Supreme Court - Daily Orders
Ask Investment Managers Ltd. vs Sai Peace And Prosperity Apartment ... on 27 July, 2023
Bench: Sanjay Kishan Kaul, Sudhanshu Dhulia
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IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal Nos. 5959-5960/2021
ASK INVESTMENT MANAGERS LTD. Appellant(s)
VERSUS
SAI PEACE AND PROSPERITY APARTMENT
BUYERS’ ASSOCIATION & ORS. Respondent(s)
O R D E R
M/s Ambojini Property Developers Pvt. Ltd. had advertised for a Real Estate Project “Sai Peace and Prosperity Apartments.” The Project was scheduled and completed and handed over to the respective flat buyers by December 2018. The project never saw a growth beyond the piling work effectively leaving the flat buyers high and dry. In furtherance of the real estate project, to invite funds, the appellant was invited through the process of a Share Subscription and Shareholders Agreement (SSHA) between the appellant and one Mr. V.S. Suresh (suspended promoter/Director of the Corporate Debtor) and the Corporate Debtor and they invested a sum Signature Not Verified of Rs.50 crores in that capacity. In order to protect the Digitally signed by Charanjeet Kaur Date: 2023.08.02 15:29:42 IST Reason: interest, the appellant had got incorporated various clauses inter alia of affirmative votes, right to nominate equal Directors in Board etc. 2 The sad commentary on what happened is reflected by the failure of the Corporate Debtor to process the necessary approvals and even initiate the development of the project. Ultimately, on 06.07.2015, an Exit Agreement was executed between the appellant, the Corporate Debtor and the promoter to facilitate the exit of the appellant from the Corporate Debtor. The matter still did not get resolved and the appellant had to initiate arbitral proceedings against the Corporate Debtor and the Promoter due to defaults even in terms of this Exit Agreement read with the original SSHA.
The Arbitral Tribunal while not agreeing to all their pleas and reliefs, passed an award in favour of the appellant on 31.01.2018 holding that the Corporate Debtor and its Promoters were liable to repay the appellant a sum jointly and severally of Rs.155,32,56,626/- along with interest and simultaneously created a charge on the project land of the Corporate Debtor in favour of the appellant. This Arbitral award was challenged before the Bombay High Court by two petitions preferred by the Corporate Debtor and its Promoters under Section 34 of the Arbitration and Conciliation Act, 1996 (for short,” the Arbitration Act, 1996). As informed, neither of these objections to the petitions were admitted nor notice issued as on date.
One of the operational Creditors (Nuvco Vistas 3 Corporation Ltd.) moved the NCLT, Chennai under Insolvency and Bankruptcy Code, 2016(for short, the Code”) by an application under Section 9 of the said Code to initiate Corporate Insolvency Resolution Process against the Corporate Debtor. The appellant submitted the claim in terms of the award. The Interim Resolution Professional initially admitted the claim of the appellant as a Financial Creditor but, Mr. V.S. Suresh contended that the appellant should be treated as a ’related party’ of the Corporate Debtor. The appellant was thus not included in the Committee of Creditors (CoC). In the proceedings initiated before the NCLT, a direction was issued to the Resolution Professional to decide the status of the appellant which opined against the appellant insofar as the status as a ‘related party’ of the Corporate Debtor under Section 5(24)(h) and 5(24)
(m)(i) of the Code.
The appellant being aggrieved by the same approached the NCLT, Chennai which opined vide its order dated 03.01.2020 that the appellant was an investor entitled to protective rights under the SSHA. In the context of plea of ‘related party’, it was opined that the appellant as a financial creditor regulated by a financial sector regulator such as SEBI, should not be treated as a ‘related party’ to the Corporate Debtor. Thus, the appellant was entitled to be a member of the 4 CoC with voting rights.
The promoter and the Buyers’ Association both approached the NCLAT against the order of the NCLT and by an interim arrangement, the Resolution Plan floated by the two Resolution Applicants, i.e., Sobha Ltd. and Casagrande Regale Pvt. Ltd. (Applicant in IA No. 143118/2022) before us was put to vote on 05.12.2020. Under the e-voting results, by a 95% majority, the CoC members voted in favour of the resolution plan by Casagrande Regale Pvt. Ltd. with only ICICI voting against both the plans.
On the ultimate consideration of the appeals pending before the NCLAT, vide impugned order dated 20.09.2021, the NCLAT set aside the NCLT order opining that the appellant should be treated as a ‘related party’ and the second proviso to Section 21(2) of the Code to be inapplicable in the present case. It is not really necessary for us to go into the rationale for the opinion as set out because of what is transpired before us now, but suffice to say that we were hearing the appeals against the said order preferred by the appellant.
