The National Company Law Appellate Tribunal (NCLAT) on Friday set aside the insolvency proceedings against Ansal Properties and Infrastructure Ltd and ruled that the management of the company be handed over back to its board.
A three-member NCLAT bench observed that a decree-holder cannot be treated as financial creditor for the purpose of triggering insolvency proceedings against a company.
Generally, a decree is an official order issued by an authority concerned. The appellate tribunal set aside the orders of the Delhi bench of the National Company Law Tribunal (NCLT), which had on March 17 directed to initiate insolvency proceedings against Ansal Properties and Infrastructure Ltd (APIL) and appointed an interim resolution professional replacing the board of the company.
NCLT's direction had come over a petition filed by two flat buyers, who had jointly booked a unit at APIL's Sushant Golf City in Lucknow. It admitted the insolvency plea against APIL based on the recovery certificate issued by the Uttar Pradesh Real Estate Regulatory Authority (UP RERA) to them. However, the appellate tribunal said NCLT landed in "grave error in admitting the application" of the two home buyers, who claimed to be the 'Financial Creditors' in their capacity as decree-holders' against the real estate firm on account of non-payment of the amount due under the recovery certificate issued by UP RERA.
According to NCLAT, the "execution of decree/ recovery of the amount due under Recovery Certificate would not justify triggering of Corporate Insolvency Resolution Process." "We are of the considered view that the impugned order dated March 17, 2020 initiating Corporate Insolvency Resolution Process against Corporate Debtor cannot be sustained," said NCLAT bench headed by Acting Chairperson Justice B L Bhat.
"The 'Corporate Debtor' (APIL) is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect," said NCLAT. NCLAT direction came over a petition filed by Sushil Ansal, a director and shareholder of the company challenging the NCLT order before it.
NCLAT said a 'decree-holder' is undoubtedly covered by the definition of 'Creditor' under Section 3(10) of the Insolvency and Bankruptcy Code. However, such an entity "would not fall within the class of creditors classified as 'Financial Creditor' unless the debt was disbursed against the consideration for the time value of money or falls within any of the clauses thereof as the definition of 'financial debt' is inclusive in character",it noted.
The NCLT order had come over a plea by two flat buyers, who had jointly booked a unit at Sushant Golf City in Lucknow. One of them had also booked a separate unit in the same project.
As per the clauses of the two agreements between them in September 2014, APIL undertook to complete it within two years from the date of commencement of construction on receipt of sanction plan from the authority. The flat buyers were supposed to get possession in the next two years. However, APIL failed to complete the projects, following which both the allottees approached RERA, which issued recovery certificate against APIL.