Requirement Of Minimum 100 Allottees Under Section 7 To Be Met At The Date Of Filing, Subsequent Settlement By Allottees Inconsequential: NCLAT Delhi

“In Manish Kumar itself it has been answered that requirement of threshold under proviso in Section 7(1) must be fulfilled as on the date of filing of the Application. The fact that eight allottees have settled the matter is thus inconsequential and eight allottees cannot be excluded in the counting of 100 allottees which are required to be fulfilled as threshold.”

Background Facts

On 21.08.2008, Anand Infoedge Pvt. Ltd. (“AIPL”) was allotted land measuring 100,980 sq. mts. situated at Sector 143 Noida (“Project Land”) by the New Okhla Industrial Development Authority (NOIDA) vide Lease Deed. After taking possession of the land, AIPL entered into Collaboration Agreement with Mist Avenue Pvt. Ltd. (“MAPL”) for development of a real estate project named Festival City (“Project”) on the Project Land.

The Respondents (Allottees) entered into Builder Buyer Agreement with MAPL and were allotted units in the Project. In 2017, the first Collaboration Agreement was terminated and a second Collaboration Agreement was executed between AIPL and Mist Direct Sales Private Limited (“MDSPL”) for the development of Project.

Despite of the two collaborations, the Project could not be completed within stipulated timelines. In 2021, Mr. Nitin Batra and 142 (approx.) other allottees (Financial Creditors/Allottees) filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking ‘joint’ initiation of Corporate Insolvency Resolution Process (“CIRP”) against AIPL, MAPL and MDSPL.

On 21.10.2022 the NCLT held the Section 7 petition to be maintainable and directed the application to be listed for hearing on 10.11.2022. AIPL, MACL and MDSPL (collectively, “Corporate Debtors/Appellants”) filed an appeal against order dated 21.10.2022 before the NCLAT.

On 28.12.2019, the Section 7(1) of IBC was amended and two provisos were inserted. The second Proviso to Section 7(1) provides that an Application for initiating CIRP against the corporate debtor shall be filed jointly by not less than 100 of such allottees under the same real estate project or not less than 10% of the total number of such allottees under the same real estate, whichever is less.

The Corporate Debtors argued that the NCLT does not possess jurisdiction to consolidate the CIRP of three different companies at the stage of admission of Section 7 petition. The requirement under second proviso to Section 7(1), that petition must be filed by minimum 100 allottees, is also not fulfilled. The Section 7 petition was initially filed by 143 allottees, however, claims of 18 applicants were barred by limitation, claims of 11 allottees were barred by under Section 10A, claims of eight allottees were settled and claims of three allottees were premature. Hence, the number of applicants was effectively below 100.

NCLT Verdict

The Bench held that the threshold of minimum 100 applicants have to be met on the date of filing Section 7 petition under IBC. Therefore, the subsequent settlement entered between 8 allottees and Corporate Debtors would not exclude such allottees from the count of 100 applicants.

While placing reliance on the Supreme Court judgment in Manish Kumar vs. Union of India & Anr., 2021 SCC OnLine SC 30, the Bench held as under:

“In Manish Kumar itself it has been answered that requirement of threshold under proviso in Section 7(1) must be fulfilled as on the date of filing of the Application. The fact that eight allottees have settled the matter is thus inconsequential and eight allottees cannot be excluded in the counting of 100 allottees which are required to be fulfilled as threshold.”

Further, each individual allottee need not meet the minimum threshold of Rs. 1 Crore default or limitation requirements. The Bench has held that a petition under Section 7 of IBC, filed by allottees for joint CIRP of separate corporate entities involved in a common real estate project is maintainable.

The NCLT order has been upheld and the appeal has been dismissed.

Case title: Mist Avenue Pvt. Ltd. v Nitin Batra & Ors. and connected matters.

Case No.: Company Appeal (AT) (Insolvency) No. 127 of 2023

Counsel for Appellants: Mr. Dhruv Goel, Mr. Krishnendu Datta (Sr. Advocate), Mr. NPS Chawla, Mr. Surekh Kant Baxy, Ms. Mahima Shekhawat, Mr. Rahul, Mr. Abhijeet Sinha, Mr. Apoorv Agarwal, Ms. Vaishnavi Prakash.

Counsel for Respondent: Mr. Sahil Sethi, Mr. Samriddh Bindal and Mr. Vikash Kumar, Advocates.

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