We have heard the learned senior counsels for the appellant at some length yesterday and they concluded their submissions. The plea arising from second proviso to Section 21 (2) of the Code was not something urged before us. The submissions were in the conspectus of: 5
a) The operational decisions of the company were taken by the Promoters and the appellant was just an investor unrelated to the running of the company though there may have been clauses in the agreement to protect the interest of the appellant. In that context, it was further urged that these agreements are of an era much prior to the Code coming into force. The expanded definitions of ‘related party’ under the Code must be understood in the conspectus of preventive re-entry of the same people who are in management earlier and not with the objective of obstructing an investor who has invested funds alone but put certain restraints on the debtor to obtain consent of the investor on certain issues.
b) The presence as Board representatives being mandatorily 50% was only for the protection of interest of the Creditor as the decision making process must involve inclusion of the investor who had invested heavily.
c) The clauses in the agreement were added not for the benefit of any particular individual/party but for the benefit of protection of 433 investors on whose behalf, the appellant had invested.
d) It is further contended that the provisions would apply in praesenti i.e.,on the date of the CIRP. Even if 6 it be assumed that the appellant initially had any sort of control, the same would not hold true due to a change in the status of appellant as a mere Creditor after the exit agreement and having invoked the jurisdiction of the Arbitrator to claim amounts prior to the initiation of the CIRP.
Various judicial pronouncements were cited in this behalf- Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta &Ors.1, Vodafone International Holdings BV vs. Union of India2 and Subhkam Ventures Pvt. Ltd. Vs. SEBI3.
We have the benefit of hearing submissions of Mr. Nikhil Nayyer learned senior counsel. In the course of arguments, we put certain proposals to both the flat buyers represented by Mr. Nayyer and the appellant as the effect of the NCLAT order would be to almost restart the process. This is also in the context of the submission of the learned counsel for the appellant that if the appellant were not even permitted to vote in the CoC, taking into account the balance votes, the requisite percentage of CoC members minus the appellant would have passed the plan as submitted by Casagrande Regale Pvt. Ltd. The flat buyers had voted in favour of both the plans. Mr. Nayyar has also rightly submitted that the 1 (2019) 2 SCC 1 2 (2012) 6 SCC 613 3 (2010) SCC OnLine SAT 35 7 flat buyers having not seen the flats for so many years at least want their monies back and, especially in regard to the number of aged persons involved. They have been waiting for more than a decade. Thus, he sought to suggest some solutions himself which would facilitate them to get their monies without directly affecting the plan.
In course of the lunch recess, the appellant and the flat buyers represented through their counsels were able to iron out their differences to facilitate both the parties to get their dues. The very basis of the settlement is some monetary sacrifice by the appellant for the benefit of the flat buyers represented through Mr. Nayyar. We may note that under the plan there are 168 flat buyers. The settlement which has been sought in substance is as under:
a) The approved plan will have to be placed before the NCLT for its sanction.
b) The flat buyers would have received Rs. 43 crores and that amount would be available under the plan for the benefit of the 168 flat buyers stated in the plan. Apart from this, the aforementioned 168 flat buyers will also benefit from the extra share of Rs. 11 crores, a sacrifice which would be made by the appellant for their benefit. There would thus be no other responsibility of the appellant towards any other flat buyer as this was a 8 sacrifice being made by them for the flat buyers and otherwise the plan as it is would be presented before the NCLT for its approval.
c) NCLAT Appeal No.252/2020 filed by the flat buyers which had resulted in the impugned judgment would stand withdrawn and the impugned judgment would thus not hold good subject only to a plea sought to be advanced by erstwhile Director represented by Mr. Rana Mukherjee, learned senior counsel which we will deal with hereinafter.
d) All pending complaints filed by the flat buyers pending before the Tamil Nadu Real Estate Regulatory Authority (RERA) will stand withdrawn and all proceedings arising from the orders passed by Tamil Nadu RERA shall also stand withdrawn.
e) Appellant’s Application being IA No. 1362/IB/2020 and IA No. 218(CHE)/2021 filed before NCLT, Chennai shall stand withdrawn.
f) Flat buyers’ application No. 1/2022 in NCLAT Appeal Diary No. 774/2021 before NCLAT, Chennai Bench shall stand withdrawn.
g) The issue of ‘related party’ status of the appellant would also stand closed by the stand taken by these parties and the aforesaid issue will not be re-
agitated before the Resolution Professional or any other fora.
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We appreciate the stand taken before us both by the appellant and the flat buyers who put an end to this lis to the benefit of all. The Resolution Applicant(s) also support the course of action adopted by the home buyers and the appellant. The Promoters having failed in their initial duty to construct the flats or meet the obligation of the appellant still want to oppose the settlement as they claim that the appellant who made the financial contribution actually fall in the category of ‘related party’.
