Home Legal News NCLAT Restrains Home Buyers From Invoking Insolvency Proceedings For Recovery Of RERA Awards

NCLAT Restrains Home Buyers From Invoking Insolvency Proceedings For Recovery Of RERA Awards

by Preeti Dhoundiyal
Simultaneous initiation of CIRP against Principal Borrower and Corporate Guarantor permissible under IBC

National Company Law Appellate Tribunal (NCLAT) permitted an appeal filed by former director and shareholder Sushil Ansal, of Ansal Properties and Infrastructure Limited (Ansals) and set aside National Company Law Tribunal (NCLT), Delhi’s order prescribing the initiation of insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) in its March 17 order.

Background of the Case

The company was placed under moratorium replacing the board of Ansals and NCLT had allowed the appointment of an interim resolution professional.

NCLAT Speaks

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

“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.”

Respondents Speak

The Respondents being the two house allottees, had paid advance money for two flats in Sushant Golf City, Lucknow. However, 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 as per the clauses of the two agreements between them.

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In completion of the Project

Both allottees approached the Uttar Pradesh Real Estate Regulatory Authority (RERA) as real estate giant had failed to complete the project by 2017.

As a result, they were awarded a decree in their favour for 73 lakh.

 A decree is an official order issued by an authority concerned.

Likewise, RERA had also issued a recovery certificate against Ansals. As an outcome, Respondents took recourse to recover their dues under IBC.

Also Read- No Insolvency Proceedings Against Tata Chemicals; NCLAT Upholds NCLT’s Order


NCLAT Opines

It was ruled by the three member bench 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.””

As any move could put the rights of other allottees in jeopardy, so the bench refused to invoke its inherent powers to allow a settlement between the parties.

 Further, the Respondents’ application was not maintainable with the amendment of the ‘Insolvency and Bankruptcy Code (Amendment) Act, 2020’ as it prescribed a minimum of 100 buyers or 10 per cent of all home-buyers in a project, whichever is lower as a minimum threshold for triggering insolvency proceedings.

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

Representations in NCLAT

Appellants were represented by Mr. Arun Kathpalia, Senior Advocate with Ms. Neeha Nagpal and Mr. Malak Bhatt Advocates.

Respondents were represented by Ms. Devanshi Singh, Mr. Shobit Chaudhry, Ms. A. Saha, Advocates

NCLAT Appeal Registration

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

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