Bhojraj Verma & Or Vs Garima Real Estate & Allied Ltd (NCLT Indore)
NCLT Indore Admits Insolvency Petition Against Garima Real Estate, Citing Investor Default
The National Company Law Tribunal (NCLT), Indore Bench, has delivered a judgment in the case of Bhojraj Verma & Ors. Vs Garima Real Estate & Allied Limited, admitting a petition filed under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, and initiating the Corporate Insolvency Resolution Process (CIRP) against the real estate company, Garima Real Estate & Allied Limited (the Corporate Debtor).
Case Background and Financial Debt
The application was initially filed on November 6, 2019, by six Financial Creditors, led by Mr. Bhojraj Verma, seeking to recover a financial debt that included principal and interest, aggregating to ₹9,52,000. The debt arose from investments made by the creditors into the Corporate Debtor’s schemes through Application Forms and Application-cum-Agreements, which promised fixed returns on maturity (maturity date: April 30, 2017).
The Corporate Debtor, engaged in real estate activities, had been previously flagged by the Securities and Exchange Board of India (SEBI). In an order dated May 3, 2016, SEBI prohibited the company and its directors from raising further funds under Collective Investment Schemes (CIS) and directed them to wind up the schemes and refund investors within three months. Despite this directive and the maturity of the repayment period, the Corporate Debtor failed to honor its obligations, resulting in a continuing default since 2017.
Compliance with IBC Thresholds and Amendments
The NCLT noted that the initial application was filed within the limitation period. The proceedings had to address subsequent amendments to Section 7 of the IBC, which introduced specific thresholds for certain classes of financial creditors, such as investors.
- 100 Creditors Requirement (Amendment of December 28, 2019): Following the amendment requiring a joint application by not less than 100 creditors for classes of financial creditors, the applicants filed an amended affidavit. This confirmed that 125 investors had jointly instituted the proceedings, successfully meeting the stipulated number requirement.
- Monetary Threshold (Notification of March 24, 2020): The minimum default threshold for filing under Section 7 was raised from ₹1,00,000 to ₹1,00,00,000 (₹1 Crore). A further amended application, dated November 18, 2022, confirmed that the aggregate financial debt claimed by the 125 Financial Creditors amounted to ₹1,15,68,590, thereby satisfying the increased monetary threshold for admitting the petition.
The Corporate Debtor failed to appear despite being served notice, leading the Adjudicating Authority to proceed ex parte against the company on July 9, 2021.
NCLT Findings and Judicial Precedent
The Tribunal’s key findings centered on classifying the investment as “financial debt” and the investors as “financial creditors” under the Code.
1. Financial Creditor Status: The NCLT confirmed that the applicants, being investors promised assured returns, fall under the definition of a “financial creditor” as per Section 5(7) of the IBC. This position is supported by a Central Government Notification dated May 24, 2017, which specifically recognized depositors/investors under investment schemes as financial creditors.
2. Financial Debt Classification: The Tribunal held that the investment transactions constituted “financial debt” under Section 5(8)(a) of the IBC, as they involved consideration for the time value of money (assured returns).
The Tribunal cited authoritative precedents from the National Company Law Appellate Tribunal (NCLAT) that affirmed this interpretation for similar transactions:
- Mohan Lal Dhakad v. BNG Global India Ltd.
- Bohar Singh Dhillon v. Rohit Sehgal
- Nikhil Mehta & Sons (HUF) v. AMR Infrastructures Ltd.
Conclusion and Moratorium
Having established the identity of the Financial Creditors, the existence of a financial debt exceeding the minimum threshold, and a clear default by the Corporate Debtor (Section 3(12)), the NCLT concluded that the application was maintainable.
The Tribunal formally admitted the petition under Section 7 and immediately declared a moratorium under Section 14 of the Code. This moratorium prohibits the initiation or continuation of suits against the Corporate Debtor, the transfer or disposal of its assets, the enforcement of any security interest, and the recovery of property in the Corporate Debtor’s possession.
The NCLT appointed Mr. Gagan Gulati as the Interim Resolution Professional (IRP), who is mandated to take charge of the Corporate Debtor’s management, issue a public announcement within three days, and invite claims from creditors.
FULL TEXT OF THE NCLT JUDGMENT/ORDER
The case is fixed for pronouncement of the order. The order is pronounced in open Court vide separate sheet.
1. This Application has been filed on 06.11.2019 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”) by Bhojraj Verma & others (hereinafter referred to as “Financial Creditors”) seeking initiation of the Corporate Insolvency Resolution Process (“CIRP”) against Garima Real Estate & Allied Limited (hereinafter referred to as “Corporate Debtor”), along with declaration of moratorium and appointment of an Interim Resolution Professional (“IRP”).
2. The application was filed jointly through Mr. Bhojraj Verma by furnishing powers of attorney and letters of authorization in compliance with Rule 4(4) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The said powers of attorney were duly notarized in accordance with law.
