NCLAT Delhi: Assured Returns Class Of Creditors Allotted Commercial Space/Unit Constitutes 'Allottee' Under RERA And IBC

The National Company Law Appellate Tribunal (“NCLAT”) New Delhi bench comprising Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra, and Mr. Arun Baroka (Technical Members) held that assured returns class of creditors who are allotted commercial space/unit constitutes an 'allottee' under Real Estate (Regulation and Development) Act, 2016 (“RERA”) and Insolvency and Bankruptcy Code, 2016 (“IBC”). Background Facts: Orris Infrastructures Pvt Ltd. (Corporate Debtor) entered into a Memorandum of Understanding (“MoU”) with Rita Malhotra and Bina Chopra (Appellants) during the development of the commercial building. The MoU provided that Monthly Assured Return (“MAR”) payments shall be made to the Appellants which shall continue for 36 months after the building's completion or until the office space was leased out, whichever was earlier. The Appellants paid the full consideration of Rs.29.98 lakhs and fulfilled their part of the MoU. However, the Corporate Debtor neither completed the building nor leased out the office space. Consequently, the Corporate Debtor failed to make the MAR payments, leading to default notices being issued. Following continued non-payment, the Appellants filed a Corporate Insolvency Resolution Process (“CIRP”) petition under Section 7 of IBC before NCLT New Delhi which was later withdrawn on account of a Settlement Deed. However, when the post-dated cheques from the Settlement Deed were dishonored, the Appellants filed a fresh Section 7 application. Another Settlement dated 06.03.2019 was reached between the parties leading to the dismissal of the Section 7 application with the option to revive the petition in case of default. Following further defaults, the Section 7 application was revived. The Corporate Debtor provided two bank drafts to the Appellants to settle the dues under the MoU. The Appellants did not encash these drafts, as the amounts were insufficient to cover the total financial debt owed by the Corporate Debtor. However, NCLT New Delhi via its Order dated 19.09.2023 dismissed the CIRP application under Section 7 of IBC which the Appellants sought to revive. The Appellants have challenged the said Order before the NCLAT. Contentions of the Appellants: The Appellants argued that the CIRP application was filed by them for the accumulated and ongoing debt under the MAR Plan and that the said application was based on the MoU and not their status as allottees of the building project. Further, they contended that the MAR Plan was separate from the terms of the allotment, making the investment arrangement distinct. The Appellants relied upon the decision in Nikhil Mehta and Sons vs. AMR Infrastructure Ltd, which observed that recipients under similar assured return schemes are Financial Creditors per the agreement, independent of their allottee status. Therefore, they contended that the existence of an assured return clause justified initiating CIRP under Section 7 of IBC on the default by the Corporate Debtor. NCLAT Verdict: The NCLAT Delhi dismissed the appeal and held that the assured returns class of creditors who are allotted commercial space/unit constitutes an 'allottee' under the Real Estate (Regulation and Development) Act, 2016 (“RERA”) and Insolvency and Bankruptcy Code, 2016 (“IBC”). The Appellate Tribunal observed that after the Amendment Act 1 of 2020 to the IBC, the threshold requirement to initiate CIRP under Section 7 of IBC requires the application to be filed jointly by at least 100 allottees of the same real estate project or at least 10% of the total allottees, whichever is less. It analyzed that the second proviso of Section 7(1) of IBC provides for financial creditors who are 'allottees' under a real estate project, however, the term 'allottees' is not defined under IBC. It noted that the definitions of 'allottee' and 'real estate project' have been provided under RERA and therefore, as per Explanation (ii) to Section 5(8)(f) of IBC, the same interpretation applies to 'allottee' under IBC as well. NCLAT observed that NCLT New Delhi was correct in holding that a commercial space/unit allotted to the Assured Returns Class of Creditors falls under the ambit of 'allottee' in RERA and IBC as well. It pointed out that the Appellant's reliance on its decision in Nikhil Mehta and Sons vs. AMR Infrastructure Ltd is incorrect since the decision nowhere observed that the assured returns class of creditors in a particular project does not fall under the definition of 'allottees'. NCLAT noted that based on the affidavit of the Corporate Debtor, there are 504 allotted units in the building project, with 366 falling under the Assured Returns Class. It pointed out that therefore, the Appellants, being part of this class, shall comply with the threshold limit prescribed under the second proviso to Section 7(1) of IBC. NCLAT ruled: The Appellants cannot be said to...

NCLAT Delhi: Assured Returns Class Of Creditors Allotted Commercial Space/Unit Constitutes 'Allottee' Under RERA And IBC

Sachika Vij

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