NCLAT Delhi: Section 230 Scheme No Bar To CIRP Admission Under IBC Section 7

NCLAT Delhi: Section 230 Scheme No Bar To CIRP Admission Under IBC Section 7

The National Company Law Appellate Tribunal (NCLAT) Delhi bench, comprising Mr. Justice Ashok Kumar Bhushan (Chairperson), Mr. Barun Mitra (Technical Member), and Mr. Arun Baroka (Technical Member), ruled that the mere existence of a scheme involving the corporate debtor under Section 230 of the Companies Act, 2013 cannot prevent the admission of a Corporate Insolvency Resolution Process (CIRP) application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against said corporate debtor.

On October 12, 2021, homebuyers (respondents) of the Festival City Project initiated a petition for the Corporate Insolvency Resolution Process (CIRP), citing non-completion of the project and failure to hand over possession to financial creditors. The petition involved three corporate debtors: M/s. Anand Infoedge Pvt. Ltd. (Corporate Debtor No. 1), the land-owning company; M/s. Mist Avenue Pvt. Ltd. (Corporate Debtor No. 2), the developer; and M/s. Mist Direct Sales Pvt. Ltd. (Corporate Debtor No. 3), another developer, after the termination of a prior development agreement.

The corporate debtors challenged the maintainability of the CIRP petition through several appeals. However, both the NCLAT and the Supreme Court dismissed these appeals, affirming the validity of the CIRP application filed under Section 7 of the IBC.

Subsequently, the corporate debtors filed an interlocutory application and three separate applications seeking dismissal of the main company petition, alleging misconduct by the financial creditors. These applications were also dismissed by the adjudicating authority, which criticized the corporate debtors for attempting to delay proceedings and cautioned against filing frivolous applications.

Following these events, Grand Developers Pvt. Ltd. (the appellant) filed another interlocutory application claiming ownership of 102 units in the Festival City Project and requesting intervention in the company petition. This application was rejected by NCLT Delhi in an order dated February 27, 2024, prompting the filing of an appeal.

The appellant argued that despite the non-admission of the CIRP application, it retains the right to intervene since the IBC does not prohibit intervention before admission.

The appellant asserted that its interests would suffer if the CIRP were admitted against the corporate debtor. It expressed optimism about the project's completion, citing a scheme under Section 230 of the Companies Act, 2013 submitted by the corporate debtor to NCLT Delhi, which is currently pending approval. According to the appellant, approval of this scheme would allow the corporate debtor to proceed with construction as per the scheme's provisions. Therefore, initiating the CIRP under Section 7 would adversely affect the proposed scheme.

The NCLAT Delhi dismissed the appeal, ruling that the pendency of a Section 230 scheme under the Companies Act, 2013, does not preclude the admission of a Section 7 CIRP application under the IBC.

The Appellate Tribunal noted the appellant's reliance on the decision in Krrish Realtech Private Limited to support its argument for allowing the intervention application based on vested interest. However, the NCLAT rejected this contention, stating that the Krrish Realtech judgment was specific to its own circumstances.

NCLAT distinguished the current situation from the facts of the Krrish Realtech case and observed that the appellant's intervention application appeared to be aimed at fraudulently undermining the rights of the homebuyers. It pointed out that in the CIRP petition filed by 115 homebuyers, the corporate debtor and other parties had repeatedly attempted to dismiss the petition, with these objections consistently rejected and upheld up to the Supreme Court.

Furthermore, the NCLAT highlighted that on December 11, 2023, the Supreme Court dismissed appeals challenging its own order, noting that the Section 7 application had been pending for two years. The Supreme Court urged NCLT to expedite the application and aim for disposal within two months. Despite this, ongoing objections continued to delay proceedings. Given this history, the NCLT Delhi's decision to reject the intervention application was deemed justified by the Appellate Tribunal.

NCLAT also emphasized that while the scheme under Section 230 of the Companies Act, 2013 filed by the corporate debtor is a separate proceeding, its filing does not justify denying the admission of the CIRP proceedings under Section 7 of the IBC. It ruled that the corporate debtor and other applicants' repeated delays and objections had unjustly impeded the CIRP proceedings, to the detriment of the homebuyers' interests.

In conclusion, NCLAT upheld NCLT Delhi's decision dated February 27, 2024, rejecting the intervention application, and emphasized that the CIRP proceedings under Section 7 of the IBC should proceed in accordance with the law, despite the pending scheme under Section 230 of the Companies Act, 2013.