Homebuyers With RERA Refund Orders Still 'Allottees', Must Meet IBC Threshold: NCLT Chennai

The National Company Law Tribunal (NCLT) at Chennai has held that homebuyers who have obtained refund orders from RERA cannot be treated differently from other allottees for initiating insolvency proceedings, ruling that all such buyers must meet the collective threshold under the Insolvency and Bankruptcy Code.

“The allottee even after the order of RERA directing for refund by the Corporate Debtor continues to be allottee and has to mandatorily comply with Section 7 (1) 2nd Proviso. The Home Buyers whether they have an order or decree from the RERA or who do not have any decree or order from RERA belong to same category of allottees and no distinction can be made on the said ground.”

A coram of Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramaniam made the observation while dismissing a Section 7 petition filed by 20 homebuyers against Ozone Projects Private Limited for the initiation of the Corporate Insolvency Resolution Process (CIRP).

The case arose from the residential project “The Metrozone” in Chennai, where the petitioners had booked flats between 2015 and 2017 and paid about 80% to 90% of the consideration. The tribunal noted that the developer failed to commence construction of the relevant towers and did not hand over possession within the agreed timelines.

The homebuyers argued that the Corporate Debtor had acknowledged its liability through letters, emails and supplementary agreements promising refunds with interest but failed to honour them. Some of the petitioners had also obtained refund orders from the Tamil Nadu Real Estate Regulatory Authority (TNRERA), which have not been honored.

The petitioners, including some who had obtained RERA refund orders, argued that their claims had crystallised into decree-based debts and that they were no longer part of the class of allottees, but independent financial creditors not bound by the threshold requirement.

The Corporate Debtor opposed the plea, arguing that the petition did not meet the threshold requirement under Section 7(1). It submitted that the project comprised 2414 units, of which 2099 were allotted, requiring at least 210 allottees to jointly initiate CIRP, whereas the present petition was filed by only 20 allottees holding 24 units.

Accepting this contention, the Tribunal observed:

“As per proviso Section 7(1) of IBC, minimum threshold to initiate CIRP is 210 allottees but this petition has been filed by 20 allottees (24 units).”

Rejecting the argument that refund-seeking buyers form a separate class, the Tribunal emphasised that allowing such a distinction would be inequitable:

“To treat a particular segment of that class differently for the purposes of another enactment, on the ground that one or some of them had elected to take back the deposits together with such interest as ordered by the Competent Authority would be highly inequitable.”

The bench also found that there was no material to show that the Corporate Debtor had actually cancelled the allotments despite requests from the buyers:

“From the supplemental agreement, it cannot be inferred that the Corporate Debtor had acceded the request of the buyers and cancelled the flats as claimed.”

Clarifying their status, the Tribunal held that the petitioners continue to remain allottees and must satisfy the statutory threshold:

“….they would be treated as Financial Creditors under Section 5(8)(f) explanation and are required to meet the threshold as provided under Section 7 of IBC i.e. minimum 100 or 10% of the units which they failed to meet. The Petitioners though holding TNRERA decrees continue to be the allottees. The existence of a decree merely crystallizes their claim but does not alter their fundamental status as allottes who must act collectively.”

Holding that the threshold requirement was not met, the tribunal dismissed the insolvency application.

For Petitioners: Advocate Raj Kumar Jhabakh

For Respondents: Senior Advocate S.R Rajagopal and Advocate Chandramouli Prabhakar