NCLAT sets aside NCLT’s order as it didn’t contain directions to respondent to amend plea u/s 7 to initiate CIRP

Case Details: Emaar Hills Township (P.) Ltd. v. Srinivas Manthena - [2022] 135 taxmann.com 367 (NCLAT - Chennai)

Judiciary and Counsel Details

• • M. Venugopal, Judicial Member and Kanthi Narahari, Technical Member
  • Sajan Poovayya, Sr. Adv., Sriram, Abhishek Sharma, Ravi Charan, Ms. Ashly Cherian and Kamlendra Singh, Advs. for the Appellant.

Facts of the Case

In the instant case, the appellant-corporate debtor created as a Special Purpose Vehicle for development and construction of a township as an integrated project. The respondents and 64 other allottees (home buyers) filed an application under section 7 against the corporate debtor.

Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 was promulgated by Government of India on 28-12-2019 to amend provisions of I&B Code – Ordinance mentions that an application under section 7 for initiating CIRP against corporate debtor shall be filed jointly by not less than 100 all such creditors (i.e. home buyers) or not less than 10 per cent of total number or such creditors (home buyers), whichever is less.

In the instant case no joint application was filed by the creditors for initiating the CIRP against the corporate debtor.

The Adjudicating Authority by the impugned order held that single allottee’s application filed before the amendment cannot be rejected and further held that the allottees in the same project against the same corporate debtor were allowed to pursue their applications jointly.

The appellant filed an appeal before the Appellate Tribunal against the impugned order passed by the adjudicating authority.

Appellant contended that the 3rd proviso of Section 7 (1) of the IBC, 2016 provides that the application admitted by the Adjudicating Authority before the commencement of the ordinance, such application shall be modified within thirty days of the commencement of the said Ordinance, failing which the application shall be deemed to be withdrawn before its admission.

According to the Appellant, neither the Respondent nor other purported allottees of the appellant had filed an application seeking modification of their affidavit as envisaged under the amended section 7.

NCLAT Held

The Appellate Tribunal taking into consideration inter conceptus of the facts of the instant case, in an integral manner and keeping in mind the dictum laid down by the Supreme Court in the case of Manish Kumar (supra) comes to a resultant conclusion that the impugned order passed by the Adjudicating Authority suffers from legal infirmities in the eyes of law and the same is set aside by the Tribunal to secure the ends of justice. As the Adjudicating Authority overlooked the provisions as laid down in the section 7 (1) regarding the modification of the applications filed before the commencement of the ordinance.

Thus, the Appeal is allowed and the matter is remitted back to the Adjudicating Authority for passing de novo orders on the issue of maintainability pertaining to clubbing of all matters in the teeth of the Supreme Court judgment and in accordance with Law, of course, after providing due opportunities to both parties to raise all factual and legal pleas, if they so advised.

Case Review

• • Srinivas Manthena v. Emaar Hills Township (P.) Ltd. [2022] 135 taxmann.com 366 (NCLT – Hyd.) (para 21) reversed. [See Annex].
  • Manish Kumar v. Union of India [2021] 123 taxmann.com 343 (SC) (para 19) followed.

List of Cases Referred to

• • Manish Kumar v. Union of India [2021] 123 taxmann.com 343 (SC) (para 3)