Authorisation Lapse in Insolvency Petition: NCLAT allows 98 Homebuyers to cure the defect [Read Order]

The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, has permitted 98 homebuyers to cure the authorisation defect in their insolvency petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016.

The tribunal held that the adjudicating authority ought to have allowed the filing of individual affidavits to validate the authorisation, noting that the Section 7 application was initiated on behalf of 98 homebuyers of the Avenue 54 project who formed a registered welfare association.

In the appeal, Sumer Radius Realty Pvt. Ltd. and Sumer Buildcorp Pvt. Ltd. challenged the order of the NCLT Mumbai Bench, which had refused to dismiss the Section 7 petition filed by Avenue 54 Welfare Association. The appellants argued that a registered society could not be treated as a financial creditor and that the application lacked proper authorisation from all individual homebuyers. It was submitted that the resolution placed on record had been passed only by core committee members of the association and not by the entire body of flat purchasers.

A clear offer had been made before the NCLT to place individual affidavits of each homebuyer, authorising the filing of the petition, and it was argued that the flaw, if any, was curable. The corporate debtors had objected to this request, and the adjudicating body had rejected it.

The Bench, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member), observed that Form-1 under Rule 4 of the IBC Rules requires specific authorisation by financial creditors but does not prohibit the filing of an application through an authorised representative. The tribunal held that a defect in authorisation is not fatal and must be allowed to be corrected.

The NCLAT noted that the NCLT had rejected the filing of affidavits at a later stage of rejoinder despite the fact that the petition was filed on behalf of numerous homebuyers and the authorisation issue was capable of rectification.

Allowing the association to cure the defect, the tribunal granted a period of seven days to submit the required affidavits before the adjudicating authority, following which the NCLT may proceed to hear the Section 7 application in accordance with law.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

The appellate tribunal did not deem it fit to examine wider questions on maintainability, observing that the issue would not survive once proper authorisation from all financial creditors is placed on record.

The appeals were accordingly disposed of without interfering with the NCLT’s order, allowing Avenue 54 homebuyers to move forward with their insolvency action against the Sumer Group entities.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates