Allottee Obligated To Comply With Threshold Under Section 7(1) Of IBC Even After RERA Passes An Order In Its Favour: NCLAT Delhi
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Shri Barun Mitra (Technical Member) and Shri Arun Baroka (Technical Member), has held that the status of an 'allottee' would not convert into a 'decree holder' for the purpose of IBC, merely because RERA Authority has passed an order in its favour...
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Shri Barun Mitra (Technical Member) and Shri Arun Baroka (Technical Member), has held that the status of an 'allottee' would not convert into a 'decree holder' for the purpose of IBC, merely because RERA Authority has passed an order in its favour directing the Builder/Corporate Debtor to refund the entire amount.
The second proviso to Section 7(1) of IBC states that, “Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less..”
The Allottee, even after procuring a favourable order from RERA, is obligated to meet the threshold given under second proviso to Section 7(1) for filing a petition under Section 7 of IBC.
“The Appellant cannot be said to go out of the definition of 'allottees' merely because they have an order in their favour by RERA and the Appellants' submission that they should be treated in a different category, i.e., category of 'Decree Holder' and are not required to comply with Section 7, sub-section (1), 2nd Proviso cannot be accepted. The Appellants even after order of the RERA, directing for refund by the Corporate Debtor, continued to be allottees and they have filed Section 7 Application as Financial Creditor of the Corporate Debtor. They are mandatorily required to comply with Section 7, sub-section (1), 2nd Proviso.”
BACKGROUND FACTS
Parsvnath Landmark Developers Pvt. Ltd. (“Corporate Debtor”) developed a real estate project named La Tropicana Khyber Pass Delhi (“Project”).
In 2007, Mr. Rahul Gyanchandani and three others (“Appellants”) entered into Flat Buyer Agreement with the Corporate Debtor in respect of four flats.
The Corporate Debtor failed to develop the Project within stipulated timelines. The Appellants filed complaints under Section 31 read with Section 18 of the Real Estate (Regulation and Development) Act, 2016 (“RERA Act”), seeking refund of amount paid to the Corporate Debtor.
On 21.10.2022, RERA Delhi directed the Corporate Debtor to refund the amount paid by the Appellants with interest. However, the Corporate Debtor did not refund the amount.
Thereafter, on 03.08.2023 the Appellants filed a petition under Section 7 of IBC, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor.
NCLT noted that there are 488 allotted units in the Project, whereas, Section 7 petition has been filed by only 4 allottees. On 17.10.2023, the NCLT rejected the Section 7 petition while citing incompliance of second proviso to Section 7(1) of IBC.
The Appellants filed an appeal before NCLAT against the NCLT order dated 17.10.2023.
The Appellants submitted that as per Section 3(10) of IBC, decree holders are a class of Financial Creditors. Further, Section 18 read with Section 2(d) of RERA Act clarifies that a person who is granted refund of entire amount paid for allotment of unit ceases to be an allottee, as the refund order is preconditioned by withdrawal from the Project.
It was contended that Appellants are not homebuyers (Financial Creditors in a class) but are Financial Creditors in the category of Decree Holders. Accordingly, the Appellants are not required to meet the threshold given under second proviso to Section 7(1) of IBC.
NCLAT VERDICT
The Bench observed that the definition of creditor under Section 3(10) of IBC includes Financial Creditor, Operational Creditor, Secured Creditor, Unsecured Creditor or a Decree Holder. A Decree Holder can file a petition under Section 7 only if it is a Financial Creditor.
Further, admittedly the Corporate Debtor was directed to refund amounts to the Appellants but the refund was never made. Since the RERA order was not complied with by the Corporate Debtor, the Appellants continue to be allottee within the meaning of IBC and the RERA Act.
On the issue of whether the Appellants have become decree holders after the RERA order, the Bench held that allottees don't cease to be allottees merely because RERA has passed an order in their favour. Even if RERA passes an order directing the Builder/Corporate Debtor to refund the entire amount to the allottee, the allottee is necessitated to comply with second proviso to Section 7(1) of IBC.
It was concluded that Homebuyers belong to the same category of allottees irrespective of whether they have any Order or Decree from RERA or not. The Bench while dismissing the appeal has held that the Appellants are allottees and the NCLT has rightly rejected the petition for incompliance of threshold given under second proviso to Section 7(1) of IBC.
Case title: Shri Rahul Gyanchandani & Ors. v Parsvnath Landmark Developers Pvt. Ltd.
Case No.: Company Appeal (AT) (Insolvency) No. 309 of 2024
Counsel for Appellants: Mr. Rakesh Kumar, Mr. Sataroop Das, Ms. Akanksha Gupta, Advocates.