NCLAT Upholds Rejection Of Prospective Homebuyer's Plea To Join Koncept Nirman's CIRP

The National Company Law Appellate Tribunal (NCLAT), Chennai, has held that a prospective homebuyer who relied on an unregistered agreement to purchase a flat from Koncept Nirman Private Limited cannot intervene in insolvency proceedings initiated against the company by a financial creditor.

A bench of Judicial Member Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain observed,

“In the instant case, the Appellant herein doesn't owe a financial debt, at the behest of the Financial Creditor, nor there is any direct legal assignment of any loan or a debt to the present proposed intervener by the Financial Creditor”

It further clarified that such proceedings are confined to the corporate debtor,

"If a logical interpretation is given to Section 7, the entitlement of the Financial Creditor to initiate Section 7 of the Code, is being restricted to be against the Corporate Debtor as defined under the Code. This expression of "Corporate Debtor" as given under Section 7 of the Code, will in itself act as a bar as against present Applicant to be impleaded as a party to the proceedings under Section 7 of the Code”

The tribunal also made it clear that an unregistered agreement does not create any enforceable ownership right:

“the Appellant, being a prospective home buyer, cannot be classified as to be a purchaser of a flat until and unless a deed of conveyance as per the provisions of the Transfer of Property Act is executed in his favour”

The appeal arose from an order of the NCLT Hyderabad, where the appellants had sought to intervene in the insolvency proceedings on the basis of an agreement to purchase a flat from the corporate debtor. The agreement, however, was not registered.

The tribunal noted that while the principles of impleadment under the Code of Civil Procedure do not strictly apply, they can be used as guiding factors to determine whether a party is necessary for effective adjudication.

Referring to the principle that the original applicant controls the proceedings, the tribunal observed:

“Applicant to the main proceedings is the master of it and no outsider, who at the relevant point of time when the application has been preferred, is not likely to be affected by any orders to be passed in it, cannot impose upon himself to be made as a party, particularly when the Applicant or the Petitioner or the Plaintiff, has never chosen him to be made as a party.”

It further held that any claim of the appellants, if at all, would lie only against the corporate debtor and not the financial creditor who initiated the proceedings.

The tribunal observed that homebuyers “may have an occasion to abuse the process” and would not have “any effective say” in such proceedings, as they are neither financial creditors nor corporate debtors.

Holding that the appellants were neither necessary nor proper parties, the tribunal upheld the rejection of their intervention and dismissed the appeal.