NCLAT Upholds Status Of Canara Bank As Financial Creditor For Providing Loans To Homebuyers Of CD, Distinguishes Value Infracon Judgment

The NCLAT New Delhi bench of Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Technical Member) upholds the claims of the Canara Bank for the loans advanced to the corporate debtor on behalf of the Homebuyers on the ground that a specific clause was mentioned in the tripartite agreement executed between the parties that in case of default made by the borrower, the builder was obligated the refund the entire amount to the bank. The tribunal distinguished the Value Infracon judgment from the present case wherein it was held that the bank that had advanced loans on behalf of the homebuyers could not be classified as a financial creditor. Brief Facts: Canara Bank has filed this appeal against an order passed by the NCLT by which an application filed against rejection of its claim by the RP was dismissed. The Bank had filed claims on behalf of other homebuyers which were rejected by the RP on the ground that only individual homebuyer could file claim and the bank lacked authorisation to file claims on behalf of other homebuyers. It is argued by the bank that the bank acted in good faith and filed claims on behalf of other homebuyers who could not navigate the complex insolvency process. Contentions: The appellant submitted that under the tripartite agreement, the Corporate Debtor/Builder was required to refund the entire amount advanced by the bank in case of default, making the appellant a Financial Creditor under Section 5(8) of the IBC. It was further contended that the appellant holds a DRT decree against 18 out of the 32 accounts claimed, as well as against the Corporate Debtor, further strengthening its position as a creditor under Section 3(10) of the IBC, which includes decree-holders. It was also argued that the agreement specifically obligated the Corporate Debtor to indemnify the bank in case of default, and argued that, just as a guarantor inherits the financial liability of the principal borrower, its claim also qualifies as financial debt. Refuting the submissions, the respondent placed reliance on Axis Bank Limited vs. Value Infracon India Private Limited & Anr (2020) , wherein it was held that Bank can't be treated as Financial Creditor in real estate project and it is only Homebuyers who are to be considered as the Financial Creditor as a class. In view of the above judgment, it was submitted that the Appellant cannot be classified as a Financial Creditor with respect to the loans extended to homebuyers for the purpose of financing the allotment of flats in the AVJ Heights project of the Corporate Debtor. It was argued that as the appellant failed to register the security interest with the ROC within 30 days under section 77 of the companies act, prior lien on the properties cannot be claimed. The appellant cannot also claim status of a financial creditor based on the DRT decrees as they were passed disregarding laws prevailing. The tripartite agreement states that the primary responsibility to repay the amount lies with the homebuyers thereby negating any responsibility of indemnification on part of the CD. Observations: The tribunal noted that amendment which allowed the allottees to initiate insolvency proceedings as financial creditors was challenged before the Supreme Court in Pioneer Urban Land and Infrastructure Limited & Anr. Vs. Union of India & Ors(2019) where the court while upholding the constitutionality of the amendment held that the amendment was merely explanatory as allottes were already included within the scope of Section 5(8)(f) and no new rights were created. It further added that the order of the Supreme Court of India is very categorical and clear there that the amendment in the Code was made to make homebuyers as Financial Creditors to the extent of money invested by them in buying the concern dwelling units whether financed from to its own source or from borrowed money through banks. The tribunal opined that “as per amendment in the Code as well as in the judgment of the Hon'ble Supreme Court of India, there is hardly any scope for the lenders/ banks who gave loan to the homebuyers to be treated as Secured Financial Creditor and consequently find place in this CoC.” In Value Infracon India Private Limited, the bank had advanced loans to the homebuyers of the corporate debtor on the basis of which it sought to be declared as a secured financial creditor with representation in the CoC. In this context, it was held that the bank could not be classified as a financial creditor as the loan in question was advanced to the Homebuyers and not the corporate debtor. It noted that however, in the present case, the facts are different which can be discerned from the perusal of the tripartite agreement clauses. This agreement explicitly provided that in case of loan default by the borrower, failure by the builder, non-transfer of the dwelling units ...

NCLAT Upholds Status Of Canara Bank As Financial Creditor For Providing Loans To Homebuyers Of CD, Distinguishes Value Infracon Judgment

Mohd Malik Chauhan

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