NCLT Admits Insolvency Proceedings Against Ansal Properties And Infrastructure U/S 7 Of IBC, Declares Moratorium

The National Company Law Tribunal (NCLT), New Delhi bench of Shri Manni Sankariah Shanmuga Sundaram (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member) has admitted insolvency proceedings under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC/ Code) against Ansal Properties and Infrastructure Limited. The Tribunal declared moratorium under section 14 of the Code. Background Facts IL&FS Financial Services Limited (Financial Creditor/ Applicant) filed the petition under Section 7 of the Code seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Ansal Properties and Infrastructure Pvt. Ltd (Corporate Debtor/ Respondent). The Corporate Debtor was incorporated on 03.06.1967. The Applicant claimed that the Corporate Debtor failed to pay outstanding dues of Rs. 257.43 crores, which constitutes a Financial Debt under Section 5(8) of the IBC. Submissions Counsel for the Applicant submitted that the Applicant granted a term loan facility of Rs. 150 crores. The Corporate Debtor defaulted. The Applicant called for rectification of breaches. In response, the Corporate Debtor attempted to evade liability citing factors such as RERA, GST, demonetization, and market conditions. Due to repetitive defaults, the Applicant classified the Corporate Debtor's account as a non-performing asset. On March 26, 2019, the Applicant demanded repayment of Rs. 124.49 crores. The Applicant filed a petition u/s. 7 of the IBC in July 2019 to initiate CIRP against the Corporate Debtor. During the pendency of the Petition, the Corporate Debtor proposed settlements. The petition was withdrawn with liberty to file afresh. A Settlement Agreement was executed on March 03, 2022. The Corporate Debtor agreed to pay Rs. 109.66 crores in two installments. On October 31, 2023, the Corporate Debtor proposed a revised settlement plan of Rs. 111.36 crores, payable by March 31, 2024. The Applicant accepted this. By March 31, 2024, the Corporate Debtor had paid only Rs. 28.36 crores and sought further extension. The Applicant rejected the proposal and demanded remaining Rs. 83 crores. The Corporate Debtor again sought an extension till September 30, 2024, which the Applicant rejected, thereby terminating the Settlement Agreement. Counsel for Respondent submitted that the Applicant is not entitled to the alleged debt claimed to be in default. The alleged default did not reflect the true situation as the Respondent had entered into a Settlement Agreement with the Applicant, which was subsequently amended, whereby the Applicant sanctioned Rs. 111.36 crores as the settled amount. It was further submitted that any alleged default was attributable to a temporary misalignment of payment schedules rather than a reflection of insolvency or inability to pay debts. It was stated that a temporary liquidity issue does not amount to insolvency under the Code, and initiation of CIRP was premature. The Respondent submitted that despite its partial payment of Rs. 28.36 crores to the Applicant in March 2024 and request for an extension due to a temporary cash-flow crunch, the Applicant chose to initiate the CIRP application. It was further submitted that the Applicant was misusing the provisions of the Code as a substitute for 'debt recovery'. It was stated that the initiation of CIRP would have a catastrophic effect on more than 10,000 unit buyers who were directly linked to Respondent's projects. Observations The Tribunal noted that the Corporate Debtor acknowledged the existence of the debt. However, it disputed the quantum of default, claiming that only an amount of Rs. 83 crores is overdue, as opposed to the sum of Rs. 257.43 crores claimed by the Applicant. It noted that as held in Innoventive Industries Ltd. v. ICICI Bank, and reaffirmed in E.S. Krishnamurthy v. Bharath Hi-Tech Builders (P) Ltd., the scope of inquiry at the stage of admission is restricted to ascertaining whether a default has occurred and whether the application is complete. The Tribunal observed that CIRP cannot be stalled simply on the ground of temporary cash flow problems. It remarked that the IBC is meant to address insolvency or financial distress, not to grant extensions for repaying debts. The Tribunal noted that partial payments did not absolve the Corporate Debtor of its failure to adhere to the agreed terms under the Settlement Agreement and the revised settlement proposal. The Tribunal held that "the dispute over the quantum of the debt does not affect the admissibility of the application at this stage, as it is a matter for the IRP to resolve post-admission”. The Tribunal thus admitted the section 7 petition against the Respondent. The Tribunal dismissed the application filed by M/s Droom2r Developers Private Limited with costs seeking intervention to appoint Shri Ankit Ahuja as the IRP in the event the petition was allowed. ...

NCLT Admits Insolvency Proceedings Against Ansal Properties And Infrastructure U/S 7 Of IBC, Declares Moratorium

Tazeen Ahmed

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