Judicial Opinion Summary — Company Appeal (AT) (Insolvency) No. 35 of 2019

Factual and Procedural Background

This appeal was filed by Mr. Anil Kumar Tulsiani, Director of Sunshine Infraheights Private Limited (the Corporate Debtor), against the order dated 17 December 2018 of the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench, which admitted an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by Mr. Rakesh Kumar Gupta and Ms. Swati Goel (the Respondents).

The Appellant contended that there was no default by the Corporate Debtor and that the Section 7 application was therefore not maintainable. The Respondents, in their reply before the Tribunal, stated that amounts were acknowledged towards the sale of plots Nos. A71, A72 and A73 (total sale consideration Rs. 96 lakhs) and that the Corporate Debtor was ready to deliver and transfer those three plots on payment of the full sale consideration; stamp papers were procured. The Corporate Debtor relied on a draft agreement to sell which remained unsigned and unexecuted and disputed the claim on the ground that certain cheques were in respect of a different transaction.

The Adjudicating Authority admitted the Section 7 petition despite the Corporate Debtor's plea. The parties later informed the Court that they had settled the matter and that alternative plots had been allotted and were to be registered in the Respondents' names. The Interim Resolution Professional (IRP) appeared and claimed fees and expenses incurred.

Legal Issues Presented

1. Whether there was a legally cognizable "default" by the Corporate Debtor such as to sustain an application under Section 7 of the I&B Code when the Corporate Debtor asserted it was ready to execute sale deeds subject to payment of the full sale consideration.
2. Whether an allottee who has not paid the full consideration can validly allege default on the part of the Corporate Debtor for the purposes of treating the allottee as a Financial Creditor under the I&B Code.
3. Whether the Adjudicating Authority erred in admitting the Section 7 application without adequately considering the Corporate Debtor's plea that it was prepared to transfer the plots upon payment.

Arguments of the Parties

Appellant's Arguments

• The Corporate Debtor (through its director) submitted there was no default on its part; the Section 7 application was not maintainable.
• The Corporate Debtor asserted it was ready to deliver and transfer the three plots subject to receipt of the full sale consideration and had procured stamp papers for that purpose.
• The Corporate Debtor relied on a draft agreement to sell which had never been finalized, signed, or executed by the petitioners.
• The Corporate Debtor disputed the financial claim on the ground that the cheques were disbursed towards another transaction.

Respondents' Arguments

• In their reply before the Tribunal, the Respondents stated amounts were acknowledged towards plots A71, A72 and A73 and identified a total sale consideration of Rs. 96 lakhs.
• The Respondents asserted that the Corporate Debtor was ready to deliver and transfer the three plots, subject to payment of the full sale consideration, and that stamp papers had been procured for and on behalf of the petitioners.
• Their submissions were noted to be contrary to the stand taken by the Financial Creditors in an earlier legal notice, as observed in the impugned order.

Interim Resolution Professional's Position

• The IRP appeared and did not dispute the factual account that the Corporate Debtor was ready to execute sale deeds subject to payment, but he claimed fees and expenses incurred in the insolvency process.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Court analyzed the admissibility of a Section 7 petition in the factual context of real estate allottees. It applied the principle, as articulated in the opinion, that while an allottee of real estate ordinarily falls within the definition of a Financial Creditor, an allottee that has not paid the full consideration cannot, by that fact alone, allege default on the part of the Corporate Debtor. The Court explained the converse situations in which an allottee may validly allege default: (a) if the Corporate Debtor fails to complete the work within the agreed time and the allottee has paid or agreed to pay the total amount, or (b) if the allottee requests return of the amount disbursed due to non-completion and the Corporate Debtor fails to refund.

On the facts before it, the Court found that the Corporate Debtor had procured stamp papers well before the admission of the Section 7 application and was ready to execute the sale deed in favor of the Respondents, conditional on payment of the full consideration. Given that the Corporate Debtor was prepared to perform its obligation upon payment, the Court concluded there was no default by the Corporate Debtor. The Court held that the Adjudicating Authority had failed to consider this material factual and legal aspect when admitting the Section 7 petition.

The Court also noted that the parties had informed it of a settlement whereby alternative plots had been allotted to the Respondents and were to be registered in their names. The IRP's claim for fees and expenses was considered separately in the exercise of the Court's equitable discretion.

Holding and Implications

Core Ruling: The application under Section 7 of the I&B Code is dismissed and the impugned order dated 17th December 2018 is set aside.

Direct consequences and directions issued by the Court:

• The orders passed by the Adjudicating Authority pursuant to the impugned order — including appointment of the Interim Resolution Professional, declaration of moratorium, freezing of accounts, and related actions (including the advertisement calling for claims) — were declared illegal and set aside.
• The Corporate Debtor (company) was released from the rigours of the I&B Code and allowed to function independently through its Board of Directors with immediate effect.
• The IRP, Mr. Anil Kumar Jain, was quantified a payment of a total of Rs. 4,00,000 (fees and expenses), to be paid by the Corporate Debtor within one month; the IRP had worked for approximately one month and one week and had incurred about Rs. 76,000 in expenditure, with the Committee of Creditors having approved fees at Rs. 3,00,000 per month.
• The appeal was allowed on these terms; in the facts and circumstances, there was no order as to costs.

Broader implications: The opinion confines its reasoning to the facts of the case and the application of the principle that an allottee who has not paid the full consideration cannot automatically establish default by the Corporate Debtor. The opinion does not state that it creates or announces a novel precedent beyond its application to the present facts.

End of summary — based exclusively on the provided opinion text.