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Synopsis

The Supreme Court has held that home buyers and allottees of real estate projects are included in the class of “financial creditors” under the Insolvency and Bankruptcy Code and they can't be treated differently just because they approached Real Estate Regulatory Authority.

A bench of Justices S Ravindra Bhat and Aravind Kumar rejected the Resolution Professional’s contention that once an allottee seeks remedies under RERA, and opts for return of money in terms of the order made in her favour, it is not open for her to be treated in the class of home buyer. 

"This court is unpersuaded by the submission. It is only home buyers that can approach and seek remedies under RERA- no others. In such circumstances, to treat a particular segment of that class differently for the purposes of another enactment, on the ground that one or some of them had elected to take back the deposits together with such interest as ordered by the competent authority, would be highly inequitable," the bench said.

The court set aside the National Company Law Appellate Tribunal's decision which ruled that as beneficiary of a decree by the Uttar Pradesh Real Estate Regulatory Authority, the order of the Resolution Professional proposing that they be treated differently from other home buyers allottees, did not call for interference.

The bench said that such a distinction is "artificial", amounts to “hyper-classification” and falls afoul of Article 14 of the Constitution. 

The appellants here were home buyers, who had opted for allotment in a real estate project of the respondent company of “Bulland Buildtech Pvt Ltd”. Aggrieved by the delay in the completion of the project, they approached the Uttar Pradesh RERA which by its orders upheld their entitlement to refund amounts deposited by them together with interest. 

Separately, when IBC proceedings were initiated, in the resolution plan presented before the adjudicating authority, a distinction was made between home buyers, who had opted or elected for other remedies such as i.e. applying before the RERA and having secured orders in their favour, and those who did not do so. 

Therefore, some buyers who did not approach authorities under RER Act were given the benefit of 50% better terms than that given to those who approached RERA or who were decree holders. 

The appellants approached the top court after their applications were rejected by the adjudicating authority and subsequent appeals too.

The resolution professional resisted the appeal contending that the appellants couldn't be permitted to secure two benefits. It contended that having approached the UPRERA, they fell into a different sub-class of home buyers, who were entitled to specified amounts and, therefore, were unsecured creditors, as compared with allottees who had not invoked RERA remedies. Such home buyers relinquished their rights under Section 18 of the RERA Act. 

The appellants referred to Section 5(8)(f), amended in 2018, after which home buyer allottees in real estate projects also fell within the broad description of financial creditors and said that a distinction could not be made between one set of such home buyer allottees and another. 

Agreeing to the contention, the bench agreed to the view taken by the Mumbai Bench of National Company Law Tribunal in case of Natwar Agarwal (HUF) case that the underlying claim of an aggrieved party is crystallized in the form of a court order or decree and that does not alter or disturb the status of the concerned party - in the present case of allottees as financial creditors.

"Furthermore, Section 238 of the IBC contains a non obstante clause which gives overriding effect to its provisions. Consequently its provisions acquire primacy, and cannot be read as subordinate to the RERA Act. In any case, the distinction made by the R P is artificial; it amounts to “hyper-classification” and falls afoul of Article 14 of the Constitution. Such an interpretation cannot therefore, be countenanced," the bench said.

Case Title: Vishal Chelani & Ors Vs Debashis Nanda