Umesh 12 March 2024

Seeking legal advice on corporate insolvency resolution process

Dear All,

I hope this message finds you well.

I am writing to seek legal advice and guidance regarding a matter related to the Corporate Insolvency Resolution Process (CIRP) initiated by the National Company Law Tribunal (NCLT). Recently, I became aware of this issue through an advertisement published by the NCLT, which outlined the initiation of CIRP against a real estate company, Gulam Mustafa Enterprises Pvt Ltd (GM).

Following the advertisement, I attended a meeting with the Interim Resolution Professional (IRP) appointed for the case. During the meeting, the IRP emphasized the importance of filing a claim in the insolvency process. However, I am seeking legal advice to better understand my rights and options in this matter.

Here is a brief summary of the situation:

Initiation of CIRP: The NCLT initiated the Corporate Insolvency Resolution Process against GM, a real estate company, as per the provisions of the Insolvency and Bankruptcy Code (IBC).
Advertisement by NCLT: I became aware of the CIRP through an advertisement published by the NCLT, notifying stakeholders about the commencement of the resolution process.
Meeting with IRP: Subsequently, I attended a meeting with the IRP appointed for the case. During the meeting, the IRP provided information about the insolvency process and stressed the importance of filing a claim as a creditor.
Ongoing Construction: It is pertinent to mention that construction work is still ongoing at the site where I have booked an apartment. This indicates that the insolvency proceedings have not halted the construction activities.
Single Supplier Petition: Additionally, I learned that the petition against GM was filed by a single supplier, and GM itself has not become insolvent. This suggests that the insolvency issue is specific to the supplier's claim rather than GM's financial insolvency.

Given the complexity of the situation, I believe it is crucial to seek professional legal advice to make informed decisions.

I would be grateful for any assistance or guidance you can provide in this matter. Please feel free to reach out to me via email or phone to discuss this further.

Thank you for your attention to this matter.

Sincerely,

Umesh Pednekar

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1 Replies

T. Kalaiselvan, Advocate (Advocate) 13 March 2024

With regards to First issue, Supreme Court stated that Home Buyer can be considered as “Financial Creditor” under Section 5 of I&B Code. Financial Creditor is a person to whom Financial Debt is owned as per Section 5(7) of the Code and “Financial Debt” is a debt which is paid against consideration for “time value of money”, in simple words which means that lenders lent money to borrower to utilize such money and after utilization borrower is required to repay such money or equivalent of money to the lender under Section 5(8) of the Code.

In the present case, Home Buyers/Allottee pay a substantial amount of money to the Real Estate Developer in advance for completion of the Project in exchange of which Real Estate Developer provides Flat/Apartment to the Allottees. Now, the amount of instalment paid by allottees for completion of flat is much less, than the amount he would be required to pay at the time of purchase of a readymade flat, this enables allottees to get time value of money. Therefore, court concluded that the current definition of ‘financial debt’ is sufficient to include the amounts raised from home buyers/allottees under a real estate project, and hence, they are to be treated as Financial Creditors under the I&B Code.

Further, for clear understanding court analysed the recommendation given under Insolvency Committee Report in which it was stated that, the delay in completion of flats/apartment has become a common phenomenon, which affects allottees/home buyers adversely as they contribute significantly for construction of flats/apartment. It was therefore, felt important that there is need to clarify home buyers/allottees as “Financial Creditor” so that they can initiate CIRP under Section 7 of I&B code and have rightful place in committee of creditors to decide the future of the building construction company in regards to the execution of Real Estate Project.