Home Buyers Cannot Invoke Insolvency Proceedings For Recovery Of RERA Award: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT) allowed an appeal filed by Sushil Ansal, former Director and shareholder of Ansal Properties and Infrastructure Limited (Ansals) setting aside the National Company Law Tribunal (NCLT), Delhi bench March 17 order for the initiation of insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). NCLT had allowed the appointment of an interim resolution professional and the company was placed under moratorium replacing the board of Ansals. 

Justices Bansi Lal Bhat, Acting Chairperson, Anant Bijay Singh, Member (Judicial), Dr. Ashok Kumar Mishra, Member (Technical) relying on the judgment of G. Eswara Rao vs. Stressed Assets Stabilisation Fund and Ors.- MANU/NL/0092/2020 observed that a home buyer cannot file an application under IBC for the execution of a decree and held –

"We are of the considered view that the impugned order dated 17th March,2020 initiating Corporate Insolvency Resolution Process against Corporate Debtor cannot be sustained The Adjudicating Authority has landed in grave error in admitting the application of Respondent Nos.1 and 2 under Section 7 who claimed to be the 'Financial Creditors' in their capacity as 'decree-holders' against the Corporate Debtor on account of non-payment of the amount due under the Recovery Certificate dated 10th August, 2019 issued by the 'UP RERA' while execution of decree/ recovery of amount due under Recovery Certificate would not justify triggering of Corporate Insolvency Resolution Process. We are also of the firm view that the application of Respondent Nos. 1 and 2 was moved for execution/ recovery of the amount due under the Recovery Certificate and not for insolvency resolution of the Corporate Debtor. The impugned order suffers from grave legal infirmity and cannot be supported."

The Respondents, who are two house allottees, had paid advance money for two flats in Sushant Golf City, Lucknow. However, as per the clauses of the two agreements between them, Ansals had undertaken to complete the same within two years from the date of commencement of construction on receipt of sanction plan from the authority in 2015. The real estate giant had failed to complete the project by 2017 following which, both allottees approached the Uttar Pradesh Real Estate Regulatory Authority (RERA), where they were awarded a decree in their favour for ₹73 lakh. A decree is generally, an official order issued by an authority concerned. RERA had also issued a recovery certificate against Ansals. The Respondents then took recourse under IBC to recover their dues.

The three member bench ruled that a home buyer cannot be treated as a financial creditor when the real estate company is unable to honour a decree and that they needed to take recourse under civil law court.

"The answer to the question whether a decree-holder would fall within the definition of 'Financial Creditor' has to be an emphatic 'No' as the amount claimed under the decree is an adjudicated amount and not a debt disbursed against the consideration for the time value of money and does not fall within the ambit of any of the clauses enumerated under Section 5(8) of the 'I&B Code"" it stated.

The bench refused to invoke its inherent powers to allow a settlement between the parties as any such move could put the rights of other allottees in jeopardy. It further stated that the Respondents' application was not maintainable with the amendment of the 'Insolvency and Bankruptcy Code (Amendment) Act, 2020' which prescribed a minimum threshold for triggering insolvency proceedings, which was a minimum of 100 buyers or 10 per cent of all home-buyers in a project, whichever is lower.

The Appellate bench ruled that the management of the company be allowed to function independently and be handed back to its board with immediate effect.

Mr. Arun Kathpalia, Senior Advocate with Ms. Neeha Nagpal and Mr. Malak Bhatt Advocates appeared for Appellants.

Ms. Devanshi Singh, Mr. Shobit Chaudhry, Ms. A. Saha, Advocates appeared for Respondents

Company Appeal (AT) (Insolvency) No. 452 of 2020 

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