NCLAT New Delhi- Association of the home-buyers of Real Estate Project is aggrieved person within the meaning of Section 61 of the Code.

 IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

Principal Bench, New Delhi

Real Estate Regulatory Authority

v.

D.B. Corp Ltd. & Anr.

Company Appeal (AT) (Insolvency) No. 1172-1173 of 2022 with 1321 of 2022

Decided on 08-Dec-23

Brief about the decision:

Facts of the case

• Corporate Debtor entered into Barter Agreement with Operational Creditor for extensive advertising campaign of its projects. Pursuant to the Agreement, the Operational Creditor was to publish Advertisement for consideration which included cash component and Barter Component. The Cash Component against the advertising was to the paid and the Barter Component was to be utilized in form of allotment of units which were required to be transferred in favour of the Operational Creditor.
• The RERA received various complaints from allottees of the Corporate Debtor, which complaints were entertained and various orders related to different projects were passed in the year 2020-21 directing the Corporate Debtor to refund the amount along with compensation to various complainants. RERA also passed an order on 18.08.2021 under Section 35 of the RERA Act, 2016 to investigate about the diversion of funds from the designated account.
• Orders were also passed on 23.03.2022 by RERA revoking the registration of real estate project ‘Aakriti Business Arcade’ and directing for appointment of an agency for completion of the said project under Section 8 of the RERA Act, 2016.
• An application under Section 9 was filed by the Operational Creditor before the Adjudicating Authority on 02.02.2022 claiming default of operational debt of Rs.10,77,17,000/- with interest consequent to the Barter Agreement entered between the Operational Creditor and the Corporate Debtor and same has been admitted by Adjudicating Authority (NCLT), Indore Bench, Court No.1.
• Appellants herein Regulatory Authority(RERA) constituted under Section 20 of the RERA Act, 2016, Interim Resolution Professional and Aquacity Consumer and Societies Welfare Society’ which claim to be association of 74 homebuyers have challenged the CIRP admission order under Sec. 9 of IBC of NCLT.
• The Appellant, Aquacity Consumer and Societies Welfare Society claiming to be a society of homebuyers claimed to have filed two consumer complaints under Section 12(1)(b) of the Consumer Protection Act, 1986 for its members/homebuyers. The NCDRC allowed both the Consumer Complaints and directed the Corporate Debtor to refund the amount collected from the homebuyers along with interest of 9% pa from the date of possession. Civil Appeals were filed before the Hon’ble Supreme Court by the Appellant Association for modification of the order of NCDRC to the extent that the interest should be from the date of payment and not from the date of possession. In the Appeals notices were issued.

Decision of the Appellate Tribunal

A. Question No. I: Whether RERA has locus to challenge CIRP admission order before NCLAT?

• Section 61 of the Code, 2016 provides for an Appeal by “any person aggrieved by the Order of the Adjudicating Authority”. Section 61, sub- Section (1) uses the expression “any person aggrieved”.(p12)
• RERA is a statutory authority under Section 20 sub-section (2). RERA is a body corporate and is entitled to sue or to be sued in its name. RERA is thus fully competent to sue in its name. Question of locus to file an Appeal as an aggrieved person and the question as to whether appeal filed by the aggrieved person is to succeed, are two different questions and the question of locus is not dependent on success of the grounds in the Appeal.(p18)
• In the present case the RERA has taken various actions against the Corporate Debtor and various orders passed by RERA were to be complied by the Corporate Debtor and it was only due to continuation of CIRP against the Corporate Debtor that RERA could not have proceeded further to initiate compliance of its order.(p23)
• NCLAT in paragraph 6 of the judgment in IBBI v. GTL Infrastructure & Ors. (2023) ibclaw.in 110 NCLAT took the view that IBBI has nothing to do with the litigation between two parties i.e. Financial Creditor and Corporate Debtor whereas in the present case the RERA who had already issued various orders against the Corporate Debtor has to do with the corporate debtor and was directly involved with the enforcement of the RERA Act qua the Corporate Debtor hence the judgment in the case of IBBI (supra) is clearly distinguishable.(p23)
• In view of the sequence and events of the facts which took place and various proceedings drawn by RERA much prior to issuance of notice under Section 8 of the Code by the Operational Creditor, we are satisfied that Appeal filed by the RERA cannot be thrown out on the ground of locus. The RERA held to be aggrieved person within the meaning of Section 61 of the Code.(p25)
• Thus, the Question No. I has to be answered in affirmative holding that RERA has locus to file Company Appeal (AT) Ins. No. 1172-1173 of 2022.(p26)

B. Question No. II Whether Aquacity Consumer and Societies Welfare Society has locus to file Appeal within the meaning of Section 61 of the Code?

