Delhi High Court: Moratorium Under Section 14 Of IBC Does Not Exempt Promoter From Pre-Deposit Requirement Under Section 43(5) Of RERA

Delhi High Court: Moratorium Under Section 14 Of IBC Does Not Exempt Promoter From Pre-Deposit Requirement Under Section 43(5) Of RERA

The Delhi High Court bench, comprising Justices Navin Chawla and Shalinder Kaur, recently held that the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), does not exempt a promoter from complying with the mandatory pre-deposit requirement under Section 43(5) of the Real Estate (Regulation & Development) Act, 2016 (RERA).

The court observed that the moratorium applies only to the particular project under insolvency proceedings and does not extend to other projects. The bench further clarified that the Interim Resolution Professional (IRP), acting on behalf of the company, represents the 'Promoter' and is subject to the same obligations under Section 43(5). The provision leaves no room for substituting the pre-deposit with a security.

Umang Realtech Pvt. Ltd. (the appellant) filed an appeal under Section 58 of RERA, challenging the order dated 04.03.2024 passed by the Real Estate Appellate Tribunal, which dismissed the application filed by the appellant. In the application, the appellant had offered the attachment of a flat in lieu of the requisite pre-deposit as mandated under Section 43(5) of RERA.

The appellant argued that the order dated 20.08.2019 passed by the National Company Law Tribunal (NCLT), New Delhi, in Rachna Singh & Anr. vs. Umang Realtech Pvt. Ltd., granting a moratorium while admitting the application filed under Section 7 of the IBC, should exempt the appellant from complying with the pre-deposit requirement. The appellant further contended that the appeal, filed by the IRP, cannot be considered an appeal filed by a 'Promoter,' and therefore the provisions of Section 43(5) of RERA should not apply. The appellant also proposed offering a security against the pre-deposit requirement.

The respondents, however, cited the clarification issued by the National Company Law Appellate Tribunal (NCLAT) in its order dated 04.02.2020 in Flat Buyers Association Winter Hills – 77, Gurgaon vs. Umang Realtech Pvt. Ltd. through IRP & Ors., which explained that the insolvency proceedings were limited to the particular development project in Gurugram and did not extend to other projects. Therefore, the appellant could not seek an exemption from complying with Section 43(5) of RERA, in light of the judgment in New Tech Promoters and Developers Pvt. Ltd. v. State of Uttar Pradesh.

The court referred to Section 43(5) of RERA, which mandates that a promoter must deposit at least thirty percent of the penalty or the total amount to be paid to the allottee before the appeal is heard. The court cited the Supreme Court's judgment in New Tech Promoters and Developers Pvt. Ltd., which upheld the provision, noting that the legislature intended to safeguard the money owed to the allottee before the appeal is heard.

The court also referred to the NCLAT's clarification that corporate insolvency resolution processes against real estate companies are limited to specific projects as per the approved plan, and do not affect other projects in different locations.

The bench concluded that the appellant could not seek any benefit from the moratorium issued by the NCLT to avoid making the pre-deposit required under Section 43(5) of RERA. Additionally, the court emphasized that the IRP represents the company, which is considered the 'Promoter' for the purposes of the appeal and is therefore bound by the provisions of Section 43(5).

The court dismissed the appeal and granted liberty to the appellant to seek relief before the Real Estate Appellate Tribunal.