This article talks about the rights which are available to the flat buyers under IBC after commencement of CIRP against the builder.
HOMEBUYERS AS FINANCIAL CREDITORS
The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 inserted an Explanation under Section 5(8) (f) which clarified that payments made by an allottee under a real estate project would be deemed to be a financial debt i.e. a homebuyer will be considered as a financial creditor.
However, this was already held in the Nikhil Mehta & Sons (HUF) & Ors. v. AMR Infrastructures Ltd case that investors who had been promised an “assured return” by real estate companies would fall within the category of financial creditors since the monies owed to them is ‘debt’ as defined under Section 3(11) of the IBC. Homebuyers, therefore, were considered as financial creditors in those cases where assured returns were guaranteed.
After which the supreme court in its various judgments granted reliefs to the homebuyers. Few of them are as follows-
The Hon’ble Supreme Court in the Unitech Residential Resorts case directed for the deposition of Rs. 17 crores by Unitech, to the respondents who had been waiting for over seven years for the flats. On the same lines, in another case, the Supreme Court asked Jaypee Associates to pay ten Homebuyers Rs 5 lakh each, who received their flats with the delay of 5 years.
MEANING OF WORD DEFAULT IN CASE OF REAL ESTATE PROJECT UNDER IBC
In the case of Anil Kumar Tulsiani v. Rakesh Kumar Gupta NCLAT observed that allottee cannot allege default on the part of Corporate Debtor if the allottee does not pay the whole amount. Whereas, when the Corporate Debtor did not complete the work within time and the allottee has been agreeing to pay the total amount or has already paid the whole amount, the default can be alleged by the allottee. Again, the allottee can claim the default on the part of the Corporate Debtor when he finds that the project has not been completed by the Corporate Debtor on time and on the failure to refund the amount paid to the Corporate Debtor.
In the case of Alka Agarwal Vs. Parsvanath landmark Developers Pvt. Ltd and Neeraj Gupta Vs. Emmar MGF Land Ltd the Principal Bench of the NCLT held that a delay in handing over a residential unit will amount to default as defined under the Code.
REMEDIES UNDER OTHER ACT ALONG WITH IBC
In Pioneer Urban Land and Infrastructure Limited v. Union of India, it was explicated that the Homebuyers can invoke the remedies under the CPA and the RERA along with IBC, 2016.
Also, the Delhi high court relying on the above judgement in M/s M3M India Pvt. Ltd. v. Dr Dinesh Sharma and Anr case held that-
“remedies available to the Homebuyers under the CPA and RERA are concurrent, and there is no ground for interference with the view taken by the NCDRC in these matters. In case of conflict arises between the RERA, CPA and the IBC, the IBC would prevail.”
RIGHTS OF THE HOME BUYERS AFTER COMMENCEMENT OF CIRP-
As stated above the homebuyers are covered under the definition of the financial creditors hence they have the same rights as the financial creditors such as to be a member in the committee of creditors, participation and voting rights in the meeting, participation in the distribution of assets. However, as the RPs and home allottees do not possess such technical expertise and knowledge which are required for managing the affairs of the corporate debtor and to ascertain the vaiability of the business during the moratorium period by the financial creditors which various other creditors such as banks, FIs have. After initiation of the CIRP, it is the duty of the RP to keep the company a going concern. In the case of a real estate infrastructure company to keep the company going concerned, the flats/ apartments are to be completed. This issue was addressed by the NCLAT in the case of Flat Buyers Association Vs.Umang Realtech Pvt. Ltd through IRP & Ors.
In this case following observations and judgements were held by the NCLAT-
1) The concept of Reverse CIRP was introduced in this case in which the Promoter will remain outside the CIRP but will play the role of a Lender (Financial Creditor) to ensure that the CIRP reaches success and the allottees take possession of their flats/apartments during the CIRP without any third party(Resolution applicants) intervention.
2) CIRP against a real estate company (Corporate Debtor) is limited to a project as per approved plan by the Competent Authority and not other projects which are separate at other places for which separate plans are approved. FOR EXAMPLE- If the same real estate company (Corporate Debtor herein) has any other project in another town such as Delhi or Kerala or Mumbai, they cannot be clubbed together nor the asset of the Corporate Debtor (Company) for such other projects can be maximise.
3) ‘Secured Creditor’ such as ‘financial institutions/ banks, cannot be provided with the asset (flat/apartment) by preference over the allottees (Unsecured Financial Creditors) for whom the project has been approved. Their claims are to be satisfied by providing the flat/apartment. While satisfying the allottees, one or other allottee may agree to opt for another flat/apartment or one tower or other tower if not allotted to any other.
4) The allottees cannot demand a refund of the money. However, after offering allotment it is open to an allottee to request the Interim Resolution Professional/Promoter, whoever is in charge, to find out the third party to purchase said flat/apartment and get the money back. After completion of the flats/project or during the completion of the project. It is also open to an allottee to reach an agreement with the Promoter (not Corporate Debtor) for refund of amount.
5) even during the Corporate Insolvency Resolution Process, the Interim Resolution Professional can also sell the unsold flats/apartments, by way of a Tripartite Agreement between the Purchaser, Interim Resolution Professional/ Resolution Professional and Promoter (Uppal Housing Pvt. Ltd.). The proceeds as may be generated from such sale should be utilized for completion of the project and payment to Financial Institutions/Banks and Operational Creditors.
CONCLUSION-: As per the above case-law the assets of the other projects of the builder cannot be maximised for the benefits of the buyers under the project for which the CIRP has been initiated. In the case of secured creditors and unsecured flat buyers, the preference shall be given to the buyers for allotment of the flats and secured creditors cannot have preference over the assets of the builder.
1) The ‘unsecured creditors’ have a right over the assets of the Corporate Debtor i.e. flats/apartments, assets of the Company and also the secured creditors would not like to take the flats/ apartments in lieu of the money disbursed by them. Hence the assets of the Corporate Debtor which is the Infrastructure is to be transferred in their favour (‘Unsecured Creditors’) and not to the ‘Secured Creditors’ such as Financial Institutions/ Banks/ NBFCs.
2) In the case of allottees (Financial Creditors), there cannot be a haircut of assets/ flats/apartments.