1. Introduction

The case of Shubha Sharma v. Mansi Brar Fernandes addressed pivotal issues concerning the initiation of Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (I&B Code). Specifically, the litigation focused on the applicability of threshold requirements for allottees in real estate projects seeking insolvency relief against developers. The appellant, Shubha Sharma, a former director of Gayathri Infra Planner Pvt. Ltd., contested the admission of an insolvency application filed by Mansi Brar Fernandes, a financial creditor and allottee, challenging the validity of their claim under the amended provisions of the I&B Code.

2. Summary of the Judgment

The National Company Law Appellate Tribunal (NCLAT), New Delhi, examined the application filed by Mansi Brar Fernandes under Section 7 of the I&B Code, which seeks to initiate CIRP against Gayathri Infra Planner Pvt. Ltd., the corporate debtor. The appellant challenged the admissibility of this application based on the I&B Code (Amendment) Act, 2020, which introduced threshold requirements mandating that such applications by real estate allottees must be filed collectively by at least 100 allottees or 10% of the total allottees, whichever is less.

Upon thorough consideration, the NCLAT set aside the impugned order admitting the application. The Tribunal concluded that the single allottee, Mansi Brar Fernandes, did not possess the requisite standing as a genuine financial creditor. Instead, the appellant successfully argued that Ms. Fernandes acted as a speculative investor, undermining the legitimacy of her insolvency application. Consequently, the Tribunal dismissed the application, lifted the moratorium imposed, and allowed the corporate debtor to resume normal operations.

3. Analysis

3.1 Precedents Cited

The judgment relied on several key precedents to substantiate its reasoning:

• Pioneer Urban Land & Infrastructure Ltd. v. Union of India (2019): This Supreme Court decision underscored that mere allottees must meet specific criteria to be recognized as financial creditors eligible to initiate CIRP.
• Sh. Sushil Ansal Vs. Ashok Tripathi & Ors. (2020): Affirmed that applications failing to meet the prescribed threshold are inadmissible.
• Navin Raheja Vs. Shilpa Jain & Ors. (2019): Highlighted the misuse of insolvency processes by allottees with malicious intent.
• Darshan Singh Vs. Rampal Singh (1992): Established that appellate proceedings are a continuation of original proceedings, allowing modifications to applications.
• Chandrakant Uttam Chodankar v. Dayanand Rayu Mandrakar & Ors.: Addressed the practical impossibility of meeting threshold limits within the stipulated time frame post-amendment.
• Uday Shankar Triyar v. Ram Kalewar Prasad Singh & Anr.: Emphasized that procedural defects should not override substantive rights or lead to injustice.

3.2 Legal Reasoning

The Tribunal's legal reasoning centered on the interplay between the original provisions of the I&B Code and its subsequent amendments. Key points included:

• Amendment Applicability: The I&B Code (Amendment) Act, 2020, introduced stringent requirements for CIRP initiation by real estate allottees. However, the Tribunal observed that these amendments did not retroactively apply to applications already pending before their commencement.
• Threshold Requirements: The necessity for joint applications by a minimum number of allottees ensures that only genuine collective grievances can trigger insolvency proceedings, preventing abuse by individual or speculative investors.
• Genuine Allottees vs. Speculative Investors: Through meticulous examination of the Memorandum of Understanding (MOU) and the parties' conduct, the Tribunal discerned that Ms. Fernandes acted more as an investor seeking recoupment of funds rather than a bona fide allottee seeking resolution for genuine default.
• Contractual Obligations: The clarity in the MOU regarding the buyback agreement and the dishonor of postdated cheques indicated an investor's perspective rather than a purchaser's intent.

3.3 Impact

This judgment has significant implications for the realm of real estate insolvency:

• Strengthening of Threshold Norms: Reinforces the requirement for collective action by allottees, ensuring that insolvency processes are not misused by individual actors.
• Clarification on Allottees' Standing: Provides clarity on distinguishing between genuine allottees and speculative investors, thereby refining the criteria for insolvency applications.
• Deterrence of Malicious Filings: By emphasizing the need for a substantive and collective basis for applications, the judgment discourages frivolous and malicious insolvency filings.
• Guidance for Future Litigation: Offers a procedural roadmap for allottees seeking insolvency relief, emphasizing compliance with both procedural and substantive requirements.

4. Complex Concepts Simplified

4.1 Corporate Insolvency Resolution Process (CIRP)

CIRP is a legally mandated process for insolvency resolution, allowing creditors to attempt to rehabilitate an insolvent company. Under the I&B Code, creditors can initiate this process to restructure the company's debts and operations.

4.2 Financial Creditor

A financial creditor is an entity or individual that has lent money to the corporate debtor, expecting repayment. In the context of real estate, an allottee who has paid for an apartment but has not received possession may be considered a financial creditor.

4.3 Threshold Requirements

These are minimum criteria set by law that must be met for certain legal actions to proceed. In this case, a minimum number of allottees must jointly file an insolvency application to ensure that the process is initiated for valid collective grievances.

4.4 Memorum of Understanding (MOU)

An MOU is a formal agreement between parties outlining the terms and conditions of their mutual understanding. Here, it detailed the buyback agreement between the allottee and the developer.

5. Conclusion

The Shubha Sharma v. Mansi Brar Fernandes judgment serves as a crucial precedent in the interpretation and application of the Insolvency and Bankruptcy Code, particularly concerning real estate allottees seeking insolvency relief. By setting stringent threshold requirements and distinguishing between genuine creditors and speculative investors, the Tribunal has fortified the integrity of the CIRP framework. This ensures that insolvency processes are utilized appropriately, safeguarding both developers and genuine allottees from potential misuse and fostering a more stable real estate financial ecosystem.