Alok Sharma Vs. M/s. IP construction Pvt. Ltd. Through RP Anju Agarwal - In the short and the summary, the houses so constructed is the business of the real estate company and the value of sale of those houses will always appear in the credit side of the profit and loss accounts as “Revenue from operations”. Hence, this is not an asset, in case of real estate company as it is recurrent business activity for the company & it is its business for continuation of its operation as a going concern even during CIRP.

NCLAT (17.06.2022) in Alok Sharma Vs. M/s. IP construction Pvt. Ltd. Through RP Anju Agarwal [Company Appeal (AT) (Insolvency) No. 350 of 2020] held that;

• Let us see in this case whether under real estate project whether Revenue from sale of such constructed spaces/houses will be considered under the caption “Asset” sale or will it be considered as “Revenue from operations” under Schedule -III, Part-II of the Companies Act, 2013 ?
• In the short and the summary, the houses so constructed is the business of the real estate company and the value of sale of those houses will always appear in the credit side of the profit and loss accounts as “Revenue from operations”. Hence, this is not an asset, in case of real estate company as it is recurrent business activity for the company & it is its business for continuation of its operation as a going concern even during CIRP. 

Excerpts of the order;  

6. We have carefully gone through the pleadings of both the parties and extant provisions of the Code and we are having the following observations: 

a. It is not in dispute even by the Respondent that the Appellants /allottees are not in possession of their respective units since 2015.

b. It is also not in dispute that the exchange of letters /emails are not there between the CD and the Appellants including the issue of registration of the units. No doubt, the Appellants were raising the issues like certain fit ins, parking area in basement, toilets, fire safety/fire alarm/springle issue, maintenance issue etc. raised with the CD apart from the issue of registration of property and completion certificate (appearing at page 45 to 114 of the Appeal paper book).

c. What the issue has been raised by the Respondent/RP is that the appeal is barred by limitation as the same has not been filed within the prescribed period of 30 days as per Section 61(2) of the Code:-

i. The impugned order was pronounced on 16.01.2020.

ii. The period of 30 days expired on 15.02.2020.

iii. The Appellant has approached this Appellate Tribunal on 20.02.2020.

iv. The Respondent has cited the judgments of Hon’ble Apex Court as well as this Tribunal, which is given below:

• • V.Nagarajan V. SKS Ispat and Power Ltd & Ors., Civil Appeal No. 3327 of 2020, where the Hon’ble Apex Court has opined as follows:

• “21.The answer to the two issues set out in Section C of the judgement- (i) when will the clock for calculating the limitation period run for proceedings under the IBC; and (ii) is the annexation of a certified copy mandatory for an appeal to the NCLAT against an order passed under the IBC – must be based on a harmonious interpretation of the applicable legal regime, given that the IBC is a Code in itself and has overriding effect. Sections 61(1) and (2) of the IBC consciously omit the requirement of limitation being computed from when the “order is made available to the aggrieved party”, in contradistinction to Section 421(3) of the Companies Act. Owing to the special nature of the IBC, the aggrieved party is expected to exercise due diligence and apply for a certified copy upon pronouncement of the order it seeks to assail, in consonance with the requirements of Rule 22(2) of the NCLAT Rules. Section 12(2) of the Limitation Act allows for an exclusion of the time requisite for obtaining a copy of the decree or order appealed against. It is not open to a person aggrieved by an order under the IBC to await the receipt of a free certified copy under Section 420(3) of the Companies Act 2013 read with Rule 50 of the NCLT and prevent limitation from running. Accepting such a construction will upset the timely framework of the IBC. The litigant has to file its appeal within thirty days, which can be extended up to a period of fifteen days, and no more, upon showing sufficient cause. A sleight of interpretation of procedural rules cannot be used to defeat the substantive objective of a legislation that has an impact on the economic health of a nation.”
• • Mr. Rursharan Singh Vs. The State Trading Corporation of India Ltd., CA(AT)(Ins) No. 853 of 2019, this Tribunal has observed as follows:

