NCLAT Upholds Status Of Canara Bank As Financial Creditor For Providing Loans To Homebuyers Of CD, Distinguishes Value Infracon Judgment

The tribunal distinguished the Value Infracon judgment from the present case wherein it was held that the bank that had advanced loans on behalf of the homebuyers could not be classified as a financial creditor.

Brief Facts:

Canara Bank has filed this appeal against an order passed by the NCLT by which an application filed against rejection of its claim by the RP was dismissed. The Bank had filed claims on behalf of other homebuyers which were rejected by the RP on the ground that only individual homebuyer could file claim and the bank lacked authorisation to file claims on behalf of other homebuyers. It is argued by the bank that the bank acted in good faith and filed claims on behalf of other homebuyers who could not navigate the complex insolvency process.

Contentions:

The appellant submitted that under the tripartite agreement, the Corporate Debtor/Builder was required to refund the entire amount advanced by the bank in case of default, making the appellant a Financial Creditor under Section 5(8) of the IBC.

It was further contended that the appellant holds a DRT decree against 18 out of the 32 accounts claimed, as well as against the Corporate Debtor, further strengthening its position as a creditor under Section 3(10) of the IBC, which includes decree-holders.

It was also argued that the agreement specifically obligated the Corporate Debtor to indemnify the bank in case of default, and argued that, just as a guarantor inherits the financial liability of the principal borrower, its claim also qualifies as financial debt.

Refuting the submissions, the respondent placed reliance on Axis Bank Limited vs. Value Infracon India Private Limited & Anr (2020) , wherein it was held that Bank can't be treated as Financial Creditor in real estate project and it is only Homebuyers who are to be considered as the Financial Creditor as a class.

In view of the above judgment, it was submitted that the Appellant cannot be classified as a Financial Creditor with respect to the loans extended to homebuyers for the purpose of financing the allotment of flats in the AVJ Heights project of the Corporate Debtor.

It was argued that as the appellant failed to register the security interest with the ROC within 30 days under section 77 of the companies act, prior lien on the properties cannot be claimed. The appellant cannot also claim status of a financial creditor based on the DRT decrees as they were passed disregarding laws prevailing. The tripartite agreement states that the primary responsibility to repay the amount lies with the homebuyers thereby negating any responsibility of indemnification on part of the CD.

Observations:

The tribunal noted that amendment which allowed the allottees to initiate insolvency proceedings as financial creditors was challenged before the Supreme Court in Pioneer Urban Land and Infrastructure Limited & Anr. Vs. Union of India & Ors(2019) where the court while upholding the constitutionality of the amendment held that the amendment was merely explanatory as allottes were already included within the scope of Section 5(8)(f) and no new rights were created.

It further added that the order of the Supreme Court of India is very categorical and clear there that the amendment in the Code was made to make homebuyers as Financial Creditors to the extent of money invested by them in buying the concern dwelling units whether financed from to its own source or from borrowed money through banks.

The tribunal opined that “as per amendment in the Code as well as in the judgment of the Hon'ble Supreme Court of India, there is hardly any scope for the lenders/ banks who gave loan to the homebuyers to be treated as Secured Financial Creditor and consequently find place in this CoC.”

In Value Infracon India Private Limited, the bank had advanced loans to the homebuyers of the corporate debtor on the basis of which it sought to be declared as a secured financial creditor with representation in the CoC. In this context, it was held that the bank could not be classified as a financial creditor as the loan in question was advanced to the Homebuyers and not the corporate debtor.

It noted that however, in the present case, the facts are different which can be discerned from the perusal of the tripartite agreement clauses. This agreement explicitly provided that in case of loan default by the borrower, failure by the builder, non-transfer of the dwelling units to the homebuyers or breach of terms of agreement, responsibility was fastended on the builder to refund the bank the entire amount advanced on behalf of the borrower.

It further noted that the clause 16 also provide that in case the builder fails to pay the amount as stated in this clause, the borrower shall pay the entire loan amount with interest, including panel interest etc., in terms of loan agreement.

Based on the above, the tribunal said that “the distinguishable aspect of the tripartite agreement of the present appeal vis-à-vis the tripartite agreement of Value Infracon India Private Limited (Supra) relied heavily by the Respondent (Resolution Professional) (as well as the Adjudicating Authority in the Impugned Order in rejecting of claims of the Appellant) is that in case of tripartite agreement of Value Infracon India Private Limited (Supra) there is no responsibility of the Corporate Debtor/ builder/ developer, whatsoever to repay any money of the bankers and the entire responsibility was of the homebuyers.”

It further observed that where in in terms of clause 16 of the tripartite agreement of the present appeal, the primary responsibility of repayment of loan in case of any of the eventuality laid down in tripartite agreement falls on the builder/ Corporate Debtor. This indicate relationship of the Appellant Bank and the Corporate Debtor to meet the stipulation of Section 5(8) of the Code regarding the financial debt. This aspect was not available in the case of Value Infracon India Private Limited (Supra).

It opined that “In fact, the primary responsibility in the present case is of the Corporate Debtor/ Builder and secondary responsibility is of borrower/ Homebuyers.”

It further observed that in context of Section 5(8) of the Code, promise by the debtor to pay money to the creditor may also tantamount to transaction as defined under Section 3(33) of the Code and same may attract the provisions of the Section 5(8) of the Code.

The tribunal also observed that in normal case it is only the homebuyers/ allottee who could be treated as Financial Creditor and not lenders/ banker who lent the money to the allottee. The very fact that the amendment was made in Section 5(8)(f) of the Code was to enable the homebuyers/ allottees to act as Financial Creditor and participate in CoC.

The concluded that however, since the peculiar clause has been provided in the present agreement which create the rights of the Appellant banker for the right to payment in terms of Clause 3(6) of the Code and based on this right to payment the appellant has pleaded to be classified as Financial Creditor to the extent of its money due to be paid by the Corporate Debtor which was specifically agreed in Clause 16 of the agreement.

Accordingly, the impugned order was set aside.

Case Title: Canara Bank Versus Sh. Vivek Kumar

Case Number:Comp. App. (AT) (Ins) No. 390 of 2023 & I.A. No. 1301, 1302 of 2023, 7105, 7610 of 2024

Judgment Date: 09/01/2025

For Appellants: Mr. Brijesh Kumar Tamber, Mr. Prateek Kushwaha, Mr. Vinay Singh Bist, Adv.

For Respondents: Mr. Saurabh Kalia, Mani Gupta, Aman Choudhary, Sonali Jain, Adv. Mr. Ambuj Tiwari, Adv.

Click Here To Read/Download The Order