The appeal revolves around a financial dispute and insolvency proceedings involving the appellants, Rita Malhotra and Bina Chopra, and the respondent, Orris Infrastructure Pvt. Ltd. The appellants sought to initiate the Corporate Insolvency Resolution Process (CIRP) against Orris Infrastructure under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016. This appeal arises from an order dated 19th September 2023 by the National Company Law Tribunal (NCLT) dismissing the appellants’ application to initiate CIRP.
Background and Agreements
Orris Infrastructure Pvt. Ltd. was developing a commercial complex named Floreal Tower in Gurgaon. The appellants entered into a Memorandum of Understanding (MoU) with Orris on 24th April 2010. According to the MoU, Orris promised to pay the appellants a Monthly Assured Return (MAR) for a period extending 36 months beyond the project’s completion or until the office space was leased out, whichever came first. The appellants fully paid their share, totaling Rs. 29.98 lakhs, as stipulated in the agreement.
Issues and Defaults
Orris failed to complete the Floreal Tower project and did not lease out the office space, thus failing to honor the MAR payments. Despite obtaining an Occupancy Certificate on 16th August 2017, which Orris presented as a Completion Certificate, the appellants argued that the building was still not completed. Subsequently, the appellants issued default notices on 9th January 2018 and 12th February 2018, and filed a Section 7 application on 1st June 2018.
Settlement Attempts and Renewed Defaults
The initial Section 7 application was withdrawn following a settlement deed on 9th July 2018. However, the post-dated cheques issued under this settlement were dishonored, leading to a fresh Section 7 application. The parties again reached an amicable settlement on 6th March 2019, resulting in the application being disposed of with the liberty to revive in case of further defaults. Despite multiple settlements, Orris failed to fulfill its obligations, prompting the appellants to issue another notice on 10th December 2019 and revive the Section 7 application.
Legal Arguments and Provisions
The appellants contended that their claim was based on the financial debt arising from the MAR clause in the MoU, independent of their status as allottees of the project. They argued that their investment arrangement was distinct from a simple allotment and referenced a judgment in Nikhil Mehta and Sons Vs. AMR Infrastructure Ltd to support their claim that a recipient under an assured return scheme is a financial creditor under the IBC.
The respondent’s counsel acknowledged the MoU but argued that the appellants did not meet the statutory requirements under the amended Section 7 of the IBC, which mandates that applications by allottees under a real estate project must be jointly filed by at least 100 allottees or 10% of the total allottees. They also highlighted that the appellants failed to modify their application within the stipulated timeframe, as required by the Supreme Court’s judgment in Manish Kumar v. Union of India. 2021.
Tribunal’s Findings
The National Company Law Appellate Tribunal (NCLAT) examined the statutory provisions and the arguments presented. They scrutinized the application of Section 7(1) of the IBC, particularly the proviso concerning financial creditors who are allottees under a real estate project.
However, the NCLAT held that by virtue of separate MAR, the core nature of the allottees will not change and the appellants are still bound by the threshold limit of 100 or 10% of homebuyers as introduced by the 2020 IBC Amendment.
Case Title: Rita Malhotra v. Orris Infrastructure, Company Appeal (AT) (Insolvency) No. 484 of 2024