• “8. The argument that free copy was not served on the Appellant is not relevant. IBC does not have provision to serve free copies. Even if one is to rely on Section 421 (3) of the Companies Act, 2013, there is Judgment in the matter of “Sagufa Ahmad and Ors. Vs. Upper Assan Plywood Products Pvt. Ltd”. passed by the Hon’ble Supreme Court of India in Civil Appeal Nos. 3007-3008 of 2020 which would be relevant. If the Appellant did not rely on supply of free copy and applied for certified copy and filed Appeal based on certified copy then the Appellant cannot rely on Section 421 (3) of the Companies Act, 2013, to count limitation.
• 9. Under Section 61 of IBC, the Appeal has to be filed within 30 days. This Tribunal may allow an Appeal to be filed after the expiry of said Period of 30 days if it is satisfied that there was sufficient cause for not filing the Appeal in time but such period shall not exceed 15 days. Thus the Period of Appeal is 30 days and the Delay which this Tribunal can condone is only of 15 days over and above Page | 6 I.A. No. 2596 of 2019 In Company Appeal (AT) (Insolvency) No. 853 of 2019 the Period of Appeal. For reasons discussed above (See Paragraph 7), even if limitation was to be counted from 07th June, 2019 as mentioned above, the Appeal filed on 13.08.2019 must be said to be barred by limitation as it was not filed within 30 days plus 15 days of knowledge.”

v. In this context, we are also citing the provision of Section 61(2) of the Code as enumerated below:

• “Section 61 (2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal: Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days.”

vi. Based on the above analogy itself, the Appeal will be barred by limitation, if it is filed after 45 days which would have ended on 02.03.2020 whereas the Appeal has been filed on 20.02.2020. This reflects that this Tribunal has a power to grant extension upto 45 days.

vii. From the contents of the impugned order dated 16.01.2020 came to the knowledge of the Appellant on 21.01.2020 when it was uploaded on the website of NCLT, New Delhi. Accordingly, the present appeal is within limitation. That even in the recent judgment of Nagarajan Vs. SKS Ispat and Power Ltd. & ors. Civil Appeal No. 3327 of 2020 relied upon by the Respondent, the Hon’ble Supreme Court opined:

• “21. The litigant has to file its appeal within thirty days, which can be extended up to a period of fifteen days, and no more, upon showing sufficient cause.”

viii. Based on the elaboration, it is imperative on the Tribunal to consider sympathetically and to help the weaker who are the buyers under the Real Estate Project and hence, the Appeal filed within 45 days seems to be in order.

d. What the Respondent/RP has pointed out that the CD is the owner of the ‘Commercial Space’ and has accepted that the possession was with the Appellants admittedly. The Appellants are allottees of commercial space in ‘Coral Brio’. Although the CD had handed over the possession of Commercial space to the Appellants, admittedly, no sale deed was executed by the CD in favour of allottees prior to the commencement of CIRP.

e. What has been submitted by the Respondent /RP that it is settled position of law that a mere agreement to sell or possession over a property does not amount to ownership of that property. Section 54 of the Transfer of Property Act, 1882 defines sale as “Sale” is a transfer of Ownership in exchange for a price paid or promised or part-paid and part-promised. Further a joint reading of Sections 47, 48 and 49 of the Registration acts, 1908 makes it clear that the instrument which purports to transfer title of the property is required to be registered. The title does not pass till the registration is affected. Therefore, for transfer of ownership of a particular asset, the execution of Sale deed is a sine qua non requisite. For this reliance can be placed upon the Hon’ble Supreme Court judgment in Narandas Karsonda Vs. S.A.Kamtam and Anr., (1997) 3 SCc 247:

• “A contract of sale does not of itself create any interest in, or charge on, the property. This is expressly declared in s. 54 of the Transfer of Property Act. See Rambaran Prasad v. Ram Mohit Hazra 1967 1 SCR 293. C) The fiduciary character of the personal obligation created by a contract for sale is recognised in section 3 of the Specific Relief Act, 1963 and in section 91 of the Trusts Act. The personal obligation created by a contract of sale is de- scribed in section 40 of the Transfer of Property Act as an obligation arising out of contract and annexed to the owner- ship of property, but not amounting to, an interest or easement therein”.

Further, it is also necessary to place reliance upon judgment passed by Hon’ble Supreme Court in Suraj lamp and Industries Pvt. Ltd. Vs. State of Haryana and Ors. AIR 2012 206:

• “12. Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of TP Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted under section 53A of TP Act). According to TP Act, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of TP Act enacts that sale of immoveable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject matter.”

Even relying on the above concept what has been provided by the Respondent/RP there is a need to look at Section 14 of the Code which is depicted below:

“Section 14: Moratorium.