3. The Corporate Debtor was incorporated on 29.10.2007 under CIN: U70100MP2007PLC019955 as a Public Company, registered with the Registrar of Companies, Gwalior. Its registered office is situated at 403, Souraw Plaza, Gole Ka Mandir, Gwalior, Madhya Pradesh – 474005. The Corporate Debtor is engaged in real estate activities. Initially, six Financial Creditors filed the present application under Section 7 of the IBC, 2016 claiming a financial debt of Rs. 4,51,000/-, with the total payable amount including interest aggregating to Rs. 9,52,000/-. The maturity date for repayment was 30.04.2017. Since the Corporate Debtor defaulted in repayment, the petition was filed within the limitation period.
4. The Financial Creditors had executed Application Forms and Application-cum-Agreements with the Corporate Debtor under an allegedly illegal investment scheme. Upon submission of the forms, the investors were issued Certificates containing registration details, plan numbers, amounts invested, mode of payment, and promised returns. The Corporate Debtor assured fixed returns on maturity.
5. Subsequently, the Securities and Exchange Board of India (SEBI) initiated proceedings on a complaint of illegal fund mobilization. By order dated 03.05.2016, Shri Prashant Saran, Whole-Time Member, SEBI, prohibited the Corporate Debtor and its directors from raising further funds under Collective Investment Schemes (CIS) and directed them to wind up such schemes, refund investors within three months, and file compliance reports.
6. The Corporate Debtor, however, failed to refund the dues of Rs. 9,52,000/-, inclusive of interest, even after maturity. The claim is within limitation as default continues from 2017 onwards. With effect from 28.12.2019, Section 7 of the IBC was amended requiring a joint application by not less than 100 creditors in case of certain classes of financial creditors. In compliance, an amended affidavit dated 27.01.2020 was filed, confirming that 125 investors had jointly instituted the present proceedings.
7. Pursuant to directions of this Adjudicating Authority in IA 79 (MP) of 2022, the application was further amended on 18.11.2022, confirming that 125 Financial Creditors together claim dues from the Corporate Debtor, who has failed to honor repayment obligations. Meanwhile, the threshold for filing under Section 7 of the Code was raised from Rs. 1,00,000/- to Rs. 1,00,00,000/- vide Notification dated 24.03.2020. The amended application dated 18.11.2022 confirms that the aggregate financial debt claimed by the Financial Creditors is Rs. 1,15,68,590/- (Rupees One Crore Fifteen Lakh Sixty-Eight Thousand Five Hundred Ninety only), thereby fulfilling the threshold requirement.
8. Initially, Mr. Mahavir Prasad Jain was proposed as IRP. However, vide order dated 14.07.2022 in IA 79 (MP) of 2022, this Authority allowed substitution of IRP and approved the appointment of Mr. Gagan Gulati (IBBI/IPA-002/IP-N00893/2019-20/12832), who has filed consent in Form-2.
9. The Corporate Debtor, despite service of notice, has failed to enter appearance. This Authority, vide order dated 09.07.2021, proceeded ex parte against the Corporate Debtor.
Findings
13. We have heard learned counsel for the Applicants and perused the material on record. Section 7(1) of the Code empowers a Financial Creditor to initiate CIRP against a corporate debtor in the event of default. Pursuant to Notification dated 24.05.2017 issued by the Central Government, depositors/investors under investment schemes are recognized as financial creditors entitled to file such applications.
14. The transactions in question constitute “financial debt” within the meaning of Section 5(8)(a) of the Code, as they involve consideration for the time value of money. The Applicants, being investors promised assured returns, fall within the definition of “financial creditors” under Section 5(7).
15. The position is fortified by authoritative pronouncements of the Hon’ble NCLAT in Mohan Lal Dhakad v. BNG Global India Ltd., Bohar Singh Dhillon v. Rohit Sehgal and Nikhil Mehta & Sons (HUF) v. AMR Infrastructures Ltd., wherein similar transactions were held to be financial debt.
16. The Applicants have also complied with statutory requirements introduced by the Amendment Act of 2019, as 125 depositors have joined the petition. The debt amount exceeds the threshold of Rs. 1,00,00,000/- introduced vide Notification dated 24.03.2020.
17. The Corporate Debtor has defaulted in repayment, thereby satisfying the requirements under Section 3(12) of the Code. Jurisdiction of this Tribunal is attracted, and the application is maintainable.
18. In view of the above discussion, the petition under Section 7 of the IBC, 2016 is admitted.
19. In consequence, moratorium under Section 14 of the Code is declared with immediate effect, prohibiting:
a. institution or continuation of suits or proceedings against the Corporate Debtor;
(b) transfer, encumbrance, alienation or disposal of assets;
(c) enforcement of security interest;
(d) recovery of property in possession of the Corporate Debtor.
20. The moratorium shall remain in force till completion of CIRP, subject to Section 14(4) of the Code.
21. Mr. Gagan Gulati (IBBI/IPA-002/IP-N00893/2019-20/12832, email: [email protected]) is appointed as the Interim Resolution Professional. He shall forthwith assume management of the Corporate Debtor, make public announcement within three days, and invite claims in accordance with law.
22. The IRP shall exercise powers and duties as set out in Sections 15, 17, 18 and 19 of the Code, take custody of all assets, records, and information of the Corporate Debtor, and conduct the CIRP in accordance with law.
23. The Registry is directed to communicate a copy of this order to the Financial Creditors, Corporate Debtor, the IRP, IBBI, and the Registrar of Companies, Gwalior.
24. Accordingly, CP (IB)/4 of 2020 stands admitted.
