05
The legal position of home buyers in real estate projects under the ambit of IBC[1]
Name of the Case: Vishal Chelani v. Debashis Nanda
Citation – 2023 SCC Online SC 1324
Bench –Justice. S. Ravindra Bhat and Justice Aravind Kumar
Court- Hon’ble Supreme Court of India.
Background
In this case the Hon’ble Supreme Court of India has cleared the ambiguity concerning the legal position of home buyers in real estate projects fall under the ambit of the Insolvency and Bankruptcy Code, 2016. This case highlights a very important legal issue before the court, which involves the right of home buyers who is holding the decree of refund their deposited amount under the Real Estate (Regulation and Development) Act, 2016 can be classified as “allottee” and can be treated as financial creditors as per the Section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016.
Fact of the case
The fact of the present case is related to a group of homebuyers who booked houses during the period of 2011-2012, in the project named ‘Bulland Elevates’ developed by Bulland Buildtech Private Limited. However, there was a delay in the completion of the project and not getting any reason and satisfactory answer from developer, the homebuyer filed a complaint before the Uttar Pradesh Real Estate Regulatory Authority (“UPRERA”). The complaint was filed, and the certificate of recovery was issued for refund of the amount to the homebuyers. however, at the same time, proceedings under Insolvency and Bankruptcy Code, 2016 were initiated and as per the resolution plan submitted before the adjudicating authority (National Company Law Tribunal), a distinction was made between home buyers, who had opted for remedy before the UPRERA and secured orders in their favour, and those who did not. Homebuyers who did not approach authorities under Real Estate Regulatory Authority were given fifty percent (50%) better benefits compare to those who approached Real Estate Regulatory Authority or who were decree holders. Homebuyers filed an application wherein they prayed to admit their claim and be treated as “allottees” under class of creditor was rejected by the adjudicating authority. Subsequently, the appeal has been filed by the homebuyer before the Hon’ble National Company Law Appellate Tribunal, and the appeal was also rejected. Thereafter, the homebuyers approached the Hon’ble Supreme Court for removing of ambiguity and to clear the current legal position of homebuyer.
Issue
Whether the order passed for a refund of amount from Real Estate Regulatory Authority (RERA) ceases to be “allottees” and therefore, be treated as a separate sub-class of homebuyers during insolvency proceedings initiated under the Insolvency and Bankruptcy Code, 2016?
Judgment
The Hon’ble Supreme Court has set aside the order of National Company Law Appellate Tribunal, wherein the homebuyers who have obtained an order or decree in their favor were treated differently from the homebuyers who did not obtain such order or decree. While resisting the appeal before the Hon’ble Court, the resolution professional contented that once the homebuyers secured a decree of refund from RERA, they relinquish their rights over the unit in real estate projects and seize to be “allottee” under the Real Estate (Regulation and Development) Act, 2016 and therefore, ought to be classified differently from allottees who do not have such decree in their favour. The Hon’ble Court categorically rejected the resolution professional contentions and clarified that seeking a remedy under Real Estate Regulatory Authority does not alter the class of homebuyers into a separate sub-class.
The Hon’ble Supreme Court stated that “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”.
Further the Hon’ble Supreme Court noted that “Section 238 of the IBC contains a non-obstante clause, giving overriding effect to its provisions, and, therefore, the provisions of the IBC take precedence over RERA. The Court found that the distinction made by the Resolution Professional was artificial and amounted to “hyper-classification” which contravened Article 14 of the Constitution of India”.
The debate before the court concerning the position of home buyers in real estate projects within the ambit of the Insolvency and Bankruptcy Code, 2016 is set at rest by the Hon’ble Supreme Court, wherein it is held that “the appellants are the financial creditors within the meaning of Section 5(8)(f) (Explanation) and entitled to be treated as such along with other home buyers/financial creditors for the purposes of the resolution plan which is awaiting final decision before the Adjudicating Authority”.
Analysis
The Hon’ble Supreme Court cleared the legal position of a homebuyer who has holding a decree of refund of deposited amount along with interest under the Real Estate (Regulation and Development) Act, 2016 and simultaneously their legal position as class of creditors under the Insolvency and Bankruptcy Code, 2016. The Hon’ble Supreme Court while interpreting the precedent Natwar Agarwal (HUF) v. Ms. Ssakash Developers & Builders (P.) Ltd[2] case and held that “it is only the underlying claim which is crystalized in the form of a court order or decree and the same does not alter or disturb the status of concern parties”.
[1] Conceived by Komal Jain and penned by Happy Panthi
[2] Natwar Agarwal (HUF) v. Ms. Ssakash Developers & Builders (P.) Ltd. CP (IB) No.21/MB-IV/2023