Section 45 Of IBC Applies To Transactions Made Prior To CIRP, Not On Date Of Initiation: NCLAT Principal Bench, New Delhi

Background

The following case involves a group of appeals filed by eight appellants including Avni Jain against a common judgment of the adjudicating authority (NCLT, New Delhi) in various interlocutory applications (IAs) challenging the cancellation of residential unit allotments in the project “RG Luxury Homes” developed by Rajesh Projects (India) Pvt. Ltd (CD). The CIRP against CD was initiated on 19.09.2019 based on a petition by homebuyers, and IRP was appointed for the same. The CIRP was later converted into reverse CIRP with the order of completion of the project and the funding being given by the promoters and lenders. The previous IRP resigned and was replaced by Mr. Manoj Kulshreshta on 01.06.2021.

All the appellants claimed that certain units were allotted to them under the Allotment-cum-Builder Buyer Agreements. The IRP upon reviewing these records found them to be unauthorized and executed after the imposition of the moratorium period under Section 14 of the IBC. He cancelled the allotments stating that the same was conducted months after the initiation of the CIRP and the payment for the desired allotment was not received in the designated U.P RERA account.

The same was challenged through an application asserting that the IRP lacked the authority and that valid consideration had been paid. The Adjudicating Authority dismissed all the applications stating that allotments made post-CIP without proper consideration and in violation of IBC provisions were considered to be void. It also rejected the argument that proceedings under Section 45 was necessary as the transactions occurred on the very day the CIRP was initiated.

Appellant's contentions

The appellant contended that the allotments made to them were enforceable and that they were duly executed under the Allotment-cum builder agreement. The appellant's main contention was that the IRP had no authority under the IBC code, 2016 to unilaterally cancel allotments and should have approached the adjudicatory authority under Section 45 of the IBC if he believed the transactions to be undervalued. They also claimed that their allotments were acknowledged by the IRP in receipt books and bank entries thereby substantiating their claims.

Respondent's defense

The respondent, Mr. Manoj Kulshreshta (IRP) argued that the unit allotment claimed by the appellants were void ab initio and they were made on the same day CIRP commenced and a moratorium under Section 14 of the IBC took effect. It was contended that ex-management had no authority to execute any transactions post-CIRP and that no payments were received on or before the date of allotment. He also stated that no proceedings under Section 45 were needed as the transactions were incomplete and did not fall within the look-back period for undervalued transaction.

NCLAT Judgment

The NCLAT dismissed the appeal citing that the unit allotments were void and that they were made on the same day CIRP commenced and the IBC moratorium began. The tribunal also noted that ex-management had no authority to execute any transactions post-CIRP and it was also noted that no payments were received on or before the date of allotment. It stated that Section 45 application was not applicable as the allotment occurred before the start of the CIRP.

Hence, the Appeal was dismissed.

Case Title: Avni Jain Versus Manoj Kulshrestha, IRP for Rajesh Projects (India) Pvt. Ltd.

Case Number: Company Appeal (AT) (Insolvency) No.2288 of 2024

Tribunal: National Company Law Appellate Tribunal, Principal Bench, New Delhi

Coram: Justice Ashok Bhushan (Chairperson), Barun Mitra (Member (Technical) and Arun Baroka (Member (Technical)

For Appellant: Mr. Abhishek Anand, Ms. Palak Kalra and Mr. Karan Kohli, Advocates.

For Respondent: Mr. Ritin Rai, Sr. Advocate with Mr. Abhindra Maheshwari, Advocates.

Date of Judgement: 23.04.2025

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