NCLAT held that home buyers and allottees of real estate projects are categorized as financial creditors regardless of whether they have invoked remedies under RERA.
The National Company Law Appellate Tribunal (NCLAT), Principal bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra & Arun Baroka (Technical Members) was hearing an appeal and observed that the holders of recovery certificates, which are similar to decrees, are considered Financial Creditors under the Insolvency and Bankruptcy Code. Additionally, the Appellate Tribunal clarifies that home buyers and allottees of real estate projects are categorized as financial creditors regardless of whether they have invoked remedies under RERA. Appellants were declared as financial creditors and affirmed as allottees, required to comply with Section 7 of the Code.
In Interlocutory Application Nos. 905 and 1032 of 2024, the Appellant successfully sought the condonation of delays in refiling the Memo of Appeal and filing the Appeal, respectively. The court accepted their explanation and condoned the delay of 51 days in refiling the Memo of Appeal and 9 days in filing the Appeal, citing sufficient cause shown by the Appellant.
Moving on to Company Appeal (AT) (Insolvency) No. 309 of 2024, filed by a Financial Creditor against Parsvnath Landmark Developers Ltd., it challenged the National Company Law Tribunal's order rejecting a Section 7 Application due to non-compliance with Section 7, sub-section (1), 2nd Proviso of the Insolvency and Bankruptcy Code, 2016. The case centred on payments made by the Appellant towards units in a project by the Respondent, subsequent legal actions due to project delays, and non-compliance with refund orders by Delhi RERA.
The Appellant argued their status as Decree Holders exempted them from meeting the threshold requirements of Section 7, sub-section (1), 2nd Proviso. They relied on judgments, including Kotak Mahindra Bank Limited v. A. Balakrishnan and Another, REEDLAW 2022 SC 05561, to support their claim. The Appellate Tribunal analyzed relevant provisions of the Code and rulings, concluding that holders of recovery certificates, akin to decrees, qualify as Financial Creditors and can file Section 7 Applications.
The NCLAT’s decision, based on interpretations of the Code and relevant judgments like Vishal Chelani & Ors. v. Debashis Nanda, REEDLAW 2023 SC 10580, reinforced the status of the Appellants as Financial Creditors and affirmed their eligibility to file the Appeal.
In the conclusive portion of the NCLAT judgment, the arguments of the Resolution Professional (RP) were noted. The Hon’ble Supreme Court, considering the 2018 amendment in sub-section 8(f) of Section 5, declared home buyers and allottees of real estate projects as "financial creditors" due to the financial debt owed to them, rejecting the RP's view and affirming that seeking remedies under RERA did not alter the status of home buyers as financial creditors. The judgment emphasized that the underlying claim of an aggrieved party, crystallized in the form of a court order or decree, did not change their status. Consequently, the Appellants were declared as financial creditors and affirmed as allottees, required to comply with Section 7(1) of the Code. Thus, the appeal was dismissed without any order as to costs.
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