Application U/S 7 Of IBC Shall Be Deemed Withdrawn If Modification Application Is Not Filed Within 30 Days: NCLAT
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) has held that failure to file a modification application under third proviso section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) within 30 days, from the date of commencement of the 2020 Amendment Act, to comply with the requirement...
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) has held that failure to file a modification application under third proviso section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) within 30 days, from the date of commencement of the 2020 Amendment Act, to comply with the requirement of 100 allottees or 10% of the total unit holders shall result in the original application being deemed to have been withdrawn.
Brief Facts:
Greater Noida Industrial Development Authority (“Greater Noida”) vide Lease Deed dated 11.02.2011 granted lease of land to Corporate Debtor (CD) for Large Group Housing Builders Residential Plots of an area admeasuring 7,07,771.95 sq. mtrs at Plot No.GH-11, Sector-1, Greater Noida (West), U.P. Possession Certificate dated 14.02.2011 was issued by Greater Noida in favour of the CD.
Complaints were filed by the various homebuyers before Uttar Pradesh Real Estate Regulatory Authority (UP RERA). Notices were issued by UP RERA to the CD and on 08.01.2019, UP RERA directed the Promoters to complete the work of four Towers, i.e. Tower A, B, E & F of Phase-1 till November 2019.
As regards remaining two Towers, the CD was directed to complete it by November 2020. On 11.01.2019, eight Homebuyers, including Respondent No.1 – Ajit Srivastava filed Section 7 application as a Financial Creditors in a class against the CD, praying for initiation of Corporate Insolvency Resolution Process (“CIRP”) against the CD.
The Adjudicating Authority heard the Applicants as well as the CD and Advocate Commissioner appointed by the Adjudicating Authority and by the impugned order dated 04.03.2024, IA Nos.4163 of 2021, 3422/2022 and 499 of 2023, impleaded the Applicants in Section 7 application and held that after impleadment of the Applicants, total number of Homebuyers comes to 107, which met the threshold limit of 100 in number.
The Adjudicating Authority further held that particulars of debt have been given in Part-IV and non completion of the Project is reflected in Architect Certificate itself and both the requirement of debt and default are established, appointing IRP.
Against the above order, the present appeal has been filed.
Contentions:
The Appellant submitted that Section 7 Application, which was initially filed by 08 Homebuyers on 11.01.2019, did not fulfill the threshold as directed by Amendment Act 2020. The Applicants failed to modify the application to conform to the amended requirements inserted by Amendment Act 2020. Hence, the application deserved to be rejected on this ground alone.
It was further submitted that when the State Government has declared zero period from 14.02.2011 to 01.09.2017, there cannot be any default on the part of the CD in carrying out the construction. Clause 16 of the Builder Buyer Agreement provided for 40 months for Project completion with a grace period of six months. When the period is calculated from 01.09.2017, the period provided for completion of the construction was not even completed on 11.01.2019.
Per contra, the Respondent submitted that the cancellation of allotments have been undertaken by the CD after filing of the application under Section 7 and after filing the impleadment application to defeat the rights of the Homebuyers. The action of the CD to cancel the allotment when allottees sought impleadment, is only to defeat the application under Section 7, which cannot be permitted.
It was further submitted that the zero period was at best relevant for determination of the dues of the CD, which were to be paid to Greater Noida and in no manner shall effect the time of 40 months, during which the construction was required to be completed. The defence of force majeure taken by the Appellant is unfounded.
Observations:
The Tribunal noted that the application under section 7 of the IBC was filed by only eight applicants on 11.01.2019 which predated the 2020 amendment to the IBC. The amendment made it compulsory that an application under section 7 of the IBC filed by the Homebuyers is required to be supported by at least 100 allottees or 10% of the total unit holders.
It further observed that the Amendment was challenged before the Supreme Court in Manish Kumar.The court upheld the Amendment thereby making the threshold limit of 100 allottees or 10% of the total unit holders mandatory. However, in the present case, the Application for impleadment as per the Supreme Court's judgment was filed only on 15.07.2021 despite the applicant being aware of the Ordinance dated 28.12.2019 which brought amendments to the IBC.
It further observed that the third proviso to section 7 mandates that the application filed under section 7 of the IBC before the 2020 amendment came into force can be amended within 30 days after its commencement to comply with the requirements of 100 allottees or 10% of the total unit holders. If the applicant fails to file a modification application on time, the application under section 7 shall be deemed to be withdrawn. Despite this, the Adjudicating Authority admitted the application without taking into consideration this deeming provision.
The modification application was filed much later which sought to implead 52 Homebuyers. It showed that the original application was filed by only eight homebuyers making it non-compliant with the threshold limit brought in by the 2020 amendment. According to own case of the Respondents, all 107 unit holders claimed units before the date of filing the application under section 7 but the application was filed by only eight unit holders therefore the application did not comply with the requirement.
It held that “hence, they have filed the application, but the application having been filed on 15.07.2021, i.e. beyond 30 days period provided in the third Proviso, the application shall be deemed to have been withdrawn and it was not open to the Adjudicating Authority to proceed further with the application.”
Accordingly, the present appeal was allowed and the impugned order was set aside.
Case Title: Hari Om Dixit Versus Ajit Srivastava & Ors.
Case Number: Company Appeal (AT) (Insolvency) No. 513 of 2024 & I.A. Nos.5085, 6475, 7338 of 2024
Judgment Date: 08/07/2025
For Appellant : Mr. Abhijeet Sinha, Sr. Advocate with Mr. Ashish Choudhury, Mr. Saikat Sarkar, Mr. Abhishek Arora, Mr. Anand Kamal, Advocates
For Respondents : Mr. Ashvary Vikram, Mr. Lucky Sharma, Mr. Vikash C. Shukla, Advocates.
Mr. Nipun Gautam, Advocate for IRP.
Mr. Krishnendu Datta, Sr. Advocate with Mr. Atul Kumar, Mr. Alok Bhardwaj, Advocates for Intervener.
Ms. Tanvi Jain, Advocate for Applicant in IA No.7338 of 2024.