ANJALI RATHI AND OTHERS versus TODAY HOMES & INFRASTRUCTURE PVT. LTD. AND OTHERS on 8 September 2021

1. The petitioners are home buyers in a group housing project,Canary Greens in Sector 73, Gurgaon, being developed by the firstrespondent. Home buyer agreements were entered into between theeleven petitioners and the first respondent. Clause 21 of the agreementsenvisaged that possession of the apartments would be delivered within aperiod of thirty-six months, which in almost all cases was to be in 2014.

2. The grievance of the petitioners is that the project wasabandoned by the developer. As a result, they instituted proceedings[1]before the National Consumer Dispute Redressal Commission[2] seekingrefund of their moneys with interest. On 12 July 2018, the NCDRCallowed their claim by directing the first respondent to refund the principalamount paid by the petitioners together with 12 per cent interest fromthe date of deposit along with costs within four weeks. There was aprovision in the order for interest being enhanced to 14 per cent if theamount was not paid within the stipulated period. This order of theNCDRC has attained finality.

3. Execution proceedings[3] under Sections 25 and 27 of theConsumer Protection Act 1986[4] were instituted by the petitioners. TheNCDRC issued notice on 7 September 2018. In the meantime, certainorders were passed by the NCDRC on 23 October 2018 in separateexecution proceedings pertaining to other home buyers in the samehousing project. The first respondent challenged this order of the NCDRCbefore the High Court of Delhi[5], and by an order dated 19 November2018, the order of the NCDRC dated 23 October 2018 was stayed bythe Delhi High Court.

4. The execution proceedings initiated by the petitioners wereadjourned by the NCDRC on 13, 25 and 26 February 2019. Certainsettlement terms were offered by the judgment debtor on 27 February2019, which were not acceptable to the decree holders. On 5 March2019, the proceedings were again adjourned to explore the proposals

1 Consumer Complaint Nos 1242, 1243, 1245, 1246, 1248, 1249, 1250 and 1251 of20172 “NCDRC’’3 EA Nos 158, 159, 161-162, 164-166 and 168 of 20184 “COPRA’’5 CM(M) No 1391 of 2018

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Afurnished by the first respondent. Eventually, on 11 March 2019, sinceno settlement was arrived at, the Managing Director of the firstrespondent was directed to appear personally. The first respondent fileda petition[6] before the Delhi High Court to challenge the order of theNCDRC requiring the personal presence of the Managing Director. Byan order dated 27 March 2019, the Delhi High Court issued notice to theBpetitioners and also issued a direction that no coercive steps shall betaken against the Managing Director of the first respondent in terms ofthe order dated 11 March 2019 passed by the NCDRC. That has givenrise to the first in the batch of Special Leave Petitions before this Court,namely, SLP(C) No 12150 of 2019.C5. On 1 April 2019, the NCDRC passed a further order in thecourse of the execution proceedings. Paragraph 14 of the order isextracted below:

“As the Judgment Debtor has failed to refund the entire amountas directed by this Commission in its order dated 12th July, 2018,Dwe direct the Judgement Debtor to refund the entire amount alongwith interest and costs in terms of the order dated 12th July, 2018within two weeks from today failing which Mr. Ajay Sood, Director,shall be taken into custody and all the properties of the JudgmentDebtor and the personal properties of the Judgment Debtor shallEbe attached and the decretal amount shall be recovered from it.However, this order of taking into custody and attachmentof property shall be given effect into only after the Hon’bleDelhi High Court decides the matter.”

FThus, the execution applications were disposed of. The order ofthe NCDRC has resulted in the filing of appeals before this Court, beingCivil Appeal Nos 5231-5238 of 2019, by the petitioners/appellants forthe limited purpose of challenging the final direction of the NCDRC, i.e.,that order of custody of the Managing Director of the first respondentGand attachment of properties of the first respondent shall only be giveneffect to once the Delhi High Court decides the first respondent’s petition.

6. During the pendency of the proceedings before this Court, arisingout of the order of the Delhi High Court, certain developments tookplace. On 1 July 2019, notice was issued in SLP (C) No 12150 of 2019H6 CM(M) No 494 of 2018

and the order of the Delhi High Court was stayed. On 11 September2019, the Court was informed that seven petitioners have settled theirdispute and that a settlement with the others was likely.

