How a 30-year-old property deal involving a DLF subsidiary landed in insolvency tribunals in 2020

A dispute arising out of a property deal in 1989 landed up in insolvency tribunals in 2020. Is this a case of justice delayed is justice denied or a case of pushing your luck too far in search of ‘justice’?

This case emanates from an MoU signed in June 1989 between Edward Keventers (Successors) Pvt Ltd, a subsidiary of real estate major DLF, and Arenja Enterprises and its associates pertaining to a plot of land. The latter had paid an amount of Rs 2 crore in September that year to the former as per the MoU signed in June.  This MoU was followed by two more MoUs in November 1989. As per one of the MoUs signed in November 1989, the amount of Rs 2 Crores was to be refunded to Arenja Enterprise and its associates by 28 February 1990.

Edward Keventer did not reinstate the MoU of the property deal signed on 22 June 1989 hence it became void. But the amount of Rs 2 Crore was not refunded by Edward Keventer till 28 February 1990. Therefore, the Arenja Enterprises and its associates filed a suit before Delhi High Court in 1992 and on the direction of the High Court the Edward Keventer returned principal amount in January 1995.

In 1992, Arenja Enterprises and its associates also filed a civil suit for specific performance along with other reliefs against Edward Keventers before the High Court of Delhi.

After the civil suit at high court, the two parties reached a settlement on 10 April 1996. As per the settlement filed before the high court, Edward Keventer had agreed to develop a group housing complex on a plot of land measuring 22.95 acres. Out of this, Arenja and its associates were entitled to 34,000 sq ft residential covered/built-up area along with proportionate super area. As per the terms of settlement, if the sanction of plans is not obtained within a period of 3 years from the date of signing of the settlement, Edward Keventers and Dalmia Promoters and Developers Pvt Ltd would give further built-up area of 1700 sq ft for each delayed year for a maximum period of three years. In 2010, an additional land of 5,100 sq ft was added as per the settlement decree on account of delay.

Arenja Enterprises and its associates had filed execution application in 2008 before the District Court which was rejected, thereafter it moved the high court of Delhi. The high court in 2019 has stayed execution proceedings saying that the execution petition is premature.

According to Arenja Enterprises, the default occurred on 9 August 2018, when the change of land use happened. It claimed that by not allotting the 39,100 sq ft of built up area of the land, Edward Keventer had committed a default, and it cited Clause (8)(f) of Section 5 of the IBC, 2016 to argue that the ‘default’ is in the nature of default on financial debt.

It is to be mentioned here that Clause (8)(f) of Section 5 of the IBC, 2016 is the one that gives homebuyers the status of financial creditors. Under Section 5(8)(f) of IBC, any amount raised from allottee under a real estate project is deemed to be an amount having the ‘commercial effect of borrowing’ and thus, would be covered under the definition of ‘Financial Creditor’ as defined under Section 5(7) of the Code.

So, Arenja Enterprises moved the National Company Law Tribunal (NCLT) filing an insolvency proceeding against Edward Keventers under Section 7 of IBC claiming itself to be the financial creditor.

The corporate debtor – Edward Keventers — contends that debt, as alleged by the financial creditor, is not a financial debt as defined under Clause (8)(f) of Section 5 of the Code, as no sums were raised from/paid by the Appellant.

It also argued that the original amount of debt on 10th April 1996 was 34000 sq ft built-up residential area and an additional amount of 5100 sq ft was added to the debt on 10th April 2002 on account of penalty for delay in sanction of plans, as per Clause (J) of the Consent Decree. It is argued that the financial debt can only be money raised and paid and not for any other claims.

After NCLT dismissed the application in 16 January 2020, Arenja Enterprises moved the National Company Law Appellate Tribunal (NCLAT).

Hearing the arguments of both the sides, NCLAT argued that the Appellant – Arenja Enterprises — can claim a financial debt as an allottee only when the amount raised from it as an allottee is used for a real estate project. “In the facts and circumstances, the Appellant is neither an allottee nor has any amount being raised or raised from it, that may be construed as to have the effect of borrowing,” observed the appellate tribunal.

It further said that the alleged allotment of 34000 sq ft of land with an additional 5100 sq ft land is on account of ‘Consent Decree’ passed by the High Court of Delhi on 10 April 1996. Pursuant to the consent decree and as per Settlement Agreement allotment to the Financial Creditor was in lieu of claim of Financial Creditor against Corporate Debtor for utilization of Rs 2 Crore beyond the due date. Therefore, the allotment was made as monetary compensation for interest-free utilization of Rs 2 Crore for five years beyond the due date — 28 February 1990.

Therefore, the NCLAT said in its judgement that Arenja’s application as a Financial Creditor is not maintainable, and no amount has been paid by it to Edward Keventers.