• Appellant being association of the home-buyers of Real Estate Project who has already initiated proceedings for direction of the interest of the home-buyers is aggrieved person within the meaning of Section 61 of the Code and the Appeal filed by the Appellant cannot be dismissed on the ground of locus.(p27)
• NCLAT answers Question No. II in affirmative holding that Aquacity Consumer and Social Welfare Society has a locus to file an Appeal under Section 61 of the Code against the Order dated 05th August, 2022.(p28)

C. Question No. III Whether Barter Transaction falls under definition of Operational Debt under IBC?

• There are nine Barter Agreements between the parties beginning from 29.09.2010 and last being 13.08.2019. Barter Agreement is entered between DB Corporation Ltd. and AG8 Ventures Ltd. which is executed on stamp duty of Rs. 1000.(p32)
• From the definition of claim under Section 3(6) of IBC it is clear that both sub-clause ‘(a)’ and ‘(b)’ refers to “a right to payment”. The claim must subsist for a debt being debt to become operational debt must relate to a right to payment unless operational creditor has a claim i.e. a right to payment against the corporate debtor, no operational debt can arise to enable Operational Creditor to initiate proceeding under Section 9 of the Code.(p41)
• The claim of Section 8 and Section 9 also indicates that proceedings under Section 9 by Operational Creditor can be initiated for payment of unpaid operational debt. Section 8(1) uses expression “demanding payment of the amount involved in the default” whereas Section 8(2)(b) uses the expression “the payment of unpaid operational debt” thus non-payment of operational debt is sine qua non for giving any demand notice under Section 8 of the Code leading to Section 9 also makes it clear that after the expiry of period of 10 days from the date of delivery of notice, sub-section 1 of Section 8 of the Code states if the Operational Creditor does not receive payment from the Corporate Debtor, operational Creditor may file an application for initiating a CIRP, thus not receiving the payment from the Corporate Debtor is a condition precedent for initiating Section 9 Application.(p41)
• Hon’ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association and Ors. NBCC (India) Ltd. & Ors. (2021) ibclaw.in 63 SC held that expression payment only refers to the payment of money and not anything of its equivalent in nature of Barter; when construing the same expression of payment in Section 30(2), the Hon’ble Supreme Court has held that payment refers only to payment of money and not anything of its equivalent in the nature of Barter, the same interpretation has to be put to Section 8 and 9 also of the Code.(p47)
• There was no operational debt due on the corporate debtor on which operational creditor can claim payment of money from the corporate debtor to enable it to issue a demand notice under Section 8 or to file Section 9 Application before the Adjudicating Authority. Entire initiation of proceedings under Section 9 by the Operational Creditor is contrary to the scheme of IBC and no payment of money was due on the corporate debtor on basis of which unpaid dues any proceedings under Section 9 can be initiated.(p49)
• On the basis of Barter Agreement and consequent invoices, non-discharge of Barter Component by the Corporate Debtor shall not lead to any operational debt on basis of which payment of money can be demanded by the Operational Creditor from the Corporate Debtor. No operational debt was owed to the Operational Creditor in the facts of the present case hence initiation of proceedings under Section 9 by the Operational Creditor was contrary to the provisions of the IBC.(p50)

D. Question No. IV & V

• While considering Question No III it has already been held that there was no Operational Debt due on the Corporate Debtor and the proceedings initiated by the Operational Creditor being wholly outside Section 8 and 9 of the Code, no necessity to enter into Question No. IV & V for the purpose of the present case.(p51)

E. Conclusion

NCLAT concludes that:

• Application filed under Section 9 by the Operational Creditor alleging Operational Debt was non-maintainable since there was no operational debt on basis of which payment of money could have been demanded by the Operational Creditor from the Corporate Debtor on account of non-discharge of Barter Component by the Corporate Debtor. At best, the Applicant was entitled for claiming allotment of units as per the Barter Agreement between the parties for which it was open for the Operational Creditor to take such remedy as permissible.(p52)
• However, Section 9 Application was clearly not maintainable, the Adjudicating Authority committed error in admitting Section 9 Application without adverting to the real nature of the transaction between the parties, which is the very basis of the Section 9 Application, the Order of the Adjudicating Authority just is unsustainable.(p52)
• In result, we allow both the appeals, set aside the Order dated 05th August, 2022 admitting Section 9 Application. Both the Appeals having been allowed, no orders are necessary in different IAs, as noted above. The IAs are disposed of. Parties shall bear their own costs.(p53)

Source :- https://ibclaw.in/real-estate-regulatory-authority-v-d-b-corp-ltd-anr-nclat-new-delhi/

Once registration of the Real Estate project lapses on non-completion of project or on revocation,the Authority is enjoined upon the duty to consult with the appropriate Government to take such action as it may deem including the carrying out of the remaining development works by competent authority or by the association of allottees or any other manner

 In the Matter of  Bikram Chatterji vs Union Of India Complaint no. WRIT PETITION (C) NO.940/2017 decided on  23.07.2019 before Supreme Court of India

The Supreme Court Observed that

112. Once registration lapses on non-completion of project within the time stipulated or it is revoked the consequence ensue as enumerated in Section 8 of RERA, the Authority is enjoined upon the duty to consult with the appropriate Government to take such action as it may deem including the carrying out of the remaining development works by competent authority or by the association of allottees or any other manner as may be determined by the Authority. The development work has to be completed and cannot be left in between. Section 8 reads thus;

“8. Obligation of Authority consequent upon lapse of or on revocation of registration.- Upon lapse of the registration or on revocation of the registration under this Act, the Authority, may consult the appropriate Government to take such action as it may deem fit including the carrying out of the remaining development works by competent authority or by the association of allottees or in any other manner, as may be determined by the Authority:

Provided that no direction, decision or order of the Authority under this section shall take effect until the expiry of the period of appeal provided under the provisions of this Act:

Provided further that in case of revocation of registration of a project under this Act, the association of allottees shall have the first right of refusal for carrying out of the remaining development works.”

