Buyers Of Commercial Units Are Not Homebuyers; Cannot Be Recognised As Financial Creditors: NCLT Mumbai

The National Company Law Tribunal at Mumbai has recently held that purchasers of commercial or industrial units cannot claim parity with homebuyers and are therefore not entitled to the special protection accorded to them under the Insolvency and Bankruptcy Code, which recognises homebuyers as financial creditors.

A coram of Judicial Member Mohan Prasad Tiwari and Technical Member Charanjeet Singh Gulati rejected an industrial unit purchaser's plea to be treated as a financial creditor. The tribunal observed, the legal fiction under Section 5(8)(f) (financial debt) of the Code, which treats amounts raised from allottees of a real estate project as having the commercial effect of a borrowing, only applies to genuine homebuyers whose intent is to reside, and not derive commercial gains.

“Thus, the Applicant acted as an investor in a commercial/industrial asset, not as a homebuyer seeking a residence. Accordingly, the essential requirements for treating the Applicant's claim as a “financial debt” under Section 5(8)(f) are not satisfied.”, it observed. 

The case arose from an application filed by Harisharan Hi-Tech Industries, which had purchased an industrial gala in the Renaissance Industrial Smart City project through a registered agreement for sale and an MoU. The unit purchaser claimed to have paid over Rs 40 lakh, including GST, and argued that the unit was covered by the deeming fiction applicable to real estate allottees. The Interim Resolution Professional had admitted the monetary claim but categorised the applicant as an “other creditor,” prompting the challenge.

The unit purchaser argued that the nature of the premises was irrelevant for the purposes of Section 5(8)(f) and relied on decisions suggesting that industrial units may fall within RERA. The IRP opposed this and submitted that the project was an Integrated Industrial Area under the Maharashtra Industrial Development Act and not a real estate project, and that purchasers of industrial units cannot be treated as allottees or homebuyers under the Code. The IRP also pointed to the assured return clause in the MoU to argue that the transaction was commercial in nature.

The tribunal accepted the IRP's position on why protections meant for homebuyers cannot be extended to purchasers of industrial or commercial premises.

It held that Section 5(8)(f) “ expressly applies only to allottees of a “real estate project” as defined under Sections 2(d) and 2(zn) of the RERA Act, which concerns the development of apartments or plots for the purpose of habitation, thereby preserving the legislative intent to protect individuals seeking shelter a facet of Article 21. Investors who purchase commercial or industrial premises for business, trade, warehousing, manufacturing, or assured returns fall squarely outside this category.”

It added, “the Applicant, having invested in an industrial unit with an assured return arrangement, thus stands on a footing markedly different from a homebuyer.”

The tribunal added that the applicant's reliance on the Supreme Court's ruling in Mansi Brar(2020) was “wholly misconceived,” noting,

“Nowhere does the Hon'ble Supreme Court expand the definition of “homebuyer,” nor does it permit an investor in a commercial, industrial, warehousing, or investment-oriented project, including speculative investors to be treated as a Financial Creditor for the purposes of Section 5(8)(f) of the IBC.”

The tribunal dismissed the application, upheld the IRP's classification of the claim under “other creditors,” and concluded that the applicant could not invoke protections designed for residential allottees.