In the last few years, it has been noticed that the homebuyers struggle to get their decree executed as the orders of the Real Estate Regulatory Authority ("RERA") have not been executed. This has forced the homebuyers to approach the appellant tribunal and other tribunals to get their orders executed. Homebuyers in the recent times have approached the National Company Law Tribunal ("NCLT") for execution of Decree by filing insolvency applications under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC").
Recently, Mr. Ashok Tripathi and Mr. Saurabh Tripathi ("Applicants") approached the NCLT by filing application under Section 7 of the IBC against Mr. Sunil Ansal claiming to be financial creditors, as in the present case the Applicants were decree holder executing decree of UPRERA which was admitted by the NCLT with moratorium and appointment of the Insolvency Resolution Professional ("IRP") on 17th March, 2020. Mr. Sunil Ansal approached the National Company Law Appellant Tribunal ("NCLAT")1 against the order of admission of the application under section 7 of the IBC passed by the NCLT. In the present case the issue raised before the appellate tribunal is whether the decree holder can approach as a financial creditor before NCLT against Corporate Debtor. The NCLAT held that the decree-holder seeking execution of money due under the Recovery Certificate is impermissible within the ambit of section 7 of the IBC.
In the present case the Hon'ble NCLAT, while discussing the issue, raised few important aspects and reasoning's on why the decree holder cannot approach the NCLT. As per Section 5(7) of the IBC, "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. While Section 5(8) provide definition of financial debt, it does not cover nature of the decree. Further, Section 5(8)(f)(ii) covers expression of allottee and real estate project but here as well decree has not been covered under definition of the Financial debt.
As per the amendment dated 28th December, 2019, for initiation of Corporate Insolvency Resolution Process ("CIRP"), against the corporate debtor, by allottees under Real Estate Project, it is required to be filed jointly by not less than one hundred of such allottees or not less than ten percent of the total number of such allottees under the same Real Estate Project. It was made clear that a minimum threshold limit was laid down for taking cognizance where under section 7 application is relatable to a Real Estate Project. The present amendment was challenged in the Supreme Court of India with respect to the allottees who have already filed applications under section 7 prior to date of the amendment. The Hon'ble Supreme Court ordered to maintain Status Quo in the present matter.
The Applicants got a decree vide order of the UP RERA and after issuance of recovery certificate approached the NCLT under purview of "Financial Creditor". The decree holder is covered under definition of Creditor under section 3(10) of the IBC.
As per Real Estate (Regulation and Development) Act, 2016, Section 40 lays down mode of execution to recover the amount as per Recovery certificate by the concerned authority as an arrear of land revenue. Generally, as per the order of the concerned authority the decree holder needs to approach for the execution of the order like for the order passed by UPRERA or HRERA, the decree holder needs to approach the concerned authority for execution of the order and is recovered as per the arrear of land revenue.
While holding against invoking the jurisdiction of the IBC, the NCLAT held that "the amount claimed under the decree is an adjudicated amount and not a debt disbursed against the consideration for the time value of money and does not fall within the ambit of any of the clauses enumerated under section 5(8) of the IBC".
The Hon'ble NCLAT while deciding the case referred to the judgment of G. Eswara Rao v. Stressed Assets Stabilisation Fund & Ors2 wherein it was held that an application under section 7 of the IBC cannot be filed for execution of decree. It was highlighted that decree cannot be executed by filing an application under section 7 of the IBC and the application was filed with malicious intent.
In view of the above judgment, the doors are closed for invoking the jurisdiction under Section 7 of the IBC for execution of a decree. It is, however, noteworthy to mention that recently Hon'ble Supreme Court in the matter of Wg. Cdr. Arifur Rahman Khan and Aleya Sultana & Ors. Vs. DLF Southern Homes Pvt. Ltd3 held that home buyers are entitled to compensation as stipulated in the agreement with the developer, for delayed handing over of possession and failure to provide basic amenities which should come as a relief to thousands of people investing their savings in the real estate projects.
1 Sh. Sunil Ansal v. Ashok Tripathi & Ors. CA (AT) (Insolvency) No. 452 of 2020
3 Civil Appeal No. 6239 of 2019
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