Status as on – 01/10/2019
Rohtas Projects Ltd, a renowned real estate developer in Uttar Pradesh is the latest to face the NCLT’s ire as the Corporate Insolvency Resolution Process (CIRP) has been initiated against the developer by the Delhi bench of the NCLT vide order dated 30. 09.2019.
Aggrieved allottees/financial creditors of the real estate developer filed an insolvency petition u/s 7 of IBC because the developer defaulted in delivering possession of plots to them as per the stipulated clause of the Builder Buyer Agreement. Since it was held that there was a clear default on the part of the real estate developer/corporate debtor, the NCLT has commenced the CIRP and appointed Mr. Kamal Piyush as the resolution professional. The period of moratorium has also begun simultaneously, which means:
- No fresh suits can be filed against Rohtas
- Stay on any pending cases
- No execution of any judgment/order in any court, tribunal, arbitration panel or other authority
- Rohtas cannot sell or transfer their assets while the moratorium period is ongoing
WHAT NEXT FOR BUYERS OR CREDITORS
First of all, starting of CIRP process does not mean that the company has become insolvent. This is the process to revive the company by re-organizing and other methods. Appointed IRP shall overview the process of revival.
After the start of CIRP, the following things are required to be performed by the creditors
Filing of Claim with IRP
Every creditor/homebuyer is required to submit its claim with the appointed IRP in the given format and within the prescribed time limit. If the claim is not so filed, then such creditor/homebuyer may lose the right to claim the debt.
Verification of Claims Filed with IRP
After filing the claims, it has to be verified whether the claim has been accepted by IRP or not, if accepted whether in full or in part. If any grievance then clarification or application needs to be filed.
Constitution of Committee of Creditors (COC)
After filing and verification of claims, the committee of creditors (COC) shall be constituted which would include financial creditors. Since homebuyers have been classified as “Financial Creditors” hence, the homebuyer would also be part of COC.
Attending the Meeting and Voting
After the constitution of COC, regular meetings and voting shall be made to revive the company.
Invitation of Resolution Plans
After the compilation of assets and liabilities of the company, the invitation shall be circulated to invite the other company for submitting the revival or resolution plan.
Submission of Resolution Plan
Based on the given information, the different interesting companies would submit resolution plans.
Acceptance of Resolution Plan
COC would review all the resolution plans and finalize from them based on the voting
It is pertinent to mention that the judgment of the Hon’ble Supreme Court in the Pioneer Case has emboldened homebuyers to a great extent. By upholding their status as financial creditors u/s 7 of IBC Laws, they have given them a new lease of life as earlier they could only approach the Consumer Court and RERA authority to get relief against an errant developer.
NCLT also works in a more effective and time-bound manner as adjournments are not easy to get unlike Consumer Courts and RERA authority.
The only thing that needs to be proved by the allottee/financial creditor before NCLT is the existence of default on the part of the corporate debtor in order to have a petition for insolvency admitted u/s 7. Once the petition is admitted, the corporate debtor would be in a dire situation as the control of their company would be taken away and given to the appointed IRP.
Thus, errant developers should be mindful of their commitment towards their allottees because the allottees can now directly approach the NCLT and if the insolvency petition is accepted against the real estate developer then they risk losing control of their company.
Disclaimer – The above article is based on the personal interpretation of related laws and judicial pronouncements, which may differ from person to person. The readers are expected to take expert opinion before placing reliance on it. For any clarification, please write back at firstname.lastname@example.org or call at 8383011629