Deficient Proof of Payment & Illegal Flat Allotment Render Claims Non-Creditor: NCLAT Affirms NCLT’s Dismissal of Appeals [Read Order]

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has affirmed the dismissal of appeals filed by the appellants against the rejection of their claims in the corporate insolvency resolution process (CIRP) of Monarch Brookfields LLP. The appellants had challenged orders of the National Company Law Tribunal (NCLT), Mumbai, which refused to admit their claims on grounds of delay, lack of proof of payment, and illegality of the flats allotted to them.

The appellants contended that they had entered into agreements for sale in January 2014 for flats on the 11th floor of the Arizona wing of the project developed by Monarch Brookfields LLP. When possession was not delivered, they approached the State Consumer Disputes Redressal Commission, which in September 2019 directed the corporate debtor to either hand over possession or refund ₹45.85 lakh with interest.

However, before the consumer forum’s order could be enforced, CIRP was initiated against the corporate debtor in September 2019. The appellants argued that they remained unaware of the insolvency proceedings due to defective public announcements, which were published only in Mumbai editions of newspapers with limited circulation and not uploaded on the IBBI website.

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They filed claims belatedly in August 2023, seeking inclusion in the resolution plan.

The Resolution Professional (RP) and the Successful Resolution Applicant (SRA), Planet Builders and Developers, opposed the claims, asserting that the appellants were not financial creditors as no payments were traceable in the corporate debtor’s accounts.

They further argued that the flats booked were illegal constructions beyond the sanctioned plan, rendering the agreements unenforceable. The RP emphasised that the Committee of Creditors (CoC) had approved the resolution plan in November 2021, and belated claims filed 1357 days thereafter could not be entertained. The SRA added that the resolution plan had already been implemented, and reopening claims would frustrate the Code’s objective of providing a clean slate.

The three-member bench comprising Rakesh Kumar Jain (Judicial Member), Mohd. Faiz Alam Khan (Judicial Member) and Naresh Salecha(Technical Member), after examining the submissions, held that the appellants failed to establish themselves as financial creditors under Section 5(8) of the IBC, as no evidence of payment to the corporate debtor was found in its books or bank accounts.

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The Tribunal noted that the agreements relied upon were unexecuted and unstamped, conferring no legal right or title. It further observed that the flats in question were unsanctioned and illegal, falling outside the approved building plan, and therefore could not be regularized or delivered.

On the issue of public announcement, NCLAT ruled that publication in Financial Express and Mumbai Lakshadweep was in compliance with Regulation 6 of the CIRP Regulations, and appellants could not claim ignorance merely because they resided in Kolhapur.

The Tribunal underscored that the appellants’ claims were filed after an inordinate delay of 1357 days from CoC approval of the resolution plan, without any plausible explanation. It reiterated that the commercial wisdom of the CoC in approving a resolution plan is non-justiciable and cannot be reopened to accommodate belated claims.

Citing precedents including RPS Infrastructure Ltd. v. Mukul Kumar and Essar Steel v. Satish Kumar Gupta, the Tribunal emphasized that resolution applicants cannot be saddled with undecided claims post-plan approval, as this would create uncertainty and undermine the insolvency framework.

In conclusion, NCLAT upheld the NCLT’s orders dismissing the appellants’ pleas, ruling that deficient proof of payment and illegal flat allotments rendered their claims untenable.

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