Haktree Hotels Pvt. Ltd. Assignment

Assignment Task

Haktree Hotels Pvt. Ltd. (Haktree) is a company registered under the Companies Act, 1956. It is engaged in the business of hotel operations and hospitality services. Haktree runs a hotel named Blue Tree in Beasant Nagar, Chennai and owns a resort called Nature Breeze in Ooty, Tamil Nadu. Nature Breeze is a luxury resort with highly personalized service, outstanding accommodations and with an authentic Indian and Continental cuisine. Blue Tree has been profitable, and Nature Breeze has also been performing well and was included in the Top 10 Resorts in Ooty in various magazines and online travel websites like TAdvisor and MMTrip for the years 2011-14.

To offer better services and stay relevant in the hotel and hospitality sector, Haktree decided to kickstart hassle-free travel services for tourists staying at Nature Breeze at reasonable prices. The services included pick-up and drop-off services for tourists from the nearest railway station/bus stop/airport. In addition to this, Haktree also wanted to offer car services for tourists traveling within Ooty and such services extended to the recommendation of various tourist attractions, adventure sports and the transportation for intra-city travel. To further this business objective, Haktree executed a contract with Idea Travel Services Pvt. Ltd. (Idea) in August 2015. The contract involved a monthly payment, based on the invoices raised by Idea with a total contract value of Rs.50,00,00,000. This arrangement was entered into keeping in mind the unpredictability of the hospitality market. Further, the contract contained a clause where if Haktree defaulted on payments for a consecutive period of 2 months, an interest of 1.5% was to be charged per day.

The business of Nature Breeze flourished as not many other resorts in Ooty had a travel service. Given the success of the resort, Haktree considered a strategic real estate opportunity and planned to construct an apartment in a prime locality in Ooty and named the apartment as Foundation One. To finance the construction of this apartment complex, Haktree borrowed a loan from HBCD Bank for a sum of Rs. 140,00,00,000 in January 2017 which was to be repaid within a period of 5 years at an interest rate of 12.5% p.a. Around the same time, Haktree started advertising Foundation One in various newspapers and on the internet through various websites. All the apartments in Foundation One were for residential purposes, and the 3 BHK and 4 BHK apartments were priced at Rs. 3,50,00,000 and Rs. 5,50,00,000 respectively for each apartment. Haktree proposed to construct and sell 200 flats in Foundation One.

Upon seeing an advertisement of Foundation One, Ms. Mrinalini wanted to purchase a 3 BHK apartment. In September 2017, Ms. Mrinalini entered into an agreement to sell agreement with Haktree. Ms. Mrinalini paid Rs. 2,00,00,000 as an advance to book the apartment. It was agreed between the parties that the remaining money would be paid at the time of handing over of possession, which was to be done in December 2020.

In December 2018, CarryMinati, a famous YouTuber (known for throwing tantrums), who had around 30 million subscribers on YouTube, travelled to Ooty for a holiday and stayed at Nature Breeze owing to its reputation. He availed the travel services offered by Nature Breeze throughout his stay in Ooty. Unhappy with the unprofessional transport services, he made a video on YouTube about how unpleasant his stay was and criticized the travel services offered by Nature Breeze. The video had a huge public response. Officials from Idea stated that CarryMinati did not complain about any shortcomings of their service throughout the trip and that the video was only made to gain cheap publicity. Haktree investigated the issue and concluded that Idea was in fact professional in their services and did not terminate the contract.

The video was circulated and reshared several times on the internet and this severely affected the business of Nature Breeze. With the investment in Foundation One and the decline in tourism, Haktree accumulated outstanding payments to Idea and could not pay its dues for a continuous period of 5 months, starting September 2019, which was demanded by Idea in January 2020.

In March 2020, with the global pandemic the hotel and hospitality sector were heavily impacted and the business of Haktree declined further. This severely affected the construction of Foundation One and Haktree was unable to deliver the possession of the apartment to Ms. Mrinalini. Ms. Mrinalini also learnt that 120 other persons who had made the same amount of advance had not handed over possession of their respective apartments and decided to approach them to take actions against Haktree. The loan provided by HBCD Bank, at this point, was in its fourth year and Haktree is unable to meet the monthly interest payments.

Over the year of 2020 Mrs. Mrinalini has tried to gather meetings of the several persons who have made deposits for Foundation One and has with the help of many sought legal counsel on next steps. HBCD Bank has deployed its legal team to develop a strategy as well.

Questions

1. Mrs. Mrinalini has heard of your repute and has approached you to understand the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC 2016). Draft a memorandum of opinion offering advice on the process, admissibility, and creditor rights under the IBC 2016.

2. Mrs. Mrinalini has specifically asked you the difference in position between her and HBCD Bank in the corporate insolvency resolution process.

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