The Supreme Court, in a case involving home buyers seeking refunds under UPRERA for delayed real estate projects, ruled that the IBC's Section 5(8)(f) definition of "financial debt" did not inherently differentiate among financial creditors.
Facts of the Case:
The appellants, who are home buyers in a real estate project by Bulland Buildtech Pvt. Ltd. (the respondent), filed a suit under the Uttar Pradesh Real Estate Regulatory Authority (UPRERA) seeking a refund of amounts deposited with interest due to delays in the project's completion. UPRERA issued orders in favour of the appellants, upholding their right to a refund of the amounts they had deposited with interest due to the significant delay in the project's completion. However, during this period, proceedings were initiated under the Insolvency and Bankruptcy Code, 2016 (IBC) concerning the real estate company's financial situation.
During the insolvency proceedings, a resolution plan treated home buyers differently based on whether they had pursued RERA remedies. Those who hadn't received more favourable terms, while those who had were offered less advantageous ones.
Contentions of the Parties:
The appellants pointed to the amended definition of financial creditors in Section 5(8)(f) of the IBC, which categorized home buyer allottees as financial creditors, implying no differentiation among them.
In contrast, the resolution professional and supporters of the distinction justified it by stating that home buyers who hadn't approached RERA had a different status and deserved better terms. These non-RERA-involved home buyers were considered unsecured creditors due to their choice and the resulting relinquishment of certain rights under the RERA Act.
The resolution professional contended that the appellants couldn't benefit from both approaches, as seeking a refund through UPRERA implied surrender of certain rights and status.
The appellants asserted that allottees with RERA-issued decrees should be able to retain their home buyer and financial creditor status. However, the resolution professional argued that those opting for RERA refunds constituted a distinct sub-class, warranting differentiation.
Observations of the Court:
The Supreme Court focused on the crucial legal context of Section 5(8)(f) of the IBC, which defines "financial debt." The 2018 amendment clarified that amounts raised from an allottee under a real estate project would be deemed to have the commercial effect of borrowing. This amendment unequivocally included home buyers and allottees of real estate projects within the category of financial creditors.
The decision of the Court was rooted in a meticulous examination of the legal arguments and the definition of "financial debt" under Section 5(8)(f) of the IBC. The Court held that this definition did not inherently differentiate among various classes of financial creditors. Consequently, the Court found the distinction made by the resolution plan to be erroneous.
Furthermore, the Court dismissed the notion that invoking RERA remedies and securing refunds amounted to a forfeiture of the appellants' financial creditor status. The Court invoked Section 238 of the IBC, which possesses an overriding effect. It emphasized that the IBC's provisions held primacy.
The Decision of the Court:
In the final determination, the Supreme Court set aside the impugned order, thus officially designating the appellants as financial creditors and thereby entitling them to equal treatment with other home buyers and financial creditors within the context of the pending resolution plan. As a result, the appeal was allowed, affirming the appellants' status as financial creditors.
Case Title: Vishal Chelani & Ors. vs. Debashis Nanda
Coram: Hon’ble Justice S. Ravindra Bhat and Aravind Kumar
Case No.: Civil Appeal No. 3806 of 2023
Citation: 2023 Latest Caselaw 796 SC
Advocate for the Appellant: Abhimanyu Bhandari, Nattasha Garg, Thakur Ankit Singh, Varun M, Shristy Singh, and Rooh-e-hina Dua
Advocate for the Respondent: Gunjesh Ranjan, Sidharth Sarthi, Anil Kumar, Shantanu Sagar, and Prabhat R. Raj
Read Judgment @LatestLaws.com
Picture Source :
