admitted their section 7 application and dismissed the interlocutory applications filed by the suspended management in which they opposed the admission of the application and also proposed 70% of the total outstanding amount as settlement. The application was admitted despite contentions and efforts made by the CDs to settle the matter.
An FIR No.102/2024 was also filed on a complaint made by the Developer, and counsel representing the Mist Developer stated that several of the affidavits that were presented with the Section 7 Application were fake and fraudulent. Twenty of the affidavits in the application are fake, according to a Status Report that has also been filed in the FIR.
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Additionally, it was argued that IBC’s goal is to settle issues rather than refer companies to CIRP. Just 115 of the 1500 homebuyers have started the CIRP. Additionally, it was asserted that the Adjudicating Authority erred in beginning the Section 7 Application and that the Project could not be finished due to a title dispute. When the land’s title is flawed and the company that owns the land does not have a company privity of contract with financial creditors in a class that has filed a Section 7 application, there is no time limit issue.
Per contra, the respondent submitted that the debt and default being fully proved, Section 7 Application ought to have been admitted, which could not be admitted on account of various dilatory tactics adopted by the Corporate Debtors and that the FIR No.102/2024 and Status Report are wholly irrelevant to decide Section 7 Application, where debt and default has to be looked into.
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Counsel for the Intervenors argued that the threshold question has never been resolved and that the Respondents have not filed any pleadings. Twenty of the 115 Financial Creditors’ declarations are fake and fraudulent; as a result, the threshold limit is not met. The outcome of the Section 230 proceedings is still pending.
The tribunal noted that when making a decision about a Section 7 application, the Status Reports filed by the appellant or appellants in a criminal case cannot be taken into consideration. The aforementioned Status Report does not provide evidence that the Section 7 application was not filed with the required 100 allottees.
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It further stated that the appellant cannot be exonerated by allowing the unit holders to deposit the money with little interest that was received in 2012, since the unit holders had been waiting for their units for over ten years and the allottees paid the money in 2012. The Adjudicating Authority’s conclusions on debt and default, along with the Corporate Debtors’ own application (IA Nos. 293 and 2497 of 2024), unequivocally demonstrate that the Corporate Debtor has acknowledged debt and default.
The bench of Justice Ashok Bhushan (Judicial Member) and Mr. Arun Baroka (Technical Member) ruled that litigations filed by the Corporate Debtor for resolution of the issue for title of land are pending, cannot be a ground to reject Section 7 Application, which was filed by the Financial Creditors in a class for initiating CIRP against the Corporate Debtor.
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The Respondents, who are the financial creditors in this case and who had started proceedings under Section 7 before both the Adjudicating Authority and this Tribunal, have not accepted the Developers’ proposal, it was noted.
The tribunal came to the conclusion that the appeal challenges the Adjudicating Authority’s order in the Section 7 Application, which was started by the Corporate Debtors’ allottees.
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