Even if the Project is completed with occupancy Certificate and does not require Rera Registration, even then the Promoter is bound by the responsibilities assigned under the act.

In the Matter of Raghunath MS vs. Esteem Group Complaint no. CMP/180620/0000936  decided on 14.11.2019 before  Karnataka Real Estate Regulatory Authority

In this case, the project was completed and conveyed to the association of allottees prior to the commencement of the Act. The allottee had purchased the unit from an erstwhile allottee. The developer contended that since the project was completed before the commencement of the Act and the occupancy certificate was obtained, they cannot be bound by the provisions of the Act. Referring to the Preamble of the Act, Karnataka RERA held that even if the project was completed prior to the commencement of the Act, the developer is bound by the provisions of the Act. Accordingly, Karnataka RERA directed the developer to hand over all documents and execute a registered deed to include civic amenities in favour of the association of allottees.

MahaRERA directed the Complainant to form the association of allottees and initiate the revocation under section 7 of RERA, The Respondent Builder to provide the Allottee Data to the Complainants.

 In the Matter of Parkaj Vrailal Mehta & others Vs. Shree Adiraj Laxmi Builders Pvt. Ltd Complaint no.CC006000000012158 decided on 11.09.2019  before Maharashtra Real Estate Regulatory Authority

MahaRERA through its order dated 11th September 2019 directed promoter ―Shree Adiraj Laxmi Builders Pvt. Ltd‖ (Maha RERA Reg. No. P51700013358)

to enable the allottees to form an association of allottees (AOA) so the decision for initiating section 7 i.e. revocation of the project may be taken by them.

 Allottees of the project ―Adiraj Crystal‖ situated at Ambernath, Thane filed various complaints stating that the Respondent has failed to execute and register the agreements for sale, complete the Project and hand over possession. During the proceeding of the case it was found/declared that the project registration has lapsed. Further, the construction work of the project could not be completed because of reasons which were beyond the promoter‘s control. 

Authority directed the Respondent to handover the list of allottees of the said project, along with their contact details, to the Complainants within 30 days from the date of this Order, to enable the allottees to take an informed decision Pertaining to the said project and if the association of allottees may like to Proceed for revocation under Section 7/8 of the Act. 

The Respondent may seek the approval of the association of allottees for order under Section7(3)

In the similar Matter of Milind Dhande & others Vs. Housing Development and Infrastructure Ltd. Complaint no.CC006000000055794 decided on 06.08.2019 before Maharashtra Real Estate Regulatory Authority

MahaRERA ordered the Respondent to handover the list of allottees of the project ―Whispering Towers EFG Wings‖ to Association of allottees so that decision regarding revocation of registration under Section 7 of the RERA Act can be taken by them. 

Facts 

1. The Complainants have booked apartments in the project 'Whispering Towers EFG Wings' situated at Kurla, Mumbai via registered agreements for sale. The Complainants have alleged that the date of possession as stipulated by the said agreements has already been lapsed. Therefore, they prayed that since the Respondent has failed to hand over the possession of the apartments within the stipulated period, they be directed to pay interest, on delay or refund the amounts paid as per the provisions of section 18 of the Real Estate (Regulation and Development) Act, 2016. 

2. The Authorized representative for the Respondent explained that the construction work of the project could not be completed because of reasons which were beyond the Respondent's control. Specifically, he submitted that the due to financial constraints and unpaid dues of the Planning Authority and various Banks, which has extended project loans, the project has got stalled. 

3. In Complaint no. CC006000000056289, the Respondent had submitted that he is in advanced talks with another promoter/ financer and commits to revive and restart the project by April, 2019 and complete the project with occupation certificate by December 30, 2020. 

4. Since the Respondent has failed to revive the project by April, 2019 as committed, the association of Allottees may be proceeded with revocation of registration of the project under Section 7 of the RERA Act. 

5. In view of the above facts, the Respondent is directed to handover the list of Allottees of the said project, with contact details, to the Complainants within 30 days from the date of this Order, to enable the Allottees to take a decision pertaining to the said project and whether the association of Allottees may like to proceed with revocation of registration under Section 7 of the Act or not. 

6. The Respondent may seek the approval of the association of allottees for order under Section 7(3) of the said Act, as per MahaRERA Order no 7/ 2019 dated February 8, 2019 on Revocation of Registration of Project for reviving and completing the said project.