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NCLAT Delhi Sets Aside The CIRP Of LA Residentia Developers, As Parties Enter Settlement

Pallavi Mishra
26 July 2022 1:30 PM GMT
NCLAT Delhi Sets Aside The CIRP Of LA Residentia Developers, As Parties Enter Settlement

The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Justice M. Satyanarayana Murthy (Judicial Member) and Mr. Naresh Salecha (Technical Member), while adjudicating an appeal filed in Amrapali LA-Residentia Flat Buyers Welfare Association (ALRFBWA) v LA Residentia Developers Pvt. Ltd. & Ors., has set aside the Corporate Insolvency Resolution Process ("CIRP") of LA Residentia Developers Pvt. Ltd. as parties have entered settlement. It was observed that the continuing business relation between the Parties show that the Corporate Debtor is not insolvent.


LA Residentia Developers Pvt. Ltd. ("Corporate Debtor") is a real estate developer with residential and commercial projects situated in Greater Noida, one of its prime projects being the Amrapali La Residentia.

The Supreme Court in Writ Petition No. 940/2017 titled as Bikram Chatterjee and Ors. v Union of India and Ors., had directed Forensic Audit of the Amrapali Group, based on the premise that the amount invested by Flat Buyers were being siphoned off by the latter. The Forensic Auditor submitted a report that the Company "M/s. Stunning Constructions Pvt. Ltd." consortium member was part of Amrapali Group owning a share amounting to 19.75% equivalent to 632 apartments in the LA-Residentia Project. However, the Supreme Court refused to hand over the La-Residentia Project to National Buildings Construction Corporation Ltd. (NBCC) for completion and instead permitted the Corporate Debtor to continue with the construction.

Brief Facts

In 2017, Singhal Pipes Pvt. Ltd. ("Operational Creditor") had supplied pipes, sockets, cement and allied products to the Corporate Debtor and the latter had failed to pay the outstanding bill amount of Rs. 28,07,764/- (inclusive of interest) despite several demand notices. The Operational Creditor in 2020 had filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC") before the NCLT New Delhi ("Adjudicating Authority"), seeking initiation of CIRP against the Corporate Debtor.

In the meanwhile the Supreme Court vide an order dated 20.05.2022 passed in Bikram Chatterjee and Ors. v Union of India and Ors., had given directions for completion of the La-Residentia project to ensure that the home-buyers should get the flats.

Subsequently, the Adjudicating Authority vide an order dated 25.05.2022 had admitted the Petition and initiated CIRP, Mr. Naveen Kumar Jain was appointed as the Interim Resolution Professional ("IRP").

The La-Residentia Flat Buyers Welfare Association (ALRFBWA) ("Appellant") had filed an appeal before the NCLAT challenging the order dated 25.05.2022.

Further, in June 2022, the Suspended Board of Directors of the Corporate Debtor had filed an application before the Adjudicating Authority, seeking termination of CIRP under Section 12A of IBC as Parties had entered settlement. The Corporate Debtor and the Operational Creditor were in continuous business relation as Corporate Debtor had purchased and paid for materials worth Rs. 40 Lakhs during the period 01.11.2021 to 31.12.2021. It was further submitted that the IRP had not co-operated in filing of the application under Section 12A for withdrawal of the proceedings. The Adjudicating Authority had issued notice to the IRP in the matter on 17.06.2022.

Proceedings Before NCLAT

On 07.07.2022, the appeal filed by the Appellant was allowed by the NCLAT and a direction was given to the IRP to file an affidavit, explaining his conduct in not filing the application for withdrawal of the Section 9 Petition under Section 12A, when the parties had already settled, communicated the settlement to the IRP and had also submitted Form-F. The Bench had also restrained IRP from taking any further steps in the CIRP of the Corporate Debtor.

Decision Of The NCLAT

On 25.07.2022, the Bench observed that "We are satisfied that the fact that between the period 01.11.2021 to 31.12.2021 payment of Rs. 40 Lakhs have been made by the Corporate Debtor to the Operational Creditor and Operational Creditor is continuing with the business relation, ought to have been taken into consideration by the Adjudicating Authority which fact clearly indicated that the Corporate Debtor is not insolvent."

The Bench observed that the Adjudicating Authority ought to have considered the directions given by the Supreme Court on 20.05.2022 for completion of Project, before proceeding to admit the Section 9 Application for an amount of Rs. 28,07,764/- which was an Operational Debt. Accordingly, the order dated 25.05.2022 was set aside by NCLAT.

Conduct Of IRP

The Bench observed that on one hand the IRP had filed an application for withdrawal on 15.06.2022 and on the other hand it had proceeded to constitute the CoC on 18.06.2022. "His action speaks for his intent that his intent was that even if Operational Creditor and the Corporate Debtor have settled he may proceed with the CIRP." The Bench opined that the IRP has to act in accordance with the statutory scheme.

"The object and purpose of the IBC is the resolution of the Corporate Debtor and in the facts of the case when in a Real Estate Project, Operational Creditor had filed the Application for amount of Rs. 28,07,764/- which amount was paid, what was the interest of the IRP to proceed with the constitution of CoC and proceed with the CIRP has not been explained. IRP wanted to continue with the CIRP even after Corporate Debtor and Operational Creditor has settled and Application is filed for withdrawal of the CIRP."

The Bench held that the IRP's conduct was not in consonance with the scheme of the IBC and directed the Insolvency and Bankruptcy Board of India (IBBI) to look into the matter and examine the conduct of the IRP.

Case Title: Amrapali LA-Residentia Flat Buyers Welfare Association (ALRFBWA) v LA Residentia Developers Pvt. Ltd. & Ors., Company Appeal (AT) (Insolvency) No. 704 of 2022

Counsel For Appellants: Mr. Abhishek Naik, Mr. Praveen Agarwal and Ms. Gulafsha Kureshi, Advocates.

Counsel For Respondents: Mr. Naveen Kr. Jain and Mr. Kushal Bansal, Advocates for R-1. Mr. Abhishek Anand and Mr. Karan Kohli, Advocates for R-2. Mr. C.S. Gupta, Advocate for R-3 to 6. Mr. Janender Kumar Chumbak and Ms. Asmita Duggal, Advocates for Financial Creditors.

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