NCLAT Delhi: Creditors In Assured Returns Scheme For Commercial Space/Unit Recognized As 'Allottees' Under RERA And IBC
NCLAT Delhi: Creditors In Assured Returns Scheme For Commercial Space/Unit Recognized As 'Allottees' Under RERA And IBC
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench comprising Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra, and Mr. Arun Baroka (Technical Members) has ruled that creditors under assured returns schemes allocated commercial space or units constitute 'allottees' under the Real Estate (Regulation and Development) Act, 2016 (RERA) and the Insolvency and Bankruptcy Code, 2016 (IBC).
Orris Infrastructures Pvt Ltd. (Corporate Debtor) entered into a Memorandum of Understanding (MoU) with Rita Malhotra and Bina Chopra (Appellants) during the development of a commercial building. According to the MoU, Monthly Assured Return (MAR) payments were to be made to the appellants for 36 months after the building's completion or until the office space was leased out, whichever came first.
The appellants paid Rs. 29.98 lakhs in full and fulfilled their obligations under the MoU. However, the corporate debtor failed to complete the building or lease out the office space, resulting in the non-payment of MAR payments. Subsequently, default notices were issued, and the appellants filed a Corporate Insolvency Resolution Process (CIRP) petition under Section 7 of the IBC before NCLT Delhi. This petition was later withdrawn due to a settlement deed, but subsequent dishonor of post-dated checks from the settlement deed prompted the appellants to file a fresh Section 7 application.
After another settlement in March 2019 led to the dismissal of the Section 7 application with the option to revive it in case of default, the appellants revived the application following further defaults. The corporate debtor then provided two bank drafts to settle the dues under the MoU, which the appellants did not encash due to insufficient amounts.
However, NCLT Delhi dismissed the CIRP application under Section 7 of the IBC in an order dated September 19, 2023, which the appellants challenged before the NCLAT.
The appellants argued that the CIRP application was based on the accumulated and ongoing debt under the MAR Plan, emphasizing that their application was grounded in the MoU rather than their status as allottees of the building project. They contended that the MAR Plan was distinct from the terms of allotment, constituting a separate investment arrangement.
Relying on the precedent set in Nikhil Mehta and Sons v. AMR Infrastructure Ltd., which recognized recipients of similar assured return schemes as financial creditors irrespective of their allotment status, the appellants asserted that the presence of an assured return clause justified initiating CIRP under Section 7 of the IBC in response to the corporate debtor's default.
NCLAT Delhi dismissed the appeal and affirmed that creditors under assured returns schemes allotted commercial space or units are categorized as 'allottees' under both RERA and the IBC.
The Appellate Tribunal noted that, following Amendment Act 1 of 2020 to the IBC, initiating CIRP under Section 7 requires applications to be jointly filed by at least 100 allottees of the same real estate project or at least 10% of the total allottees, whichever is lesser.
Analyzing Section 7(1) of the IBC, which includes financial creditors categorized as 'allottees' under a real estate project, the Tribunal acknowledged that while 'allottee' is not explicitly defined in the IBC, RERA provides definitions for 'allottee' and 'real estate project,' extending these definitions to the IBC under Explanation (ii) to Section 5(8)(f).
NCLAT upheld NCLT Delhi's decision that commercial space or units allocated to creditors under the Assured Returns Class fall within the scope of 'allottee' as defined by RERA and the IBC. It clarified that the appellants' reliance on Nikhil Mehta and Sons vs. AMR Infrastructure Ltd. was misplaced, as that decision did not exclude creditors under assured return schemes from the definition of 'allottees.'
Based on the corporate debtor's affidavit, which identified 504 allocated units in the project, with 366 falling under the assured returns class, NCLAT emphasized that the appellants, as members of this class, must adhere to the threshold criteria specified in the second proviso to Section 7(1) of the IBC.
NCLAT ruled that the appellants, being part of the MAR plan, could not exempt themselves from the definition of 'allottees' or circumvent the requirement to meet the prescribed criteria under Section 7 of the IBC.