7. In the meantime, on 31 October 2019, proceedings were initiatedagainst the first respondent before the National Company Law Tribunal[7]under Section 9 of the Insolvency and Bankruptcy Code 2016[8 ]by anoperational creditor. The Adjudicating Authority admitted the petition,following which the corporate insolvency resolution process[9] was initiatedand a moratorium was declared under Section 14 of the IBC. The specificdirection of the NCLT was as follows:

“15. In the given facts and circumstances, the Operational Creditorhas established the default on the part of Corporate Debtor inpayment of the operational debt. The Petition filed under Section9 fulfills all the requirements of law. Therefore, the petition isadmitted in terms of Section 9(5) of the IBC. Accordingly, theCIRP is initiated and moratorium is declared in terms of Section14 of the Code. As a necessary consequence of the moratoriumin terms of Section 14(1) (a), (b), (c) & (d), the followingprohibitions are imposed, which must be followed by all and sundry:

“(a) The institution of suits or continuation of pending suits orproceedings against the corporate debtor including execution ofany judgment, decree or order in any court of law, tribunal,arbitration panel or other authority; (b) Transferring, encumbering, alienating or disposing of by thecorporate debtor any of its assets or any legal right or beneficialinterest therein;

(c) Any action to foreclose, recover or enforce any security interestcreated by the corporate debtor in respect of its property includingany action under the Securitization and Reconstruction of FinancialAssets and Enforcement of Security Interest Act, 2002; (d) The recovery of any property by an owner or lessor, wheresuch property is occupied by or in the possession of the corporatedebtor.””

7 “NCLT’’/‘‘Adjudicating Authority’’

8 “IBC’’

9 “CIRP’’

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AThis order of the NCLT resulted in the filing of a Special LeavePetition before this Court, being SLP (C) Diary No 45043 of 2019 bycertain other homebuyers. The grievance raised in this petition is thatthe application filed for the initiation of corporate insolvency against thefirst respondent was merely to stall the refund of the amount due to thehomebuyers, in terms of the order of the NCDRC dated 12 July 2018.B

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8. Thereafter, the petitioners lodged their claims before theResolution Professional[10], though without prejudice to their contentionsin the proceedings pending before this Court. The RP issued anInformation Memorandum to prospective Resolution Applicants in termsof the IBC. Two Resolution Applicants came forth before the RP,Cnamely:(i) I & E Advertising Private Limited; and (ii) a consortiumrepresenting the home buyers. It appears that the developer had otherprojects as well, and the consortium represented the homer buyers of allthe projects.

9. In view of these developments, by an order dated 8 July 2021,Dthis Court directed that a meeting of the Committee of Creditors[11] beconvened within a period of two weeks so that a final decision could betaken on whether any of the Resolution Plans are acceptable to it. TheCoC consists only of representatives of the home buyers, no financialinstitutions being involved. The Court has been apprised, by Mr HimanshuESatija, counsel appearing on behalf of the RP, that by a vote of 96.93 percent, the CoC approved the Resolution Plan which was submitted by theconsortium of home buyers. On 21 August 2021, an application wasfiled by the RP for approval of the Resolution Plan before the AdjudicatingAuthority and some objections have been received. The AdjudicatingAuthority is yet to decide on this application for approval.F

10. Mr Pawanshree Agarwal appears on behalf of the petitioners.Mr Himanshu Satija appears for the RP. Mr Manoj Yadav appears forsecond to sixth respondents, a group of home buyers. Mr AkshaySrivastava and Mr Ayush Sharma have intervened on behalf of otherhome buyers.G

11. Mr Pawanshree Agarwal, counsel appearing on behalf of thepetitioners submitted that during the course of the proceedings beforethis Court, settlements were arrived at and hence the promoters of the 10 “RP’’H11 “CoC’’

Corporate Debtor, namely, the first respondent should be held liablepersonally to honour the settlements, particularly having regard to theorder dated 1 April 2019, which was passed by the NCDRC in the courseof the execution proceedings. In this context, reliance has been placedon paragraph 10(g) of the Resolution Plan which has been approved bythe CoC, which contains the following stipulation:

“10(g). However, the erstwhile management, promoters (de jureor de facto), shareholders, managers, directors, officers,employees, workmen or other personnel who were in charge onor before CIRP commence date of THIPL shall continue to beliable for all the liabilities, claims, demand, obligations, penaltiesetc. arising out of any (i) proceedings, inquiries, investigations,orders, show causes, notices, suits, litigation etc. (including thosearising out of any orders passed by the NCLT or any other court/department pursuant to the provisions of the Code or pursuant toany order passed/imposed by the SEBI), whether civil or criminal,pending before any authority, court, tribunal or any other forumprior to the acquisition of control by the Resolution Applicant overTHIPL, or (ii) that may arise out of any proceedings, inquiries,investigations, orders, show cause, notices, suits, litigation etc.(including any orders that may be passed by the NCLT or anyother court/department pursuant to the provisions of the Code),whether civil or criminal, that may be initiated or instituted postthe approval of the Resolution Plan by the NCLT on account ofany transactions entered into, or decisions or actions taken by,such existing management, promoters (de jure or de facto),shareholders, managers, directors, officers, employees, workmenor other personnel of THIPL, the new management of THIPLand/or the Resolution Applicant shall at no point of time be, directlyor indirectly, held responsible or liable in relation thereto.”

