Grand Builders Private Limited Case Study - Law Assignment Help

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Grand Builders Private Limited (Grand Builders), duly incorporated under the provisions of the Companies Act, 1956, is one of the largest construction companies in India. Grand Builders has developed and is also the owner of a number of properties in Delhi NCR including shopping malls, office spaces and apartment complexes. In 2013, Grand Builders built the Grand Mall in Central Delhi. Within a few months of construction completion all the spaces in this mall had been taken up by various retailers on lease. As rental amount, Grand Builders, took a percentage of the revenue that the retailer generated at the store each month or Rs. 40,00,000, whichever is more.

The revenue from Grand Mall was used for various other development projects. In 2015, Grand Builders decided to build an apartment complex in West Delhi, known as Gilead Apartments. Grand Builders advertised the upcoming apartment complex in various newspapers and digital media. In these advertisements, they specified that for booking the apartment, a prospective buyer would have to make a deposit of an amount of Rs, 40,00,000. Grand Builders was selling each apartment at a total sale price of Rs. 2,50,00,000 as per the advertisement. According to the advertisement, there were 400 houses in total available for purchase in Gilead Apartments. Based on Grand Builders business model, all the available houses needed to be allotted to meet profitability requirements and projections for potential expansion and investors.

Mrs. Sharma saw the advertisement in a newspaper and decided to book one of the apartments being offered in Gilead Apartments. She paid Grand Builders the booking amount of Rs. 40,00,000 on December 01, 2015. Grand Builders informed Mrs. Sharma and other persons who had booked the apartments that the complex would be ready for handover on January 01, 2021. Grand Builders informed Mrs. Sharma that she would have to pay the remaining amount at the time of handing over of possession of the apartment booked by her. As on January 25, 2018, 300 persons had booked apartments in Gilead Apartments.

On January 01, 2016, Gilead Apartments obtained a financing loan from Industrial Support Bank (ISB) to raise funds for the procurement of raw materials. ISB agreed to provide Grand Builders with a loan worth Rs. 20,00,00,000 at a simple interest rate of 10% p.a. The loan was repayable within 10 years with interest installments payable every month commencing from February 01, 2016. One of the conditions of the loan was that if Grand Builders failed to repay more than six installments, then ISB would be entitled to attach properties (in this instance specific plots including Mrs. Sharamas’) – that were pre-identified based on the plots in the loan agreement. Grand Builders agreed to these conditions and began the construction and development of Gilead Apartments. The conditions of the loan also set out a requirement of all plots being allotment by or before January 01, 2018.

On January 31, 2020, taking stock of the handover plans, Rajesh, who is the Project Manager of Gilead Apartments, informed the Chief Operating Officer that there would be a delay in development which would lead to a delay in handover owing to certain unforeseen infrastructural changes. The COO told the Project Manager to proceed with completion of the project and that there would be an internal discussion on the best way to inform the individuals who had booked the apartments in relation to the delay. On February 28, 2020, Grand Builders defaulted on its installment to ISB and has been unable to pay an amount to ISB and continues to default as on date. On the date of the disbursement of the loan, ISB had also received a personal guarantee from the COO of Grand Builders, who is also one of the directors of Grand Builders, which can be invoked by ISB if more than six installments were left unpaid. ISB decided not to invoke the personal guarantee.

In March 2020, the Covid19 pandemic impacted the construction and halted all the work that Grand Builders had left in relation to Gilead Apartments. The individuals who had booked the plots including Mrs. Sharma were not informed of the delay prior to lockdown. In July 2020, Grand Builders sent a notice to Mrs. Sharma and other individuals stating that there would be a delay in construction and the handover of the apartments with a period of six months. In parallel, Grand Builders formally halted the construction of Gilead Apartments and sent a notice to their workmen and employees that they would be deferring the payment of their salaries till December 2020. The workers of Grand Builders were a part of the Grand Builders Worker Union (GBWU). GBWU objected to this unilateral deferral of payments. The GBWU representatives demanded that their members should be paid at least 50% of their salaries amounting to Rs. 5,00,00,000 in total including amounts that were unpaid since April 2020.

Grand Builders sought to negotiate with GBWU.
Grand Builders Construction LLP (GBCL), one of the entities that is part of the same group of companies as Grand Builders offered a guarantee on behalf of Grand Builders to GBWU for Rs. 1,00,00,000 which can be invoked should Grand Builders be unable to pay all outstanding dues to GBWU as on December 30, 2020. Since one of the existing members of GBWU is now part of the management, on faith, GBWU agreed. As on January 10, 2021, Rs. 5,00,000 was paid by GBCL since the income of GBCL was through services provided for Gilead Apartments was halted, the amount was raised as finance through a non-banking financial company, WWK Limited (WWK). GBWU initiated proceedings in labour and civil courts on account of non-payment of dues, which are pending first hearing. GBWU has attempted negotiation and settlements but without recourse. 

In November 2021, GBWU approached its legal counsel to explore other options to recover their dues from Grand Builders and initiated recovery proceedings in the labour courts from GBCL. On October 01, 2021, Mrs. Sharma sent a letter to Grand Builders requesting an update on her
apartment and seeking clarity on when she could take possession. Grand Builders responded by stating that due to unforeseen circumstances, the handover of possession will not be possible, and the construction of properties is halted. Grand Builders further stated that the  several properties including that of Mrs. Sharma is subject to attachment and recovery proceedings that have been initiated by the ISB. 

Question 1: Based on the hypothetical below, answer the multiple-choice questions.

Question 2: Based on the fact pattern, draft an insolvency petition for an eligible creditor for an eligible corporate debtor initiating proceedings under the Insolvency and Bankruptcy Code, 2016

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