The National Company Law Appellate Tribunal, New Delhi has decided the issue of maintainability of insolvency proceedings at the behest of home buyers, who have been awarded compensation by the Real Estate Regulatory Authority.
Mr. Ashok Tripathi and Mr. Saurabh Tripathi booked dwelling units under a Real Estate Project namely ‘Sushant Golf City’ developed at ‘High Tech Township’, Sector-P, Sultanpur Road, Lucknow. A joint “Built Up Agreement/ Builder Buyer Agreement” dated 12th September, 2014 in respect of the first unit and Flat Buyer Agreement dated 28th September, 2014 for the second unit came to be executed inter se the respective parties.
Allotment letters came to be issued by the Corporate Debtor in favour of the allottees and it was promised to give possession within two years of commencement of construction. The project start date notified on the website of ‘Real Estate Regulatory Authority’ (“RERA” for short) was 22nd September, 2015 and reckoned from such date Corporate Debtor had to deliver possession of the first unit to the Respondent Nos. 1 & 2 latest by 22nd September, 2017 and the second unit within 36 months from the date of sanctioning of building plans. The allottees alleged that Corporate Debtor had failed to complete the construction of units within the given time frame and abandoned the project midway.Even after lapse of five years, Corporate Debtor neither completed the construction of these units nor refunded the amount to the allottees.
The matter went before the Uttar Pradesh Real Estate Regulatory Authority, which directed to refund Rs.73,35,686.43 vide order dated 16.11.2017 and 1312.2018 and issued recovery certificate dated 10th August, 2019.
On the basis of the order of the UPRERA the Allottees initiated insolvency proceedings against the Corporate Debtor, before the adjudicating authority under Section 7 of the Insolvency and Bankruptcy Code, 2016. The adjudicating authority vide order dated 17.03.2020 proceeded to admit the application with consequential directions in the nature of slapping of Moratorium and appointment of Interim Resolution Professional.
The Corporate Debtor preferred appeal against the order of admission of application under Section 7 of the Insolvency and Bankruptcy Code, 2016 on following grounds:
- The application filed by Respondent Nos. 1 & 2 under Section 7 of the ‘I&B Code’ was not maintainable in light of the ‘Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019’ promulgated on 28th December, 2019 as Respondent Nos. 1 & 2 did not meet the required criteria viz. constituting either one hundred allottees or ten percent of the total allottees.
- No classification of allottees-Financial Creditors was permissible and merely because Respondent Nos.1 & 2 obtained RERA decree in their favour did not alter their status. ‘
- Allottees under the Real Estate Project’ continue to be the allottees without any distinction between them and no further classification or demarcation has been made.
- Respondent Nos. 1 & 2 were speculative buyers and had initiated Corporate Insolvency Resolution Process only to harass the Corporate Debtor and cripple its functioning in order to extort money.
Issues framed by Tribunal:
- Whether this is a fit case for invoking Rule 11 of the NCLAT Rules to allow the parties to settle the dispute?
- Whether application filed by Respondent Nos. 1 & 2 under Section 7 of the ‘I&B Code’ was not maintainable?
The Tribunal held:
- Where interests of the majority of stakeholders are in serious jeopardy, it would be inappropriate to allow settlement with only two creditors which may amount to perpetrating injustice. Exercise of inherent powers in such cases would be a travesty of justice.
- An application for initiating Corporate Insolvency Resolution Process against the Corporate Debtor by allottees under a Real Estate Project is required to be filed jointly by not less than one hundred of such allottees or not less than ten percent of the total number of such allottees under the same Real Estate Project. It is manifestly clear that a minimum threshold limit has been laid down for taking cognizance of application under Section 7 for triggering of Corporate Insolvency Resolution Process when such application is relatable to a Real Estate Project.
- A ‘decree-holder’ is undoubtedly covered by the definition of ‘Creditor’ under Section 3(10) of the ‘I&B Code’ but would not fall within the class of creditors classified as ‘Financial Creditor’ unless the debt was disbursed against the consideration for time value of money or falls within any of the clauses thereof as the definition of ‘financial debt’ is inclusive in character.
- The application of Respondent Nos.1 and 2 under Section 7 of ‘I&B Code’ was not maintainable. It is accordingly held that in their projected capacity as decree-holders Respondent Nos. 1 and 2 could not maintain an application under Section 7 as ‘Financial Creditors’.
- Real Estate Project after issuance of Recovery Certificate dated 10th August, 2019 by ‘UP RERA’ directing recovery of Rs.73,35,686.43/- due thereunder as arrears of land revenue by the Competent Authority. On their own showing they are the decree-holders seeking execution of money due under the Recovery Certificate which is impermissible within the ambit of Section 7 of the ‘I&B Code’. Clearly their application for triggering of Corporate Insolvency Resolution Process is not maintainable as allottees.
- Decree-holder, though included in the definition of ‘Creditor’, does not fall within the definition of ‘Financial Creditor’ and cannot seek initiation of Corporate Insolvency ResolutionProcess as ‘Financial Creditor’.