12. The conspectus of facts before this Court reveals that thepetitioners have participated in the proceedings before the RP and later,the CoC. The Resolution Plan which has been submitted by the consortiumof home buyers stands approved by the CoC and the proceedings arenow pending before the Adjudicating Authority, awaiting its approvalunder Section 31(1) of the IBC. If the petitioners have any objections tothe Resolution Plan, they are to submit them before the AdjudicatingAuthority. We direct the NCLT to ensure that the application for approval A

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Ais disposed of expeditiously and preferably within a period of six weeksform the date of receipt of a certified copy of this order.

13. Counsel for the petitioners urged that this Court should at thepresent stage direct that the personal properties of the promoters beattached in view of the provisions contained in the Resolution Plan whichBhave been extracted earlier. The Resolution Plan is still to be approvedby the Adjudicating Authority under the provisions of Section 31(1) ofthe IBC. Hence, at this stage, when the Resolution Plan awaits approval,it would not be appropriate for this Court to issue a direction of thatnature. After the Resolution Plan is approved under the provisions ofSection 31(1), consequences emanating from the statutory provisionCwould ensue to the benefit of the home buyers. Hence, we have alreadydirected that the NCLT shall dispose of the approval application filed on21 August 2021, within a period of six weeks from the date of receipt ofa certified copy of this order.

14. Further, since the moratorium declared in respect of the firstDrespondent Corporate Debtor continues to operate under Section 14 ofthe IBC, no new proceedings can be undertaken or pending ones continuedagainst the Corporate Debtor. Section 14(1) of the IBC reads as follows:

“14. Moratorium.—(1) Subject to provisions of sub-sections (2)and (3), on the insolvency commencement date, the AdjudicatingEAuthority shall by order declare moratorium for prohibiting all ofthe following, namely—

(a) the institution of suits or continuation of pending suits orproceedings against the corporate debtor including executionof any judgment, decree or order in any court of law, tribunal,Farbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by thecorporate debtor any of its assets or any legal right or beneficialinterest therein;

(c) any action to foreclose, recover or enforce any security interestGcreated by the corporate debtor in respect of its propertyincluding any action under the Securitisation and Reconstructionof Financial Assets and Enforcement of Security Interest Act,2002 (54 of 2002); H

(d) the recovery of any property by an owner or lessor wheresuch property is occupied by or in the possession of the corporatedebtor.”

15. At this juncture, we must however clarify the right of thepetitioners to move against the promoters of the first respondent CorporateDebtor, even though a moratorium has been declared under Section 14of the IBC. In the judgment in P. Mohanraj v. Shah Bros. Ispat (P)Ltd.[12], a three judge Bench of this Court held that proceedings underSection 138 and 141 of the Negotiable Instruments Act 1881 against theCorporate Debtor would be covered by the moratorium provision underSection 14 of the IBC. However, it clarified that the moratorium wasonly in relation to the Corporate Debtor (as highlighted above) and not inrespect of the directors/management of the Corporate Debtor, againstwhom proceedings could continue. Speaking through Justice Rohinton FNariman, the Court held:

“102. Since the corporate debtor would be covered by themoratorium provision contained in Section 14 IBC, by whichcontinuation of Sections 138/141 proceedings against the corporatedebtor and initiation of Sections 138/141 proceedings against thesaid debtor during the corporate insolvency resolution process areinterdicted, what is stated in paras 51 and 59 in Aneeta Hada[Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241]would then become applicable. The legal impediment containedin Section 14 IBC would make it impossible for such proceedingto continue or be instituted against the corporate debtor. Thus,for the period of moratorium, since no Sections 138/141proceeding can continue or be initiated against thecorporate debtor because of a statutory bar, suchproceedings can be initiated or continued against thepersons mentioned in Sections 141(1) and (2) of theNegotiable Instruments Act. This being the case, it is clearthat the moratorium provision contained in Section 14 IBCwould apply only to the corporate debtor, the natural persons A

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Amentioned in Section 141 continuing to be statutorily liableunder Chapter XVII of the Negotiable Instruments Act.”

We thus clarify that the petitioners would not be prevented by themoratorium under Section 14 of the IBC from initiating proceedingsBagainst the promoters of the first respondent Corporate Debtor in relationto honoring the settlements reached before this Court. However, asindicated earlier, this Court cannot issue such a direction relying on aResolution Plan which is still pending approval before an AdjudicatingAuthority.

C16. In view of the above directions, SLP(C) No 12150 of 2019and SLP(C) Diary No 45043 of 2019 shall stand disposed of as well asthe civil appeal, being Civil Appeal Nos 5231-5238 of 2019. Liberty isgranted to the petitioners to take recourse to the remedies which areavailable in law after the decision of the Adjudicating Authority on theDapproval application under Section 31(1), and subject to the consequencethereafter.

17. Pending applications, if any, stand disposed of.

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Devika GujralSLPs and Appeal disposed of F

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