Financial Creditors who are Allottees under RERA Required to meet Threshold Criteria For Filing a Section 7 application under IBC: NCLAT [Read Order]

The New Delhi bench of the National Company Law Appellate Tribunal (“ NCLAT ”) held that Financial Creditors who are Allottees under the Real Estate (Regulation and Development) Act, 2016 (“RERA”) are required to meet threshold criteria for filing a section 7 application under Insolvency and Bankruptcy Code, 2016 (“IBC”).

Orris Infrastructures Pvt Ltd, the Corporate Debtor entered into a Memorandum of Understanding (“MoU”) with Rita Malhotra and Bina Chopra (Appellants) during the development of the commercial building. The MoU provided that Monthly Assured Return (“MAR”) payments shall be made to the Appellants which shall continue for 36 months after the building's completion or until the office space was leased out, whichever was earlier.

The Appellants paid the full consideration of Rs.29.98 lakhs and fulfilled their part of the MoU. However, the Corporate Debtor neither completed the building nor leased out the office space. The Corporate Debtor failed to make the MAR payments, leading to default notices being issued. Due to continued non-payment, the Appellants filed a Corporate Insolvency Resolution Process (“CIRP”) petition under Section 7 of IBC before NCLT which was later withdrawn on account of a Settlement Deed. When the post-dated cheques from the Settlement Deed were dishonoured, the Appellants filed a fresh Section 7 application.

The Corporate Debtor provided two bank drafts to the Appellants to settle the dues under the MoU. The NCLT dismissed the CIRP application under Section 7 of IBC which the Appellants sought to revive.

The Appellants argued that the CIRP application was filed by them for the accumulated and ongoing debt under the MAR Plan and that the said application was based on the MoU and not their status as allottees of the building project.

Relying upon the decision in Nikhil Mehta and Sons vs. AMR Infrastructure Ltd, it was contended that the existence of an assured return clause justified initiating CIRP under Section 7 of IBC on the default by the Corporate Debtor.

The NCLAT while dismissing the appeal held that the assured returns class of creditors who are allotted commercial space/unit constitutes an 'allottee' under the Real Estate (Regulation and Development) Act, 2016 (“RERA”) and Insolvency and Bankruptcy Code, 2016 (“IBC”).

The Appellate Tribunal observed that after the Amendment Act 1 of 2020 to the IBC, the threshold requirement to initiate CIRP under Section 7 of IBC requires the application to be filed jointly by at least 100 allottees of the same real estate project or at least 10% of the total allottees, whichever is less.

The New Delhi bench comprising Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra, and Mr Arun Baroka (Technical Members) held that a commercial space/unit allotted to the Assured Returns Class of Creditors falls under the ambit of 'allottee' in RERA and IBC as well.

Further viewed that since the application was filed before the amendment took effect, the Appellants, as financial creditors who are allottees under a real estate project, are required to meet the threshold criteria to qualify for filing a Section 7 application against the Corporate Debtor. The Appellate Tribunal held that the CIRP application is non-maintainable as the Appellant failed to meet the prescribed criteria under Section 7 of IBC

To Read the full text of the Order CLICK HERE

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