An application was filed seeking re-classification of an applicant from Financial Creditor to Homebuyer. The tribunal dismissed the application, holding the applicant's stance an afterthought and finding no evidence of a registered transfer deed required for an English Mortgage.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE NATIONAL COMPANY LAW TRIBUNAL,
COURT-V, MUMBAI BENCH
Under Section 60(5) of the Insolvency and Bankruptcy Code, 2016
read with Rule 11 of the National Company Law Tribunal Rules,
2016
I.A No. 2995 of 2021
IN CP (IB) No: 1390 of 2020
Filed by
Beacon Trusteeship Limited
... Applicant
Versus
Jayesh Sanghrajka
... Respondent
IN THE MATTER BETWEEN
Beacon Trusteeship Limited …… Financial Creditor
Versus Radius Estates and Developers Private Limited
……..Corporate Debtor
Order Reserved On: 12.12.2022 Order Delivered On: 09.01.2023
Coram:
Hon’ble Shri Kuldip Kumar Kareer, Member (Judicial)
Hon’ble Smt. Anuradha Sanjay Bhatia, Member (Technical)
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IN THE NATIONAL COMPANY LAW TRIBUNAL, COURT-V, MUMBAI BENCH
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IN CP (IB) No: 1390 of 2020
Appearance :
For the Applicant (Beacon Trusteeship Limited):
Ld. Counsel Mr. Ashish Kamat, Mr. Abhineet
For the Respondent (Jayesh Sanghrajka, Resolution Professional) :
Ld. Senior Counsel Mr. Mustafa Doctor a/w Mr. Nausher Kohli, Mr. Devesh Juvekar, Mr. Ashish Parwani, Mr. Dikshat Mehra, Mr. Yash Jain and Miss Honey Chandnani.
Per: Hon’ble Shri Kuldip Kumar Kareer, Member (Judicial)
ORDER
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in the ongoing Corporate Insolvency Resolution Process of the Corporate Debtor.
2. SUBMISSIONS OF THE APPLICANT ARE AS UNDER;
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with Maharashtra Real Estate Regulatory Authority (MahaRERA) under registration no. P51800004889 and consists of 15 Wings, each wing comprising of ground + basement + 22 to 29 upper floors.
c. Further a Debenture Trust Deed (hereinafter referred as “ DTD ”) dated August 8, 2017 was entered between the Applicant, Corporate Debtor and MIG (Bandra) Realtors and Builders Private Limited, wherein, the Corporate Debtor agreed to allot and issue 250 fully paid-up, unlisted, unrated, secured, redeemable, tradable, taxable and nonconvertible debentures of face value of Rs. 10,00,000/each aggregating to Rs. 25,00,00,000/- as per the terms and conditions of the DTD.
d. The Applicant further states that, the NCDs were primarily secured by an English Mortgage over the 8 (Eight) residential flats in the Project, which are set out in detail in Schedule I of the DTD, Furthermore, the NCDs were also secured by other security documents as follows:
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e. However, the Applicant submits that, the Corporate Debtor had failed to comply with its financial obligations under the DTD. Pursuant to this, several correspondences have been exchanged between the parties. The Applicant further states that, the post-dated cheques provided by the Corporate Debtor towards discharge of its obligations were not honored by banks and therefore, the Applicant was constrained to initiate proceedings under Section 138 of the Negotiable Instruments Act, 1881, against the Corporate Debtor.
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states that, the present Applicant was not representing the debenture holders under the present DTD.
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in favour of the Applicant under an English Mortgage. Therefore, on December 30, 2019, on account of the failure of the Corporate Debtor to comply with its repayment obligations, the transaction attained finality.
j. Pursuant to the above, the Applicant via e-mail dated October 14, 2021, re-filed its claim under Form ‘C’ and requested the Resolution Professional for due reclassification of the Applicant as ‘Homebuyers/ Allottees/ Financial Creditors in a ‘Class’ instead of ‘Financial Creditor’.
k. Thereafter on the basis of the abovementioned email, the Applicant was intimated on October 21, 2021 that the request of the Applicant cannot be acceded to, as the Resolution Professional does not have the power to review, change or modify the claim of the Applicant, which is already admitted, in accordance with the judgment of the Hon’ble NCLAT, New Delhi in Rajnish Jain vs. Manoj Kumar Singh 2020 SCC OnLine NCLAT 824 . The RP in view of the said Judgment, asserted that the Applicant would have to approach this Hon’ble Tribunal for such change in the status from Financial Creditor to that of a
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Home Buyer. Accordingly, the Applicant has approached this Hon’ble Tribunal.
l. The Applicant further submits that, the nomenclature under the DTD and the contents of the deed, is an English Mortgage, which is not challenged by the Respondent. Therefore, the type of security created under the DTD, is not disputed in fact as well as in law, it is as an English Mortgage. The Applicant has relied on the Section 58 of the Transfer of Property Act, 1882 (“ TOPA ”), Further, the Applicant has placed its reliance on the relevant clauses and recitals of the Debenture Trust Deed.
