National Company Law Appellate Tribunal, New Delhi: In an appeal against the Adjudicating Authority’s order rejecting the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), a 3-member bench comprising of Ashok Bhushan,* J., (Chairperson), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member), allowed the appeal and set aside the order rejecting the Section 7 IBC application. The NCLAT upheld the appellant’s classification as Financial Creditors and rejected the respondent’s arguments based on RERA orders. NCLAT emphasised on the inclusive nature of the IBC’s provisions and the importance of uniform interpretation across enactments.
Factual Matrix
In the instant matter, the appellant had filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the Respondent for non-compliance with the provisions of Section 7(1), Proviso (2). The appellant had made payments for 4 units of a project developed by the Respondent between 2007 and 2012. Several legal actions were initiated, including complaints under the Real Estate (Regulation and Development) Act, 2016 (RERA), seeking refunds due to the respondent’s failure to complete the project. RERA disposed of the complaints on 21-10-2022, directing refunds, which the respondent failed to fulfill.
A petition under Section 7 was filed on 03-08-2023, citing default by the respondent in refunding the amount owed. The Adjudicating Authority rejected Section 7 application, citing insufficient numbers of petitioners relative to total allottees as per the IBC’s provisions. Aggrieved by the impugned order of Adjudicating Authority, the appellant preferred an appeal and argued that the appellants were Financial Creditors as Decree Holders and thus not subject to the petitioner number threshold. The appellants cited Kotak Mahindra Bank Ltd. v. A. Balakrishnan, (2022) 9 SCC 186, where the Supreme Court held that holders of recovery certificates, akin to decrees, are entitled to file Section 7 Applications as Financial Creditors. The appellant further contended that the precedent, Vishal Chelani v. Debashis Nanda, (2023) 10 SCC 395, relied on by the Adjudicating Authority is not applicable to appellant’s case, as it concerned homebuyers seeking benefits under the RERA Act, whereas they were decree holders under the IBC.
Moot Point
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Whether the appellants met the threshold/eligibility requirements under Section 7(1) Proviso (2) of the IBC?
- Whether the appellants should be categorized as Financial Creditors in the category of real estate allottees or Decree Holders?
Court’s Analysis and Decision
The NCLAT, after considering the arguments and precedents cited, upheld the appellants’ contention that they qualified as Financial Creditors under the IBC. The NCLAT emphasised on the inclusive nature of the definition of financial debt and held that holding a recovery certificate entitles one to file a Section 7 IBC application. The Court disapproved the Adjudicating Authority’s reliance on Vishal Chelani (Supra), stating that the distinction made by the Authority between the Decree Holder and Homebuyers, who do not have order of RERA was artificial and violative of Article 14 of the Constitution of India. The NCLAT stated that “Homebuyers, whether they have an order or Decree from the RERA or who do not have any Decree or order from RERA, belong to same category of allottees and no distinction can be made on the said ground.”
The NCLAT held that the appellants are ‘allottees’ within the meaning of the IBC and as a Financial Creditor, “when they have filed the application under Section 7, they were required to comply with Section 7, sub-section (1), 2nd Proviso and Adjudicating Authority did not commit any error in rejecting their Application due to non-compliance of Section 7, sub-section (1), 2nd Proviso.” The Court allowed the appeal, set aside the Adjudicating Authority’s order and directed further proceedings in accordance with the law.
[Rahul Gyanchandani v. Parsvnath Landmark Developers (P) Ltd., 2024 SCC OnLine NCLAT 469, order dated 09-04-2024]
*Judgment by Justice Ashok Bhushan
Advocates who appeared in this case:
Mr. Rakesh Kumar, Mr. Sataroop Das, Ms. Akanksha Gupta, Counsel for the Appellants
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