We have already noticed that insofar as the aspects of submissions which Mr. Rana Mukherjee sought to make qua the aspect of second proviso to Section 21 (2) of the Code is concerned, the appellant has not even urged that before us. In a nutshell, the submission is that if the appellant is a ‘related party’, they should not derive any benefit despite the fact that they came in as investors.
The Promoters agreed to the terms of the agreement for the investment of the appellant and entered into an exit agreement where they could not comply with the financial obligations. The dispute arose despite that in arbitration in which an award has been passed against the promoters. Almost 150 crores plus have been awarded to the appellant, out of which the appellant, according to the successful resolution plan, would get about 90 10 crores less the 11 crores being sacrificed for the flat buyers and objections under Section 34 of the Arbitration Act, 1996 have not moved at all, ostensibly on account of settlement talks.
Mr. Rana seeks to rely upon the judgment of this Court in Vijay Kumar Jain v. Standard Chartered Bank & Ors.4 qua the role of the erstwhile Board of Directors.
We have examined the said judgment and find that there is a cavil to the proposition that the erstwhile Board of Directors are suspended Directors of the corporate debtor during the CIRP. Mr. V.S. Suresh (respondent No.3) is a suspended Promoter/Director of the Corporate Debtor. The statutory scheme makes it clear that the erstwhile Board of Directors are not members of the Committee of Creditors, but they do have a right to participate in the meetings held by the Committee of Creditors and have a right to discuss all resolution plans. The plan would now have to be placed before the NCLT, where the Board Members would be represented. We have also noticed above that the percentage of votes cast in favour of the plan would still be beyond the benchmark, even if the votes cast by the appellant were excluded.
We are thus of the view that the Promoters cannot derive any benefit out of the order of the NCLAT which is 4 (2019) 20 SCC 455 11 a common order in which they were one of the appellants and it is the flat buyers who are really the interested parties who have agreed to settle in the aforesaid terms. We are thus inclined to close any claims or rights of the Promoters which they may seek from the NCLAT order impugned, to put a quietus to the matter.
The appeals are accordingly allowed in the aforesaid extent having being comprised.
…………………………………………………J. (SANJAY KISHAN KAUL) …………………………………………………J. (SUDHANSHU DHULIA) New Delhi;
July 27, 2023
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ITEM NO.103 COURT NO.2 SECTION XVII
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Civil Appeal No(s). 5959-5960/2021
ASK INVESTMENT MANAGERS LTD. Appellant(s)
VERSUS
SAI PEACE AND PROSPERITY APARTMENT
BUYERS ASSOCIATION & ANR. Respondent(s)
([ PART HEARD BY: HON'BLE SANJAY KISHAN KAUL AND HON'BLE SUDHANSHU DHULIA, JJ. ] IA No. 130128/2021 - APPLICATION FOR PERMISSION IA No. 143123/2022 - CLARIFICATION/DIRECTION IA No. 143118/2022 - INTERVENTION/IMPLEADMENT IA No. 124395/2021 - PERMISSION TO FILE ADDITIONAL DOCUMENTS/FACTS/ANNEXURES IA No. 123247/2021 - STAY APPLICATION) Date : 27-07-2023 These matters were called on for hearing today. CORAM :
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL HON'BLE MR. JUSTICE SUDHANSHU DHULIA For Appellant(s) Dr. Abhishek M. Singhvi, Sr. Adv.
Mr. Dhruv Mehta, Sr. Adv.
Mr. Denzil Arambhan, Adv.
Ms. Shachi Udeshi, Adv.
Mr. Amit Bhandari, Adv.
Mr. Anubhav Ray, Adv.
Mr. Chiranjivi Sharma, Adv.
Ms. Neetika Sharma, Adv.
Mr. Pranaya Goyal, AOR For Respondent(s) Mrs. Rana Mukherjee, Sr. Adv.
Mr. Goutham Shivshankar, AOR Ms. Oindrila Sen, Adv.
Mr. Adit Jayeshbhai Shah, Adv.
Mr. Sharanya Sinha, Adv.
Mr. Nikhil Nayyar, Sr. adv.
Mr. Pawan Bhushan, Adv.
Mr. Divyanshu Rai, Adv.
Mr. Shivraj Gaonkar, AOR 13 Mr. Jaideep Gupta, Sr. Adv.
Mr. K. S. Mahadevan, Adv.
Mrs. Swati Bansal, Adv.
Mr. Rangarajan .R, Adv.
Ms. Anindita Mitra, Adv.
Mr. Siddharth Singh, Adv.
Mr. Rajesh Kumar, AOR UPON hearing the counsel the Court made the following O R D E R The appeals are allowed to the extent mentioned in the signed order having being comprised.
The application for intervention is disposed of in terms of the signed order.
Pending applications stand disposed of.
[CHARANJEET KAUR] [POONAM VAID]
ASTT. REGISTRAR-cum-PS COURT MASTER (NSH)
[ Signed order is placed on the file ]