NCLAT New Delhi- RERA Authority also has locus to challenge in appeal against CIRP initiation Order under Sec. 61 of IBC before NCLAT.

 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/

Supreme Court - Home buyers who had availed remedies under RERA, can not be treated as unsecured creditors in IBC.

 IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3806 OF 2023

VISHAL CHELANI & ORS. .....Appellant(s)

Vs.

DEBASHIS NANDA .....Respondent(s)

Date of Decision :-October 06, 2023

FACTS OF THE CASE:-

1.  The appellants are home buyers, who had opted for allotment in a real estate project of  Buland Buildtech Pvt. Ltd.
2. Aggrieved by the delay in the completion of the project, the appellants approached the UPRERA which by its orders upheld this entitlement to refund amounts deposited by the, together with interest.
3. In the meantime, by the Order dated 28.02.2023 by NCLAT, in C.A.(AT) No. 991/2022 proceedings under the Insolvency and Bankruptcy Code, 2016 were initiated.
4. A resolution plan was presented to the adjudicating authority. In that plan, 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 favor, and those who did not do so.
5. Home buyers who did not approach authorities under RERA Act were given the benefit of 50% better terms than that given to those who approached RERA or who were decree holders.
6. The appellants felt aggrieved as their applications were rejected by the NCLT and their appeals in NCLAT too was unsuccessful. Consequently, they approached the Supreme Court.  

Contentions of appellants

1. with regard to the definition of financial debt [Section 5(8)(f)] which was amended in 2018 after which home buyer allottees in real estate projects also fell within the broad description of financial creditors, so A distinction cannot be made between one set of such home buyer allottees and another.

Contentions of defendants

1. the appellants cannot be permitted to secure two benefits. 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. It is submitted that such home buyers relinquished their rights under Section 18 of the RERA Act.

QUESTION OF LAW

1. The main issue before the Court was whether such a classification, differentiating between home buyers who sought relief under RERA and those who did not, could be upheld. In essence, the question was whether RERA-allotted financial claims should be treated differently from those not claiming relief under RERA in insolvency proceedings.

COURT'S FINDINGS

1. The Court is unpersuaded by the submission of the Resolution Professional’s view 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.
2. 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.
3. 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.
4. In view of the foregoing reasons,  appeal was allowed in the above terms and the impugned order is hereby set aside; the appellants are declared as financial creditors within the meaning of Section 5(8)(f) (Explanation) and entitled to be treated as such along with other home buyers/financial creditors for the purposes of the resolution plan.

Whether a Home Buyer individually oppose to Resolution Plan when the Home Buyers as a class has voted by a majority in favour of the Plan – Jyotsna Kailash Veera Vs. Mr. Manish Motilal Jaju – NCLT Mumbai Bench ONJULY 21, 2023

 Whether a Home Buyer individually oppose to Resolution Plan when the Home Buyers as a class has voted by a majority in favour of the Plan – Jyotsna Kailash Veera Vs. Mr. Manish Motilal Jaju – NCLT Mumbai Bench

ONJULY 21, 2023

The Adjudicating Authority held that in the light of what has been held by the Hon’ble Supreme Court in the Jaypee Kensington Boulevard Apartments Vs. NBCC (India) Limited and others (2021) ibclaw.in 63 SC it becomes abundantly clear that Home Buyers can vote for or against the Plan only as a class and if there are some Home Buyers pitted against the Resolution Plan, who are otherwise in minority, absolutely no locus to oppose the Plan in the capacity of dissatisfied Home Buyers. It is also abundantly clear that such dissenting minority segment within the class of Home Buyers cannot arrogate themselves to be dissenting Financial Creditors. That being the legal position, which is explained in unequivocal terms by the Hon’ble Supreme Court in Jaypee Kensingtons case, in our considered view, any objection raised by the socalled minority Home Buyers raising objection against the Plan, which have been approved by them as a class, cannot be entertained and are liable to be rejected at the very threshold without going through the merit of such objections

Supreme Court : the banks had failed to comply with their duties, and had in fact colluded with the developer in committing a fraud on the home buyers, and breaching public trust.

 Bikram Chaterjee vs. Union of India, [2018]147 SCL 154 wherein the Apex Court took cognizance of the fact that the banks had failed to comply with their duties, and had in fact colluded with the developer in committing a fraud on the home buyers, and breaching public trust. It may be useful to refer to paragraphs 69 and 127 of the judgement, which reads as under-

“69. In the instant matter, the question of larger public importance is involved. It is a shocking and surprising state of affairs that such large scale cheating has taken place and middle and poor class home buyers have been duped and deprived of their hard-earned money and lifetime savings and some of them had taken a loan from the bank and they are not getting houses. Bank has made payment to the builder, owners have the liability of making payment of amount with interest, homebuyers are still waiting for their dream houses to be completed.