14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:—

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

[Explanation.—For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;]

(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.]

(3) The provisions of sub-section (1) shall not apply to — 3 [(a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;] (b) a surety in a contract of guarantee to a corporate debtor.] (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.

From the above, it is clear that ‘moratorium’ is applicable under Section 14(1)(b) of the Code is on transferring of any assets of the CD.

f. Let us see in this case whether under real estate project whether Revenue from sale of such constructed spaces/houses will be considered under the caption “Asset” sale or will it be considered as “Revenue from operations” under Schedule -III, Part-II of the Companies Act, 2013 ?

Here, it is observed that in case of real estate company, such constructed spaces/houses as and when sold its sale price goes to the heading ‘Revenue from operations’ of the profit and loss accounts of the Company being part of its commercial operation. If this houses / constructed spaces belongs to a company which is not in real estate business and is an industrial company/manufacturing company then the impact of sale from such houses will appear in the ‘Balance Sheet’ of the Company as per Schedule-III Part-I-(II Assets) of the Companies Act, 2013 and any sale of this house by this industrial company, if it results into a profit or loss on the sale of such assets, then it will reflect to the extent of profit or loss on sale of this assets only in the profit and loss account under the heading “ other income “ and the cost value of the assets will be reduced from the assets side of the ‘Balance Sheet’. For a clarity, let us see the following examples:

i. In case of a real estate company – (Ram & Mohan Company), if House No. ‘A’ is sold to Mr. ‘X’ at a value of Rs. 20 lacs, the cost of construction of Rs. 15 lakhs then in the profit and loss account of the ‘Ram & Mohan Company’, sale of House will come in the income side of the profit and loss accounts as Rs. 20 lakhs-Revenue from operations. The materials etc. consumed will appear at Rs. 15 lakhs in the Part-II – profit and loss account of the same year under caption (Expenses-IV) if both start and completion of the house ‘A’ is in the same year. Otherwise, if it is completed in the previous year’s then these costs of this house which will be appearing in the “ inventory” will get reduced.

ii. If ‘Ram & Mohan Company’ is an industrial Company then the profit and loss account will reflect an income of Rs. 5 lakhs in the profit and loss account (under the heading – Part II – other income) and the value of the assets appearing at Rs.15 lakhs in the books in the assets side of the Balance Sheet will be reduced.

iii. In the short and the summary, the houses so constructed is the business of the real estate company and the value of sale of those houses will always appear in the credit side of the profit and loss accounts as “Revenue from operations”. Hence, this is not an asset, in case of real estate company as it is recurrent business activity for the company & it is its business for continuation of its operation as a going concern even during CIRP.

g. Hence, we are unable to sustain the views of Respondent/RP that these houses registration will violate ‘Moratorium’ under Section 14 of the Code.

h. The Registration of all these houses is the ‘procedural requirements’, in case of ‘Real Estate Company’ where the Appellants are already in possession of these spaces from 2015 whereas CIRP was initiated on 11.02.2019.

i. Even the Hon’ble Apex Court in Bikram Chatterjee & ors. Vs. Union of India & Ors. 2019 SCC SC 901 has held vide para 8 and 173 as follows:

• “8…. The facts of the instant case project that Noida and Greater Noida have allotted huge plots to the builders by charging a sum of approximately 10 percent and in most of the cases, thereafter no money has been paid. The large number of projects which have come up not only in Noida and Greater Noida, but most of them have not been completed by the builders/promoters and they have siphoned buyers’ money in large scale. No action has been taken by the Noida and Greater Noida Authorities against builders for cancellation of leases due to violation to fulfil their obligation. Bankers have financed to builder certain loan on the condition to invest in the projects, but they have also permitted the money to be used as for other purposes as apparent from the report of the Forensic Audit in the instant case which had been submitted by Auditors – Mr. Pawan Kumar Aggarwal and Mr. Ravinder Bhatia. The facts which are projected in the Forensic Auditor Report speaks for itself.”
• “173. We have also found that non-payment of dues of the Noida and Greater Noida Authorities and the banks cannot come in the way of occupation of flats by home buyers as money of home buyers has been diverted due to the inaction of Officials of Noida/ Greater Noida Authorities. They cannot sell the buildings or demolish them nor can enforce the charge against homebuyers/ leased land/ projects in the facts of the case. Similarly, the banks cannot recover money from projects as it has not been invested in projects. Homebuyers money has been diverted fraudulently, thus, fraud cannot be perpetuated against them by selling the flats and depriving them of hard-earned money and savings of entire life. They cannot be cheated once over again by sale of the projects raised by their funds. The Noida and Greater Noida Authorities have to issue the Completion/ Part Completion Certificate, as the case may be, to execute tripartite agreement and registered deeds in favour of the buyers on part- completion or completion of the buildings, as the case may be or where the inhabitants are residing, within a period of one month.”

