The National Company Law Tribunal (NCLT) on November 30 ordered that insolvency proceedings against MGF Developments be initiated and appointed Gaurav Katiyar as an interim resolution professional after suspending the board of the real estate company.
A two-member Delhi-based bench of NCLT allowed a plea filed by the residents association of The Vilas Condominium, a project in Gurgaon, for breach of clauses of the agreement between them, terming it as default.
The application under Section 7 of the IBC Code, 2016 was filed by The Vilas Condominium Association consisting of homebuyers having 327 units who had alleged that the amount of Interest-Bearing Maintenance Security (IBMS) collected from them has not been refunded to them.
They had also alleged that the common area maintenance and common area electricity charges, which MGF Developments was supposed to pay for the period from the date of accrual of maintenance charges till the date of allotment to a home buyer, had not been paid to them.
The association had alleged that an amount of Rs 11.48 crore along with interest amounting to Rs 10.34 crore are due towards IBMS charges. The builder has also allegedly failed to pay common area electricity charges to the tune of Rs 1.82 crore.
The real estate firm claimed that Rs 8.33 crore was refunded and said that as per clause 11.2(a) of IBMS, such fund can be utilised for the upgradation of DG sets, electric sub-station, and other capital plants/equipment. It has been used for the construction of a clubhouse with specialty restaurant, swimming pool, and 62-seater mini theatre for the allottees of the complex.
NCLT observed that as per the clauses, IBMS charges cannot be utilised for any other purposes other than what has been mentioned in the said clause.
"The Corporate Debtor (MGF Developments) has itself admitted that the amount has been utilised for the purpose of construction of a club, restaurant, swimming pool, and 62-seater mini theatre," NCLT said in its order, adding that it was a breach of the agreement.
The NCLT said that the association had satisfied all the requirements of section 7 of IBC, for initiation of Insolvency proceedings against the real estate company.
"We are, therefore, satisfied that the applicant/Financial Creditor has made out a case under Section 7 IBC for admission and a clear case of default has been established. Hence, the Corporate Insolvency Resolution Process of Corporate Debtor is initiated from the date of this order and the captioned application filed by Financial Creditor is admitted," NCLT said in its order.
The insolvency tribunal declared a moratorium till the completion of the insolvency process and ordered to prohibit transferring, encumbering, alienating, or disposing of assets by the real estate firm.The petition on behalf of the association was filed by PSP Legal and was argued by Piyush Singh. Singh told Moneycontrol that NCLT has classified the IBMS dues paid by buyers as financial debt and the developers will now have to hand over such amount to the concerned RWA. “Also, all sham defenses taken by the developer have been declined by the NCLT. It should act as a deterrent for all erring developers,” he said.