The promoters of Rashmi Housing, a realty developer undergoing insolvency proceedings, illegally sold 82 apartments in violation of the law. As a result, the National Company Law Tribunal (NCLT) nullified the sale and imposed fines on the promoters. The company was admitted under insolvency in 2018, and the suspended directors were informed about the implications of the moratorium. The resolution professional consistently maintained that no permission had been granted for sales agreements during or before the insolvency process. The NCLT's decision upholds the integrity of the insolvency process.
In a recent and uncommon turn of events, the promoters of Rashmi Housing, a realty developer undergoing the Corporate Insolvency Resolution Process (CIRP), have found themselves in hot water. Despite the company's ongoing insolvency proceedings, they unlawfully managed to sell 82 apartments in Rashmi Housing's projects, a clear violation of the law. As a consequence, the tribunal has not only nullified the sale of these 82 flats but has also imposed a fine of Rs 3 lakh on each of the promoters.
The legal trouble for Rashmi Housing began when Finance Advisors & Managers and Vista ITCL, formerly an IL&FS trust company, took the developer to the National Company Law Tribunal (NCLT) due to their default in payment obligations. The NCLT admitted the company under insolvency and appointed OP Agrawal as the interim resolution professional to assume control of the defaulter company's operations back in 2018. The directors of Rashmi Housing were suspended by the NCLT, and they were duly informed of the implications of the moratorium under the insolvency code.
In February 2019, an employee of Rashmi Housing sent an email requesting the resolution professional to authorize the suspended directors to sign pre-CIRP sale agreements. However, the resolution professional responded that any agreements pertaining to the pre-CIRP period would need to be presented before the Committee of Creditors (COC) for approval. This clearly indicated that no permission had been granted for signing sales agreements during the CIRP or even before it.
Advocate Rohan Agarwal, representing the resolution professional of Rashmi Housing, argued in court that no permission had been granted at any point for the signing of sales agreements during or before the CIRP process. This highlights the stance that the resolution professional had consistently maintained throughout the proceedings.
During this period, the suspended directors of Rashmi Housing submitted a resolution plan in November 2019, which was subsequently rejected. They later presented a revised resolution plan in the March 2020 meeting of the Committee of Creditors (CoC), but this too faced rejection. In response, the resolution professional filed an application to initiate liquidation in June 2020, which is still pending and sub-judice.
To keep the company operational, the resolution professional had retained certain employees who were involved in the day-to-day affairs of Rashmi Housing. These retained employees were explicitly instructed to act solely on the resolution professional's directives and not to follow any instructions from the suspended directors. Given the vast number of unsold inventories spanning 17 projects, 73 buildings, and various locations in Mumbai such as Ghatkopar, Vasai, and Naigaon, it was practically impossible for the resolution professional to physically manage all 393 unsold units.
In conclusion, the NCLT's decision to set aside the sale of the 82 flats in Rashmi Housing's projects and impose fines on the promoters is a significant step in upholding the integrity of the insolvency process. The arguments presented by the resolution professional's advocate regarding the lack of permission for sales during and before the CIRP are supported by the email correspondence between the resolution professional and the concerned employee. While some may question the resolution professional's ability to prevent such illegal sales, it is essential to consider the practical limitations they faced in managing a large number of unsold units scattered across numerous projects.
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