After holding home-buyers as financial creditors as per the Insolvency and Bankruptcy Code (IBC), in January 2021, the Supreme Court ruled that home-buyers, with a decree obtained from the real estate regulatory authority (RERA), cannot be treated differently from other allottees and financial creditors.
In an order issued earlier this month, the SC bench of Justice S Ravindra Bhat and Justice Aravind Kumar says, "It is only home buyers that can approach and seek remedies under RERA – no others. In such circumstances, to treat a particular segment of that class differently for the purposes of another enactment, on the ground that one or some of them had elected to take back the deposits together with such interest as ordered by the competent authority, would be highly inequitable."
"The resolution professional's (RP's) view appears to be that once an allottee seeks remedies under RERA and opts for return of money in terms of the order made in her favour, it is not open for her to be treated in the class of home buyer. This Court is unpersuaded by the submission. In any case, the distinction made by the RP is artificial, it amounts to 'hyper-classification' and falls afoul of Article 14. Therefore, such an interpretation cannot be countenanced," the order says.
The apex court concurred with observations by the national company law tribunal (NCLT) in the Natwar Agrawal (HUF) case that an allottee in a real estate project, who subsequently becomes a decree-holder under the RERA Act, continues to be a creditor in the class of home-buyers.
The case is related to an order passed by the national company law appellate tribunal (NCLAT), which ruled that as a beneficiary of a decree by the Uttar Pradesh (UP) RERA, the order of the RP of Bulland Buildtech Pvt Ltd proposing that they be treated differently from other home buyers allottees, does not call for interference.
Aggrieved by the delay in the completion of the project, the home-buyers approached UP RERA, which, by its orders, upheld this entitlement to refund amounts deposited by the home-buyers, together with interest. Meanwhile, proceedings under the IBC were initiated against Bulland Buildtech.
After due consultation by the committee of creditors (CoC), a resolution plan was presented to the NCLT. In the plan, a distinction was made between home-buyers who had opted or elected for other remedies, such as applying before the RERA and having secured orders in their favour, and those who did not do so.
Home buyers who did not approach authorities under RERA were given the benefit of 50% better terms than those who approached RERA or decree holders.
The home-buyers felt aggrieved by the resolution plan. However, their applications were rejected by the adjudicating authority. Their appeals, too, were unsuccessful. Consequently, they approached the apex court.
Advocate Abhimanyu Bhandari, representing the home-buyers, argued that having regard to the definition of financial debt in Section 5(8)(f) of IBC, which was amended in 2018, after which home buyer allottees in real estate projects also fell within the broad description of financial creditors, a distinction cannot be made between one set of such home buyer allottees and another.
On the other hand, advocate Gunjesh Ranjan, appearing for Debashis Nanda, the RP, resisted the appeal and contented that the home-buyers cannot be permitted to secure two benefits. "Having approached the UP RERA, they fell into a different sub-class of home buyers, who were entitled to specified amounts and, therefore, were unsecured creditors, as compared with allottees who had not invoked RERA remedies. Such home buyers relinquished their rights under Section 18 of the RERA Act."
The bench of justice Bhat and justice Kumar observed that, with the introduction of the explanation, home buyers and allottees of real estate projects were included in the class of 'financial creditors' because financial debt is owed to them. "On a plain reading of Section 5 (8)(f) no distinction is per se made out between different classes of financial creditors for the purposes of drawing a resolution plan. Consequently, the reasoning of the Mumbai Bench of NCLT in the Natwar Agrawal (HUF) case is correct in the opinion of this Court."
"Home-buyers are declared as financial creditors within the meaning of Section 5(8)(f) and entitled to be treated as such along with other home-buyers or financial creditors for the resolution plan, awaiting final de-cision before the adjudicating authority," the apex court says.
After holding home-buyers as financial creditors as per the IBC, the Supreme Court in January 2021 accepted an amendment in the IBC as constitutionally valid, which requires no less than 100 or 10% of home-buyers to initiate insolvency against builders or developers. Under the IBC amendment passed by Parliament in March 2020, a single home-buyer is barred from approaching the NCLT under Section 7 of the IBC.