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The National Company Law Appellate Tribunal (NCLAT) in India has overturned an earlier decision by the National Company Law Tribunal (NCLT) that rejected a plea by an operational creditor to initiate insolvency proceedings against real estate firm Ansal Housing. The NCLAT found that Ansal Housing did owe an operational debt that was due and payable, and that the earlier decision to dismiss the Section 9 petition by the NCLT was "perverse and illegal and liable" to be set aside.
The dispute arose when Clicbrics Technologies, an exclusive real estate agent for brokering the sale/purchase of units of Ansal Town in Meerut, raised bills for brokering commission from time to time. However, Ansal stopped making payments for invoices raised by the operational creditor from October 10, 2018. Clicbrics later sent a demand notice under Section 8 of the Insolvency and Bankruptcy Code (IBC) on March 27, 2019, claiming an amount of Rs 14.70 lakh.
On non-receipt of any further payment, Clicbrics moved NCLT, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Ansal Housing. However, the NCLT rejected the plea, observing that the operational creditor had approached with a mala-fide intention and not for a genuine resolution, having shown an unwillingness to accept the amount that Ansal Housing had endeavoured to pay towards the outstanding dues.
The NCLAT found that the operational debt had become due and payable, and that it had not been disputed prior to the issue of the demand notice and had not been discharged by Ansal Housing. Therefore, it held that this was a fit case for the admission of CIRP. It also directed Ansal Housing to pay Rs 12.72 lakh to Clicbrics Technologies within a month of the passing of the order.
The NCLAT order also stated that in case the operational creditor refused to accept the above sum as payment towards the operational debt, the Section 9 petition would become infructuous and deemed to have been dismissed. Section 9 gives power to the operational creditors of a company to initiate a CIRP in case of a default.
The decision by the NCLAT has significant implications for creditors who may have been reluctant to use the IBC as a means of recovering their dues, given the tendency of the NCLTs to dismiss such pleas. It sets a precedent for NCLTs to be more rigorous in their application of the IBC, particularly in cases where the operational debt has not been disputed and has remained unpaid. The decision also reinforces the need for companies to ensure that they pay their operational creditors on time to avoid legal action.
Furthermore, this case highlights the importance of effective dispute resolution mechanisms in the real estate sector, particularly with regard to commission payments. In the absence of clear guidelines and regulations, disputes between brokers and developers can easily escalate into legal battles, which can have significant financial and reputational costs for all parties involved. Therefore, it is essential for the government to establish a robust regulatory framework that protects the interests of all stakeholders and promotes transparency and accountability in the real estate sector.
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