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exists no question of re-transfer of the Mortgaged Premises. Therefore, the Applicant has become the lawful owner of the Mortgaged Premises.
n. The Applicant submits that, as it had filed the claim as ‘Financial Creditors’ in any event, because of an error in understanding while filing the claim, the Applicant’s rights cannot be denied and the facts have to be independently looked into which clearly show that, the Applicant has to be re-classified as ‘Homebuyers/ Allottees/ Financial Creditors in a Class’ instead of ‘Financial Creditor’. The Applicant has relied on the amendment brought to the definition of “Financial Debt” under section 5(8)of the IBC, 2016 for re-classification as a homebuyer.
o. It is further submitted that, the Respondent in their reply has incorrectly mentioned that Beacon Trusteeship Limited had filed its claim as a financial creditor. It is submitted that Beacon Trusteeship Limited is merely a debenture trustee which represents various debenture holders under separate ISINs. Further, in the present case, the ISINs of the Financial Creditor (Beacon Trusteeship Limited) which has filed CIRP Petition under section 7 of the Insolvency
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and Bankruptcy Code, 2016 against the Respondent is not related to the ISINs of the present case. Furthermore, Beacon Trusteeship Limited is being represented by other Advocates in that matter for such ISINs. The claims for each ISINs have been admitted and treated separately by the RP himself under law.
p. With regard to the issue of the delay, the Applicant submits that he had approached the RP for re-consideration of its claim as a Homebuyer before a Resolution Plan was even placed before the CoC. Therefore, the Respondent’s arguments that the Applicant has filed the Application at a belated stage and/ or that the Applicant has filed the present Application only because the Resolution Plan provides better provisions for Homebuyers cannot be sustained.
q. Without prejudice to the above, it is submitted that there is no estoppel against law for which reliance can be placed on the Hon’ble Supreme Court’s decision in Directorate of Elementary Education Orissa vs Pramod Kumar Sahoo reported in (2019) 10 SCC 674 wherein it is held by the
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Hon’ble Supreme Court that there is no estoppel against law.
3. SUBMISSIONS OF THE RESOLUTION PROFESSIONAL :
The Resolution Professional has filed a detailed reply, dated 04.03.2022, opposing the present Application. The contentions raised by the Resolution Professional are summarised as follows:
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the present I.A 2995 of 2021 is belated and will cause immense prejudice to the CIRP of the Corporate Debtor.
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‘ Homebuyer ’, as the Applicant has now realized it shall be more beneficial to the Applicant if it is classified as a Homebuyer.
e. Secondly, it is pertinent to note that the Corporate Debtor’s CIRP came to be commenced on the basis of the Section 7 Petition filed by the Applicant itself claiming a default on a “Financial Debt” . In this Petition, the Applicant recognized itself as a Financial Creditor and not a ’Homebuyer ’. Thirdly, in the Application, the Applicant has miserably misconstrued and misinterpreted the terms of the DTD, the Transfer of Property Act, 1882 and the Real Estate (Regulation and Development) Act, 2016. The transaction between the Applicant and Corporate Debtor was purely that of a financial transaction. The 8 residential flats in question were only earmarked as security for repayment of the Financial Debt due under the
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DTD.
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h. Furthermore, as regards the contentions of the Applicant that the DTD Agreement is an English Mortgage Agreement, it is pertinent to mention that the said DTD is completely silent and nowhere in the said DTD agreement, it is mentioned that the same is to be treated as English Mortgage Deed.
i. The Respondent states that to classify a Mortgage as English Mortgage, there are four conditions which need to be complied for classifying as an English Mortgage. Out of the said four conditions one of the Conditions closely resembles that, there should be conditions in respect to repurchase of the securities upon repayment of the Loan whereas it is pertinent to note that, there is no detail condition in respect to repurchase in the said DTD.
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Code, which is Resolution of a Corporate Debtor in time bound manner to maximize value, if such requests of applicants like the Applicant are accepted, the very purpose of the Code would be defeated.
FINDINGS
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the capacity of a Financial Creditor.
