Interest Of Homebuyers Paramount In Insolvency Process Of Real Estate Company: Allahabad High Court

The Allahabad High Court has held that the interest of the homebuyers is paramount in an insolvency resolution process of a real estate company as it directly impacts their rights and interests.Justice Arun Kumar held“In an insolvency resolution process of a real estate company the primary concern is the interest of a homebuyer in the real estate project. The homebuyers are vital stakeholders. The process of creditor insolvency resolution directly impacts upon their rights and interest. Concerns of homebuyer have to be the primary object under any insolvency resolution process. Without restoration of the cancelled plot any resolution plan cannot be approved by the Adjudicating Authority.”Petitioner entered into a tripartite agreement for developing a Group Housing Project in Greater Noida. The sub-lease of the petitioner was cancelled by GNIDA due to default in payment of lease rent. Meanwhile, a financial creditor of the petitioner instituted insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016. An Interim Resolution Professional was appointed who invited claims from all the creditors. Saviour Builders emerged as successful resolution applicant. The resolution plan is pending approval of the Adjudicating Authority. Meanwhile the IRP challenged the cancellation of lease of the land allotted to the corporate debtor before the State Government, in revision under Section 41(3) of the U.P. Urban Planning and Development Act, 1973 read with Section 12 of the U.P. Industrial Area Development Act, 1976. The revision was dismissed. Thereafter, a writ petition was filed before the High Court. During the pendency of the writ petition, impleadment applications were filed by people claiming to be allottees in the Group Housing project. The applications were subsequently withdrawn. In the attempt to settle the matter, Saviour Builders offered to deposit certain amount with the development authority and complete the project. Eventually, Bank Draft of more that Rs. 20 crores was deposited with the High Court. One Tushar Kanti Biswas again filed an impleadment application against the resolution plan. Another impleadment application was filed by M/s Radhey Krishna Technobuild Private Limited pleading that its resolution plan had been rejected by the IRP and challenge had already been raised in separate proceedings to the decision of the IRP. It was argued that any decision on the petition would create indefeasible right in favour of Saviour Builders. The Court observed that since the resolution plan was approved by 66% of the voting share of the financial creditor, the homebuyers claims which were rejected could be adjudicated by the Adjudicating Authority and not by the High Court in writ jurisdiction. Their impleadment applications were rejected on grounds that M/s Radhey Krishna Technobuild had already approached the Authority whereas Tushar Kanti Biswas had chosen not to approach the Authority. “The judgments of the Hon'ble Supreme Court in the cases of Ebix Singapore private Limited and others (Supra) and State Bank of India and others (Supra), relied upon by the Senior Counsel for M/s Radhey Krishna Technobuild Private Limited, in support of the impleadment application, does permit adjudication of the claim of the applicant against the resolution plan, by the High Court under Article 226 of the Constitution of India. Moreover, the aforesaid judgments approve the superiority of the commercial wisdom of the Committee of Creditors (CoC) in approving a resolution plan.”Further, the Court observed that unless the land is reverted back to the corporate debtor, the company will go into liquidation and the homebuyers will not get anything. Noting that the interest of the homebuyers is paramount, the Court observed that agreement between the Resolution Professional, the resolution applicant and the Greater Noida Industrial Development Authority, in presence of representative of the homebuyers is a ray of hope for revival of the housing project securing the interest of homebuyers.The Court held that only because the resolution applicant had agreed to pay certain amount, it will not have any right over the property nor will it create certainty regarding approval of the resolution plan. “If the fresh agreement entered between the parties to the writ petition is acted upon, it will results in restoration of the lease deed in favour of the corporate debtor. The further action would shift to the Adjudicating Authority, which while approving the resolution plan will consider all the objection pending before it, as contemplated under the IBC. Moreover, if the objection raised by any of the unsuccessful resolution applicant is found to have some force by the Adjudicating Authority, the matter will be sent back to the CoC for reconsideration and fresh voting.”Since GNIDA agreed to restoration of the lease once 25% of the amount is released in its favour, the Court quashed the order under challenge and...

Interest Of Homebuyers Paramount In Insolvency Process Of Real Estate Company: Allahabad High Court

Upasna Agrawal

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