127. The Forensic Auditors’ report makes it apparent that Bankers have failed to ensure and oversee that the money was invested in the projects. It was diverted elsewhere as rightly found by the Forensic Auditors. Even what was paid by the home buyers, had not been used in the projects and stands diverted. There was, in fact, no necessity for raising the loans from the bank. The money borrowed from banks was used to create other assets worth thousands of crores. Thus, the banks can realise their money from those assets  and from guarantors and not from the investment of home buyers, not from the buildings in which loans granted by banks have not been invested, which have been erected partially or some are at the nascent stage, for which hard- earned money has been paid by the home buyers”

Delhi High Court : The Bank has disbursed the loan amount to the builder, and in these circumstances, it remains to the seen as to whether, or not, the petitioner is at all liable.

 Hirdesh Kumar Pathak v Bank of Maharashtra WP (C) 6774/2021 Delhi High Court

“In our view, prima facie, it appears that the petitioner has been taken for a ride by the builder and it is not the petitioner, who has received the loan amount. The Bank has disbursed the loan amount to the builder, and in these circumstances, it remains to the seen as to whether, or not, the petitioner is at all liable. Moreover, the Resolution Plan appears to be on force and there would be no justification to subject the petitioner to the ongoing proceedings before the DRT at this stage. We, accordingly, stay further proceedings in O.A No. 166/2019 pending before the DRT-II, Delhi, till further orders.”

RBI circular dated 01.07.2015, pertaining to the issue of subvention schemes or “innovative housing loan schemes”

RBI circular dated 01.07.2015, pertaining to the issue of subvention schemes or “innovative housing loan schemes”. Paragraph 3 (d) (e) and (f) of the same which read as under:

“(d) It has been observed that some banks have introduced certain innovative Housing Loan Schemes in association with developers / builders, e.g. upfront disbursal of sanctioned individual housing loans to the builders without linking the disbursals to various stages of construction of housing project, Interest/EMI on the housing loan availed of by the individual borrower being serviced by the builders during the construction period/ specified period, etc. This might include signing of tripartite agreement between the bank, the builder and the buyer of the housing unit. These loans products are popularly known by various names like 80:20, 75:25 schemes

Such housing loan products are likely to expose the banks as well as their home loan borrowers to additional risks e.g. in case of dispute between individual borrowers and developers/builders, default/ delayed payment of interest/ EMI by the developer/ builder during the agreed period on behalf of the borrower, non-completion of the project on time etc. Further, any delayed payments by developers/ builders on behalf of individual borrowers to banks may lead to lower credit rating/ scoring of such borrowers by credit information companies (CICs) as information about servicing of loans get passed on to the CICs on a regular basis. In cases, where bank loans are also disbursed upfront on behalf of their individual borrowers in a lump-sum to builders/ developers without any linkage to stages of constructions, banks run disproportionately higher exposures with concomitant risks of diversion of funds.

Banks are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project / houses and upfront disbursal should not be made in cases of incomplete /under-construction / green field housing projects.”

Supreme Court of India -Charge of the money paid by the home buyers must be treated as the highest priority.

in the matter of Bikram Chatterjee and others vs. Union of India and others in Writ Petition (C) No.940 of 2017 and other connected matters, (MANU/SC/0947/ 2019) The Apex Court held that charge of the money paid by the home buyers must be treated as the highest priority. It also held that "the public trust doctrine enshrined under Article 21of the Constitution of India is very much applicable upon the authorities and a duty is cast upon them to act fairly and reasonably in order to promote the public good and public interest."

RERA has superseding powers on Directorate of Enforcement as far as protection of homebuyer rights are concerned

 Before Ld. RERA Rajasthan:

Hydepark landowners association V. Adarsh Buldestate Ltd. (ABL)and others Complaint No. RAJ-RERA-C-201 9-31 69

The Authority has ruled that RERA has superseding powers on Directorate of Enforcement as far as protection of homebuyer rights are concerned;

it has Also ruled that valuation of “proceeds of crime” connected to a project cannot be more than actual amount invested towards the construction. Such a valuation can be arrived at through a government approved valuer by already legally settled principles of calculation methodology.

The Complete order can be seen at 

https://rera.rajasthan.gov.in/Content/pdf/29352019-3169%20merged_compressed.pdf

Maharashtra Real Estate Regulatory Authority (MahaRERA) has refused to differentiate between an investor in a housing project and a homebuyer

 The Maharashtra Real Estate Regulatory Authority (MahaRERA) in the matter of Kamal Aggarwal V/s Sakla Enterprises Complaint No. CC006000000171603 has refused to differentiate between an investor in a housing project and a homebuyer and has directed a developer to honour contractual obligations.

Complete order can be seen at 

https://media-exp1.licdn.com/dms/document/C561FAQHuOUtaDbRVDA/feedshare-document-pdf-analyzed/0/1610797082012?e=1618682400&v=beta&t=4MhyLgKZFWL_FzuePp0A6QXc8nKPXC50OMKONxECUKw