Registered Homebuyer Society Can Initiate Insolvency Against Builders Only With Consent From All Buyers: NCLAT
The National Company Law Appellate Tribunal (NCLAT) at Delhi has ruled that a registered society of homebuyers can file an insolvency application, but only if each homebuyer individually authorises it to act on their behalf.
A resolution passed only by the society's core committee does not meet this requirement, a bench of Chaiperson Justice Ashok Bhushan and Technical Member Barun Mitra held. The tribunal therefore granted the society seven days to submit individual authorisations from all 98 homebuyers.
Avenue 54 Welfare Association is a registered society whose 98 members are homebuyers in the Avenue 54 project in Mumbai. The society filed a Section 7-CIRP application before NCLT Mumbai, alleging a default of Rs 203.27 crore by Sumer Radius Realty Private Limited and Sumer Buildcorp Private Limited for failure to hand over possession.
The corporate debtors argued that the society was not a financial creditor and that no debt was owed to it. They submitted that the authorisation relied on by the society was passed only by core committee members and did not represent valid consent from all homebuyers who were the actual financial creditors.
NCLT Mumbai rejected these objections and allowed the society to maintain the Section 7 application, prompting the corporate debtors to file appeals before the NCLAT.
Senior Advocates Arun Kathpalia and Krishnendu Dutta, appearing for the corporate debtors, argued that the society could not initiate CIRP because it was not a financial creditor under Section 7 and was not covered in the Central Government notification dated February 27, 2019. They contended that the authorisation relied upon did not transform the society into any recognised class of applicants. They maintained that only the individual homebuyers, and not the society representing them, could file such an application.
Senior Advocate Abhijeet Sinha, appearing for the society, submitted that the defect, if any, was procedural and curable. He stated that the society was willing to furnish individual affidavits from each of the 98 homebuyers confirming their authorisation to the society. He added that this request had been made before NCLT Mumbai but was rejected on the ground that the matter had already been argued.
The Appellate Tribunal noted that Section 7 permits financial creditors to file applications directly, jointly, or through authorised persons. It observed that Form 1 under Rule 4 of the IBC Rules contains a specific column for the name and address of the person authorised to submit application on its behalf, which indicated that a financial creditor may act through any authorised individual or entity.
However, the tribunal found that the resolution relied upon by the society could not be treated as valid authorisation from all members.
It recorded, “there has to be authorisation by financial creditor and in the present case, the resolution which is claimed to be resolution 23.01.2024, authorising the society to Avenue 54 Welfare Association to institute Section 7 application cannot be said to be authorisation by members of the society.”
The tribunal stressed the requirement of individual consent, stating, “Any authorisation has to be by all the members on whose behalf the application is claimed to be filed”
The tribunal further held that the NCLT should have permitted the society to cure the defect when it offered to file individual affidavits.
It observed,"when Section 7 applicants offered to file individual affidavit and authorisation to cure the defect, if any, adjudicating authority ought to have been given opportunity to the applicant to cure the defects"
Holding NCLT's refusal to allow this as erroneous, the NCLAT disposed of the appeals by directing the society to file individual affidavits from all 98 homebuyers within seven days. It directed NCLT Mumbai to proceed with the Section 7 application after the affidavits are filed.
Case Title: Sumer Radius Realty Pvt. Ltd. v. Avenue 54 Welfare Association with Sumer Buildcorp Pvt. Ltd. v. Avenue 54 Welfare Association.
Case Number: Company Appeal (AT) (Insolvency) No. 1572 of 2025 with Company Appeal (AT) (Insolvency) No. 1573 of 2025
For Appellant: Senior Advocate Krishnendu Dutta with Advocates Anne Mathew, Yash Tandon, Harshit and Jashan Vir Singh for Sumer Radius Realty; Senior Advocate Arun Kathpalia with Advocates Roy Abraham and Akhil Abrahim Roy for Sumer Buildcorp.
For Respondent: Senior Advocate Abhijeet Sinha with Advocates Nitya Shah, Kinnar Shah, Rhythm Buaria, Aditi Bhargava and Aridaman Raghav; Advocates Meghna Rao, Sujit Lahoti, Akshta Shah, Harish Karodia and Nidhi Jain, for Intervenors.