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(Code) pertaining to the existence of a Financial Debt and its Default and Repayment. In these circumstances, ex-facie, at this belated stage, the Applicant cannot turn around and claim itself as a Homebuyer. This Bench is of the view that it is untenable to consider the Applicant, who filed the present Petition in the capacity of a Financial Creditor be now treated or given the position of a Homebuyer. It appears that acts of the Applicant in turning around to claim itself as a Homebuyer is a clear afterthought strategy to benefit itself.
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14.1.1 of the DTD, wherein it is specifically mentioned that developer hereby convey, assign, assure, transfer and charge by way of first and exclusive charge and mortgage unto the Debenture Trustee by way of security interest all present and future rights, title, interest and benefit of the Developer arising with respect to the mortgaged premises, more particularly, described in Schedule 1 attached with DTD. On the strength of Clause 14.1.1, the Applicant has claimed that an English mortgage was created in its favour by virtue of DTD, more particularly, Clause 14.1.1 and in addition to this, security interest were further created by way of Clauses 14.1.2, 14.1.3 and 14.1.4. It has further been contended on behalf of the Applicant that since an English mortgage was created in its favour in terms of Section 58 of the Transfer of Property Act and the flats referred to in Schedule 1 of DTD stand transferred in favour of the Applicant, the latter is liable to be treated as a Home Buyer instead of Financial Creditor.
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to the Mortgagee with the stipulation that he will re-transfer it to the Mortgager upon payment of the mortgage money as agreed. The English Mortgage definition makes it abundantly clear that, in all actuality, the transaction is a legitimate sale except that the Borrower/the Mortgager must make a legally binding pledge to the Lender that he would repay money on a specific date. As a Mortgagor is to give the Mortgagee an absolute transfer of the immovable property, similar to a legal sale, the transaction would be subject to stamp duty and the document must be registered as a purchase agreement/sale deed in terms of the Indian Registration Act, 1908. Therefore, the transaction ensuing from an English mortgage is supposed to be a legitimate sale except that the borrowers or the mortgagers, must make a legally binding obligation to the lender that he would pay the money on a specific date and further that since the mortgager is giving the mortgagee an absolute transfer of the immovable properties, similar to a legal sale, the transaction will be subject to payment of stamp duty and compliance of the provisions of the Indian Registration Act, 1908. However, from a perusal of the DTD, more particularly, Clause 14.1.1, no transfer of any property much less the flats referred to in Schedule 1 is shown to have effected by way of a registered Deed which is a sine qua non of an English mortgage. Therefore, It cannot be said by any stretch of imagination that an English mortgage was created in favour of the
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Applicant. Had it been so, a legitimate sale deed/transfer agreement would have been executed in favour of the Applicant in respect of the Flats and there should have been a condition that the Mortgager would be entitled to get the Flats re-transferred in its name on repayment of the borrowed amount. Since there is no such term or condition in the DTD, the transaction cannot be treated as an English Mortgage. Therefore, the contention raised on behalf of the Applicant is wholly fallacious.
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Homebuyer nor it can be said to have been covered fall under the purview/definition of an “Allottee” as per RERA, 2016. Further, clause 14.1.1 of the said DTD clearly indicates that since no registered transfer deed in respect of the flats was got executed in respect of the Flats, as required under the definition of English Mortgage, the transaction cannot be treated as English Mortgage, as sought by the Applicant. Therefore, looking at the case from any angle, absolutely no case is made out for reclassifying the Applicant as a Homebuyer instead of a Financial Creditor. For the aforesaid reasons this Bench is of the considered opinion that there is no merit in the above Application both on the question of fact, law and conduct and are liable to be dismissed.
SD/- SD/-
ANURADHA SANJAY BHATIA KULDIP KUMAR KAREER MEMBER (TECHNICAL) MEMBER (JUDICIAL)
//Renuka, LRA//
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3 issues framed by the court
Whether an applicant initially classified as a Financial Creditor can be re-classified as a Homebuyer at an advanced stage of the CIRP.
Whether an English Mortgage was created in respect of 8 flats by virtue of the execution of the Debenture Trust Deed.
Whether the Debenture Trust Deed constitutes a valid English Mortgage under Section 58 of the Transfer of Property Act.
Colour shows how this judgement treated each authority
Rajnish Jain vs. Manoj Kumar SinghReferred¶72
Rajnish Jain vs. Manoj Kumar Singh 2020 SCC OnLine NCLAT 824 · Who else cites this
Directorate of Elementary Education Orissa vs Pramod Kumar SahooReferred¶91
Directorate of Elementary Education Orissa vs Pramod Kumar Sahoo (2019) 10 SCC 674 · Who else cites this
4 provisions across 3 enactments
Beacon Trusteeship Limited
Jayesh Sanghrajka
Kuldip Kumar Kareer
Anuradha Sanjay Bhatia
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
