Homebuyers Remain Financial Creditors U/S 5(8)(F) Of IBC Regardless Of Whether They Obtained RERA Recovery Certificates: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr.Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) has held that whether or not homebuyers have obtained recovery certificates from the Real Estate Regulatory Authority (RERA), they remain financial creditors under Section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016 (Code). Brief Facts: Shailendra Agarwal (Appellant) has filed the present appeal under Section 61 of the Code challenging the order dated 31.01.2025 passed by National Company Law Tribunal (NCLT), Allahabad Bench in I.A. No. 250 of 2024 in CP (IB) No. 11/ALD/2024, whereby the Company Petition filed by Respondent Nos. 1–22 was allowed, and Respondent No. 23, M/s NHA Infrabuild Pvt. Ltd, was admitted into Corporate Insolvency Resolution Process (CIRP). Contentions: The Appellant submitted that the Respondents claim default was dated 10.12.2015 in respect of Nikhil Park Royale housing project launched in 2012 at Agra whereas the Company Petition under Section 7 of the Code was filed on 12.01 2024 which is beyond the prescribed period of limitation. It was further submitted that the filing of financial statements with UPRERA does not extend the limitation period without a clear acknowledgment of liability. It was further submitted that Corporate Debtor (CD) is committed towards genuine homebuyers of the project and these proceedings are nothing but an extortion exercise which is detrimental to the interest of the genuine homebuyers. The CD has no loan from any financial institution, thus none of CD's account are NPA. Per contra, the Respondent submitted that In the present case, the limitation is a continuing one as per Section 22 of the Limitation Act, 1963, which provides that in cases of a continuing breach, limitation runs afresh with each successive instance of default. It was also submitted that in the present case, the total number of units in the project is 247, and the Answering Respondent collectively hold 34 allotted units, thereby meeting the statutory threshold. The Appellant's objection regarding the eligibility of certain allottees is without merit as the Answering Respondent satisfy the threshold requirement under Section 7(1) of the Code. It was also submitted that RC/Decree Holders Fall within the definition of Financial Creditors under Section 5(8)(f) of the Code as against the claims of the Appellant that homebuyers who have obtained Recovery Certificates (“RC”) or decrees under the RERA Act are no longer allottees and, therefore, cannot be considered as Financial Creditors for the purpose of filing an application under Section 7 of the Code. Observations: The Tribunal noted that the Supreme Court in Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal held that there is a legal requirement to prepare a balance sheet, but no obligation to make specific admissions within it. Whether an entry amounts to an acknowledgment of liability under Section 18 of the Limitation Act depends on the facts of each case and must be assessed for any caveats or qualifications. Based on the above, it held that entries in the Balance Sheet may amount to an acknowledgement of debt for the purpose of extending limitation under Section 18 of the Limitation Act and therefore don't help the cause of the Appellant.In the present case, we don't find any caveats while acknowledging the amounts due to the Allottees in statement of accounts placed on record. The Tribunal further said that the limitation period under the Limitation Act is extended in cases of continuing breach under Section 22, with each default triggering a fresh cause of action. The Corporate Debtor's failure to hand over possession or refund payments to allottees constitutes such a continuing breach. Directions by UP RERA, including the refund order , its amendment and project cancellation confirm the ongoing default. It further added that additionally, the Corporate Debtor's balance sheet dated 30.06.2022 acknowledges the debt, thereby extending limitation under Section 18. Hence, the petition filed on 09.01.2024 is within the limitation period, and the Appellant's objection on this ground cannot be entertained. The NCLAT in Sesh Nath Singh vs Baidyabati Sheoraphuli Co Operative held that while it is generally customary to file a formal application under Section 5 of the Limitation Act to seek condonation of delay, there is no legal bar preventing the Court or Tribunal from exercising its discretion to condone delay even in the absence of such an application. The Tribunal further opined that under the second proviso to Section 7(1) of the Code, an application against a real estate developer must be filed by at least 100 allottees or 10% of the total allottees, whichever is lower. In this case, with 247 units in the project and ...

Homebuyers Remain Financial Creditors U/S 5(8)(F) Of IBC Regardless Of Whether They Obtained RERA Recovery Certificates: NCLAT

Mohd Malik Chauhan

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