Homebuyers Who Secure RERA Decrees Can't Be Treated Differently From Other Financial Creditors Under IBC : Supreme Court
The Supreme Court has held that homebuyers cannot be treated differently from other "financial creditors" under the Insolvency and Bankruptcy Code (IBC) 2016 just because they have secured orders from the authority under the Real Estate (Regulation and Development) Act 2016.A bench comprising Justices S Ravindra Bhat and Aravind Kumar set aside an order of the National Company Law...
The Supreme Court has held that homebuyers cannot be treated differently from other "financial creditors" under the Insolvency and Bankruptcy Code (IBC) 2016 just because they have secured orders from the authority under the Real Estate (Regulation and Development) Act 2016.
A bench comprising Justices S Ravindra Bhat and Aravind Kumar set aside an order of the National Company Law Appellate Tribunal which held that beneficiary of orders of the RERA Authority should be treated differently from other home buyer allottees. Home buyers who did not approach authorities under RER Act were given the benefit of 50% better terms than that given to those who approached RERA or who were decree holders.
The Appellants booked flats during 2011-2012 in the project called Bulland Elevates which was developed by Bulland Buildtech Pvt Ltd. Due to the delay in the completion of the project, the Appellants approached UPRERA and received the decree of refund along with interest in their favour. Meanwhile, initiated insolvency proceedings against the Corporate Debtor in C.P.(IB)/1744/2019. The Appellants filed FROM CA under Regulation 8A of CIRP regulations, 2016 but the Resolution Professional compelled the Appellants to file FORM C. Resultantly, the RP treated the Appellants as unsecured financial creditors instead of creditors in class and they were required to pay an extra payment of 50% of the present market value of the unit or to take the haircuts in the Resolution Plan
The Appellants argued that after the 2018 amendment to the IBC, home buyer allottees in real estate projects were included in the description of financial creditors. On the other hand, the Resolution Professional contended that having approached the RERA, they fell into a different sub-class of home buyers, who were entitled to specified amounts and, therefore, were unsecured creditors, as compared with allottees who had not invoked RERA. The RP also relied on Section 18 of the RERA to claim that the appellant had relinquished their rights.
The Court noted from a plain reading of Section 5 (8)(f) of the IBC, no distinction is per se made out between different classes of financial creditors for the purposes of drawing a resolution plan.
With regard to Section 18 of the RERA, the Court said that the Resolution Professional's view appeared to be that once an allottee seeks remedies under RERA, and opts for return of money in terms of the order made in her favour, it is not open for her to be treated in the class of home buyer. The Court expressed disagreement with this argument.
"It is only home buyers that can approach and seek remedies under RERA – no others. In such circumstances, to treat a particular segment of that class differently for the purposes of another enactment, on the ground that one or some of them had elected to take back the deposits together with such interest as ordered by the competent authority, would be highly inequitable," the Court said.
The Supreme Court also agreed with the judgment delivered by the NCLT, Mumbai Bench judgment in the case of Mr. Natwar Agrawal (HUF) through Karta Mr. Natwar Agrawal. v. Ms. Ssakash Developers & Builders Pvt. Ltd., CP (IB) No.21/MB-IV/2023, where it held that an allottee in Real Estate Project, who subsequently becomes a Decree Holder under the RERA Act, continues to be a creditor in the class of Home Buyers and shall continue to be governed by the threshold limit prescribed under second proviso to Section 7(1) of the Code.
"As held in Natwar Agarwal (HUF) (Supra) by the Mumbai Bench of National Company Law Tribunal the underlying claim of an aggrieved party is crystallized in the form of a Court order or decree. That does not alter or disturb the status of the concerned party - in the present case of allottees as financial creditors," the Court said.
Furthermore, Section 238 of the IBC contains a non-obstante clause which gives overriding effect to its provisions. Consequently, its provisions acquire primacy, and cannot be read as subordinate to the RERA Act, said the Court while allowing the civil appeal and directed that the Appellants should be treated in parity with other homebuyers.
Arguments on behalf of the Appellants were led by Advocate Mr. Abhimanyu Bhandari who was assisted by Advocates Ms. Nattasha Garg and Mr. Thakur Ankit Singh.
Advocate Mr. Gunjesh Ranjan appeared for the Resolution Professional.
Case Title : Vishal Chelani and others v. Debashis Nanda
Citation : 2023 LiveLaw (SC) 894