NCLT Initiates Insolvency Proceedings against Mantri Developers

NCLT Initiates Insolvency Proceedings against Mantri Developers

The National Company Law Tribunal (NCLT), Bangalore bench has allowed the plea filed by Indiabulls Housing Finance Ltd (IHFL) and has initiated insolvency proceedings against Mantri Developers, a real estate company based in Bengaluru.

The division member bench of Justice T. Krishnavalli (Judicial Member) and Manoj Kumar Dubey (Technical Member), found the present petition to be complete and ordered the initiation of insolvency proceedings against Mantri Developers Private Limited.

In the present case, the petition was filed by the IHFL with a prayer to initiate the Corporate Insolvency Resolution Process (CIRP) in respect of Mantri Developers for defaulting an amount of Rs.456.6 crore, as on 1 January, 2023.

The IHFL (Financial Creditor/Petitioner) had sanctioned a total loan of Rs 574.2 crore to Mantri Developers (Corporate Debtor/Respondent) under five different loan agreements. However, the company and its obligors failed to adhere to the loan agreements, leading to non-payment of dues.

The bench noted that IHFL had sent five notices to Mantri Developers dated December 2021 regarding each loan account. Additionally, in January 2022, five more notices were issued for each loan account.

Despite the notices, neither the company nor its co-borrowers made any payment towards the outstanding amounts to IHFL.

Per contra, Mantri Developers in defense, claimed that a delay on the IHFL's part in the disbursement of the loan amount, the developer's project timelines were severely affected, and also faced cash flow issues.

The Developers contended that it had relied upon the assurances of IHFL, the developer had introduced a marketing scheme that facilitated the customers to buy back with pre-EMI interest payments for their ‘Mantri Webcity’ Project in Bengaluru.

The developer contended that the company is having sufficient assets and means to meet its debts, and thus it cannot be liquidated summarily merely at the instance of a frivolous creditor and the developer cannot be held liable for such debts.

The bench was of the considered view that the Corporate Debtor had availed loan facilities from the Financial Creditor against payment of interest and it defaulted in repayment of such ‘financial debt’ which has become due and payable. Thus, the first ingredient of ‘debt’ has been satisfied as required under the Insolvency and Bankruptcy Code, 2016 (Code).

The bench observed that even though three such loan facilities were granted to the Corporate Debtor as well as to other co-borrowers who were not made as Parties to the company petition, the aggregate amounts disbursed in the other two Loan Account, which were disbursed only to the Corporate Debtor one directly by the Petitioner and the other one by Indiabulls Commercial Credit Limited (ICCL) to the Corporate Debtor; which was assigned by ICCL to the Petitioner; since the default in repayment by the Corporate Debtor in respect of these two loan accounts was well above the threshold limit of Rupees One Crore, the default was established as required under the Code.

The NCLT further, rejected the contention raised by Corporate Debtor that, it had sufficient assets and means to meet its debts, and thus it cannot be liquidated summarily merely at the instance of a frivolous creditor and the Corporate Debtor cannot be held liable for such debts and since there is a clear indication of settlement, the discretion must be exercised to facilitate such settlement to conclusively close the transactions between the Parties.

In this regard, the NCLT observed that such contention was not tenable in law and referred the decision of the Hon’ble NCLAT Chennai in Drip Capital Inc. v. Concord Creations (India) Pvt. Ltd. (2021), wherein it was held that an initiation of CIRP does not amount to recovery proceedings and that the Adjudicating Authority at the time of determination as to whether to admit or reject an application under Section 7 of the Code is not to take into account the reasons for the Corporate Debtor’s default.

The NCLT as regards the contention of Corporate Debtor that any dispute between the Parties can only be resolved by way of Arbitration as per the Arbitration Clauses in the Agreement and the NCLT ought to refer the matter for arbitration as per Section 8 of the Arbitration and Conciliation Act, 1996, was of the view that Section 238 of the Code was having overriding effect over the Arbitration and Conciliation Act, 1996.

Lastly, the bench found that the petition was admitted under Section 7 of Insolvency and Bankruptcy Code, 2016, as the default in payment of the financial debt was established and the default amount was above Rs. 1 crore.

Hence, the NCLT admitted the petition to initiate CIRP of Respondent-Mantri Developers Private Limited under Section 7 of the Insolvency and Bankruptcy Code, 2016. Accordingly, moratorium was declared in terms of Section 14 of the Code.