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...
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 34 units held by the Respondents, the threshold is met.
It further added that the Corporate Debtor's claim that some allotment letters are forged lacks supporting evidence and is misconceived. Therefore, the objection regarding the eligibility of the allottees is without merit, and the Respondents validly satisfy the statutory requirement.
The Supreme Court in Vishal Chelani v. Debashis Nanda, (2023) held that an allottee, who subsequently becomes a decree holder under the RERA Act continues to remain a Financial Creditor in the class of homebuyers and shall be governed by the threshold limit prescribed under the second proviso to Section 7(1) of the Code. The issuance of a recovery certificate does not alter the status of an allottee as a Financial Creditor.
The Tribunal further held that the allottees' deposits have not been fully refunded, and their outstanding claims exceed the Rs.1 crore threshold. The Adjudicating Authority found that the Corporate Debtor failed to provide any evidence supporting its allegation of fraudulent or malicious intent behind the proceedings.
It further added that the issuance of recovery certificates to some applicants does not bar them from initiating proceedings under the Code, provided the existence of 'debt' and 'default' is established, which is the case here.
Based on the above, it held that the mere assertion that the applicants are engaging in forum shopping or that some allotments are disputed does not meet the rigorous standard required to invoke Section 65 of the Code.
It further held that all financial liabilities and obligations incurred by M/s Nikhil Associates prior to its conversion remain binding on M/s NHA Infrabuild Private Limited. A mere change in legal structure does not absolve the Corporate Debtor of its pre-existing commitments. Section 369 of the Companies Act affirms the continuity of obligations post-conversion, and the present proceedings must be assessed accordingly.
Accordingly, the present appeal was dismissed.
Case Title: Shailendra Agarwal Versus Asit Upadhyaya and Ors.
Case Number:Company Appeal (AT) (Insolvency) No. 327 of 2025
Judgment Date: 23/04/2025
For Appellant : Mr. Abhijeet Sinha, Sr. Advocate with Mr. Anuj Tiwari, Mr. Bharat Bhusan Paul, Mr. Pawan Kumar Ray, Mr. Vaibhav Vats and Ms. Kaanchi Ahuja, Advocates.
For Respondent : Mr. Abhishek Anand, Ms. Babita Jain and Ms. Palak Kalra, Advocates. Mr. K. Kohli, Advocate for IRP.