j. This Tribunal has also held in Flat Buyer’s Association Winter Hills – 77 Gurgaon Vs. Umang Realtech Pvt. Ltd. through the Resolution Professional – CA(AT) (Ins) No. 926 of 2019 which notes as under:

• “2.During the pendency of the appeal, the Company was kept as a going concern out of investment made by the Promoters of ‘Umang Realtech Private Limited’ but under the supervision of the ‘Interim Resolution Professional.
• 3. It is submitted that many of the apartments/ flats have been completed, possession has been given, Sale Deed(s) have been executed in favour of number of allottees including Mr. Ajay Singh and Ms. Rachna Singh by the ‘Corporate Debtor’ through the ‘Interim Resolution Professional’. However, certain work is yet to be completed such as electrical connection, supply of water etc. which can be done only after necessary permission of the Competent Authority for which applications have been moved and are pending consideration before such Authorities.”

All this suggests that the CIRP be positive to save the allottees and not to work as a detriment to the allottees to save the Object of the ‘Code’.

k. The Hon’ble Apex Court in Pioneer Urban Land and Infrastructure Limited and Anr Vs. Union of India and Ors.(2019) 8 SCC 416 has held that:

• “72. In Bank of India v. Vijay Transport [Bank of India v. Vijay Transport, 1988 Supp SCC 47 : AIR 1988 SC 151], the Court was dealing with the contention that a literal interpretation is not always the only interpretation of a provision in a statute and the court has to look at the setting in which the words are used and the circumstances in which the law came to be passed to decide whether there is something implicit behind the words actually used which would control the literal meaning of the words used. For the said purpose, reliance was placed on R.L. Arora (2) v. State of U.P. [R.L. Arora (2) v. State of U.P., (1964) 6 SCR 784 : AIR 1964 SC 1230] . Dealing with the said aspect, the Court has observed thus: (Vijay Transport case [Bank of India v. Vijay Transport, 1988 Supp SCC 47 : AIR 1988 SC 151] , SCC p. 51, para 11) 
• “11. … It may be that in interpreting the words of the provision of a statute, the setting in which such words are placed may be taken into consideration, but that does not mean that even though the words which are to be interpreted convey a clear meaning, still a different interpretation or meaning should be given to them because of the setting. In other words, while the setting of the words may sometimes be necessary for the interpretation of the words of the statute, but that has not been ruled by this Court to be the only and the surest method of interpretation.”

l. All the above also suggests that the rights of home buyers cannot be affected adversely in the `Corporate Insolvency Resolution Process’ and their interest is to be appropriately preserved and protected within the parameters of the I & B Code, 2016.

m. Hence, in view of the above observations, this `Appellate Tribunal’ is not in a position to sustain the order of the `Adjudicating Authority’ and accordingly, this `Tribunal’ sets aside the impugned order dated 16.01.2020, dismissing CA No.2265/(PB)/2019 in CP(IB) 593 of 2018 and directs the `Resolution Professional’ to execute the sale deed after collecting `Dues and Costs’, if any, remaining unpaid, including the `Costs of Registration’, `Penalty’ and `other incidental Costs’, till date, etc.

The instant `Appeal’ is allowed with the above observations. Pending application, if any, stands disposed of. Interim order, if any, passed by this `Tribunal’ stands vacated.

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Income Tax Act, 

# Section 22 The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property". 

Addl. CIT v. Hindustan Machine Tools Ltd (121 ITR 798) (1979) (Kar). Hon’ HC held that Section 22 itself indicates that mere ownership of the property does not lead to assessment of its income therefrom under the head "Income from house property". It excepts portions of such property as may be occupied for the purpose of any business or profession carried on by him, the profits of which are chargeable to income-tax. The guidance to be sought is to find out the user of the property and the character in which that property is used.

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