NCLT appoints IRP in Spaze Tower Pvt Ltd case

According to the latest data from the Insolvency and Bankruptcy Board of India (IBBI), 126 cases were admitted between April and June 2021. (Representative Image)

The National Company Law Tribunal (NCLT) has appointed Gaurav Katiyar as interim resolution professional (IRP) for Spaze Tower Private Limited in a case involving 40 buyers of commercial space in Gurgaon in which the builder had promised to repay the investment at either Rs 55 or Rs 65 per sq ft per month till the office units were leased out.

This is one of the first matters to be admitted for a real estate company after the 10% or 100 allottees ordinance came into effect.

The matter was argued on behalf of allottees by Piyush Singh of PSP Legal. “This order is welcome as it will boost the confidence of buyers who had invested in commercial real estate. NCLT has considered assured returns payments default as a debt under Insolvency Code. Since RERA and Consumer Courts were not giving remedy to assured returns buyers of the commercial property therefore this is a very welcome decision.

Arrears of assured returns and money owed by a builder to a buyer with whom an agreement is in place to make regular payments qualify as ‘financial debt’, the National Company Law Appellate Tribunal (NCLAT) has said in its order.

Persons getting assured returns can be termed as ‘financial creditors’ and can file for a corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC). NCLT dismissed the application, stating that arrears of assured returns would not be covered by the term financial debt.

In January this year, the Supreme Court had upheld the Indian Bankruptcy Code (IBC) amendment and dismissed the writ petitions filed by homebuyers in 2020.

Section 7 (1) of the IBC was amended by the government in 2020 and a minimum threshold limit of 100 or 10% of homebuyers whichever is lower was introduced to initiate proceedings against a defaulting developer under IBC. Earlier, even a single homebuyer could approach the National Company Law Tribunal (NCLT) against the defaulting developer.

A response from the builder's legal representative is awaited.

The Spaze Corporate Park order had earlier been reserved on March 5, 2021.

In February, about 40 buyers (financial creditors) of 70 commercial spaces at Spaze Corporate Park located in Sector 69 and 70 in Gurgaon, through their counsel Piyush Singh of PSP Legal, had argued that even after almost eight years, only the bare shell structure of the towers was complete.

Also, under the memorandum of understanding signed between the buyers and the builder, the builder had guaranteed an investment return scheme under which each office space was to be leased at Rs 55 per sq ft or Rs 65 per sq ft per month. Buyers had sent legal notices to the builder from December 2019 to March 2020 for non-payment of investment returns.

According to the buyers, without consulting them, a lease was entered into between Spaze Towers and OFCSPC Worldwide which was later terminated. The buyers had sought for staying of the arbitration proceedings, a probe through the Serious Fraud Investigation Office (SFIO) against both Spaze Towers and OFCSPC Worldwide.