Coming to the rescue of homebuyers, the National Company Law Tribunal (NCLT) has rejected the resolution plan submitted for a housing project by Three C Company located along the Yamuna Expressway in Sector 22 A, saying that the treatment meted to them as financial creditors in the resolution plan seems to be “totally inequitable, unjust and highly objectionable as the successful resolution applicant is taking away the corporate debtor at a value which is nothing but just a pittance” and directed liquidation proceedings against Lotus City.
In this matter, the liquidation value of the project was around Rs 480.70 crore against which the resolution plan approved by the committee of creditors provided for only an amount of Rs 180.34 crore.
Even against the sum of Rs 180.34 crore, approved by the committee of creditors, the resolution applicant was obliged to bring in only Rs 95 crore by way of fresh infusion of funds, spread over a period of two years, and the remaining Rs 85 crore was to be contributed by the financial creditors or homebuyers themselves.
“Effectively, the successful resolution applicant is taking away corporate debtor for a meagre sum of Rs 95 crore. The huge difference between liquidation value and the amount of fresh funds infusion in percentage terms is to the extent of 80.23%. In other words, the successful resolution applicant is taking away the corporate debtor for a meagre sum of Rs 95 crore, which is just at 19.77% of the liquidation value of corporate debtor,” the division bench of NCLT Delhi said in its order.
It should be noted here that that the resolution professional had put only one resolution plan by M/s Ace Infracity Developers Pvt. Ltd for consideration before the committee of creditors (COC).
The NCLT also observed that the proposed socio-economic arrangement in the resolution plan, to deal with the ‘cause of default’ being Yamuna Expressway Development Authority’s (YEIDA) everlasting dispute with farmers belonging to the vicinity of the Corporate Debtor’s project Lotus City and Parkspace, were unilateral and unsustainable.
The Tribunal observed that the resolution plan overlooks the fact that YEIDA and other authorities failed to support the corporate debtor when the farmers were creating law and order problem and at the outset YEIDA had raised a demand of Rs. 71.66 crores to be paid by the corporate debtor.
Consequently, the farmers will not forego their claim in exchange of a meagre sum to develop the adjoining village, and hence the Resolution Plan fails to address the ‘cause of default’, it said.
“…the resolution plan submitted for the approval of this Authority does not merit consideration and stands rejected…In the circumstances, the only course open to this Authority is to direct the RP to file appropriate application immediately for seeking liquidation order of the CD namely, M/S Three C Homes Pvt Ltd,” the order said.
Where does this leave homebuyers and what should they do going forward.
“Homebuyers of this project should now through the resolution professional approach the NCLT seeking revival of the process and permissions and opportunity to invite more resolution applicants and better resolution plans. The resolution process was in the first phase of six months and the resolution professional should have invited more resolution applicants in the first place so that the home buyers got a better plan. For reasons best known to him he chose not to do so the first time and put the only plan available with him to vote,” said Sahil Sethi, advocate, representing the homebuyers in this matter,
The resolution professional should approach the NCLT under rule 11 which are the inherent powers of the tribunal, seeking revival of the corporate resolution process and permission to invite more resolution applicants. “In that way liquidation of the company can be avoided and homebuyers stand a chance to get a better resolution plan,” he told Moneycontrol.
Meanwhile, the builder has decided to challenge the order in a higher court.