In the matter of PNB Housing Finance Ltd. Vs. J.S.S Buildcon Pvt. Ltd. CA(AT)(Ins) No. 103 of 2020

The ‘PNB Housing Finance Limited’ disbursed loan to the number of allottees and pursuant to ‘Tripartite Agreement’ executed on different dates between ‘PNB Housing Finance Limited’ (Financial Creditor), ‘individual allottees’ and ‘JSS Buildcon Pvt. Ltd.’ (Corporate Debtor). On behalf of the allottees, the amount was disbursed in the account of the ‘Corporate Debtor’ (Promoter/Developer) of infrastructure. 14 allottees who borrowed loan from the ‘PNB Housing Finance Limited’, as detailed below, defaulted in making the payment :

2. The ‘PNB Housing Finance Limited’ (Financial Creditor) having noticed moved an application under Section 7 of the ‘Insolvency and Bankruptcy Code, 2016 (‘I&B Code’, for short) against the builder – ‘JSS Buildcon Pvt. Ltd. (Corporate Debtor) on the ground that it has defaulted in making the payment.

3. The ‘Corporate Debtor’ on appearance before the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench specifically stated that it do not owe any financial debt to ‘PNB Housing Finance Limited’ (Appellant) as alleged and the transactions do not fall within the meaning of Section 5(8) of the ‘I&B Code’. There has been no default on the part of the ‘Corporate Debtor’ and, therefore, the petition under Section 7 of the ‘I&B Code’ is misplaced and liable to be dismissed. The Adjudicating Authority found merit in arguments advanced by the ‘Corporate Debtor’ and observed as follows:

“6. We find merit in the arguments advanced by the ld. counsel for the Corporate Debtor. It is common knowledge that housing finance companies offer loans to people seeking financial assistance for the purpose of booking units in a particular project, and have a tie up with the developers for procuring business from

Shikha Singhal 17.03.2015 65,15,599/-

Amit Kumar 28.07.2015 43,23,896/-

Nisha Rathneesh 11.05.2015 44,86,593/-

TOTAL 6,50,37,015/-

such borrowers. The loan applications in this case were made individually by the borrowers. The accounts were opened by the borrowers with the Financial Creditor and money disbursed in the said account by the financial creditor to the borrowers was disbursed automatically to the Corporate Debtor as per Standing instructions. The Tripartite agreement is only by way of security that the Respondent would withhold the allotment in the event of default by the borrower and realization of any excess amount would be given to the Financial Creditor. The financial Creditor had only sought security by creating mortgage of the residential units for the loans availed by the allottees, and the Corporate Debtor gave due permission for the same to enable the borrower procure financial assistance.”

4. We have heard the learned counsel for the Appellant and being satisfied that while we condone the delay of one day in preferring the appeal, we hold that ‘PNB Housing Finance Limited’ who has mortgaged the flats cannot be treated as ‘Financial Creditor’ of ‘J.S.S. Buildcon Private Limited’ for the facts and reasons discussed below.

Appellant has filed one of the sample ‘Loan Agreements’ with the ‘Borrower’ (Allottee). In the said Agreement, clause 2.9 relates to ‘Repayment’ and clause 2.10 relates to ‘Delay in payment’ and reads as follows :-

5. The Agreement shows that for delayed payment, the Appellant – ‘PNB Housing Finance Limited’has agreed to levy additional interest on the borrower (allottee) and any default by the borrower in making payment for EMI or PEMI or any other payments having treated as an ‘event of default’ under Article 7.1 of the Agreement. Therefore, in each case, there will be a separate default and a ‘corporate insolvency resolution process’ cannot initiated against them.

6. Learned counsel for the Appellant have also relied on one ofthe ‘Tripartite Agreement’ dated 15th December, 2014 reached between one of the allottee (Borrower), ‘PNB Housing Finance Limited’ and by the builder, relevant of which reads as follows:

“1. That on application for grant of housing loan of the Borrowers and on receipt of intimation from the Builder that the property has been allotted to the Borrowers, PNBHFL has sanctioned the housing loan for purchase of Property of Rs.68,00,000/- (Rupees Sixty Eight Lakh Only) to the Borrowers according to its rules, but the actual payment in instalments will be made by PNBHFL directly to the Builder as per the norms of PNBHFL. Any amount towards purchase price in excess of the “Housing Loan for purchase of Property” sanctioned by PNBHFL will be paid by the Borrowers directly to the Builder as per sale agreement between the Builder and the Borrowers and original money receipts will be submitted to PNBHFL.

7. Further, the Builder, in the event of default of repayment of loan by the Borrowers, shall on written intimation/ instructions of PNBHFL cancel the allotment of the Property of the Borrowers and refund, the entire amount advanced/ funded by PNBHFL directly to PNBHFL and the Builder shall have right to recover/ forfeit the earnest money.

13. The Builder will not transfer the said Property to any other member or other person without obtaining the previous written consent/ NOC from PNBHFL.

14. In the event of default by the buyer/s or Mortgagor/s or Borrowers, if PNBHFL exercise its right enforces the security by sale, the Builder would accept the purchaser/s of the Property as a buyer, on such purchaser’s complying with the necessary formalities which are required to become a buyer of the Builder.

16. The Borrowers and the Builder assume full responsibility for and unconditionally agree to indemnify, defend and hold harmless PNBHFL from and against any and all claims, actions, liabilities, losses, damages, costs and expenses (including but not limited to attorneys fees) arising from failure of Borrowers and Builder to perform any of their respective obligations under this and/or any other Agreement with PNBHFL and/ or from the negligence or misconduct of the Borrowers and the Builder.”

7. The aforesaid agreement shows that the agreement relates to individual allottee (Borrower) and in the event of default of repayment of loan by the Borrower, on written intimation and instructions of ‘PNB Housing Finance Limited’ the builder will cancel the allotment of the flats and thereafter the amount is payable to the Punjab National Bank. However, nothing is brought on the record by the Appellant to show that any cancellation of the allotment was made and notice was issued to the individual allottees by the ‘PNB Housing Finance Limited’.

8. In terms of clause 13 of the said ‘Tripartite Agreement’, the builder cannot transfer the property to any other member or other persons without obtaining the written consent/NOC from ‘PNB Housing Finance Limited’. Further clause 14 shows that default by the buyers or mortgagor of borrowers, the ‘PNB Housing Finance Limited’ has right to exercise to enforce security by sale and in such case, the builder will accept the purchaser as a buyer and comply with the necessary formalities as ‘PNB Housing Finance Limited’ has right to sell the property as a mortgager. Therefore, ‘PNB Housing Finance Limited’, who claimed to be mortgager of the premises of the allottees cannot move the application under Section 7 of the ‘I&B Code’ on the basis of the Tripartite Agreement, which is not maintainable.

We find no merit in this appeal. The appeal is dismissed. No cost.

[Justice S.J. Mukhopadhaya]

Chairperson

[ Shreesha Merla ]

Member (Technical)