No Overlapping Secured Interest Between Homebuyers And Financier Where Builder Is Liable: NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai, recently held that in a real estate insolvency, homebuyers' and a housing finance company's secured interests cannot overlap. Where the builder has undertaken repayment obligations, the financier's interest must be protected.

A Bench comprising Judicial Member Ashish Kalia and Technical Member Sanjiv Dutt, on 29 January allowed an application filed by GIC Housing Finance Ltd. in the corporate insolvency resolution process (CIRP) of Karrm Infrastructure Pvt. Ltd.

The Bench noted:

"Now, question would arise whether there can be over-lapping secured interest vis-à-vis home buyer and the Applicant being a Financier. The answer would be Negative. The commercial interest of Financier is to get back his money along with interest and home buyer's interest would be to get the flat for his personal need."

The Tribunal, however, observed that if the flat buyers or the builder default in repaying the bank's dues, the bank's secured interest over the flats cannot be overlooked, and the financier's rights must be duly protected. It said:

"But in case flat buyers or builder makes default in repayment of bank's dues, then Bank has the right over the flats being secured interest. Thus, in such a situation, interest of the financier has to be protected."

Karrm Infrastructure was admitted into CIRP on 29 February 2024 through a petition filed by VSJ Investments Pvt. Ltd. GIC Housing had disbursed approximately Rs. 76.92 crore directly to the corporate debtor on behalf of 896 homebuyers under a tripartite agreement.

The resolution professional admitted claims of 181 homebuyers but rejected the balance claims and did not treat GIC as a secured financial creditor.

The Tribunal observed that if the flat buyers or the builder default in repayment of the bank's dues, the bank's secured interest over the flats cannot be ignored, and the financier's rights must be protected. It said that since the loan was disbursed against consideration for the time value of money, the applicant satisfied the definition of “financial debt” under the IBC and was entitled to be treated as a financial creditor.

Setting aside the resolution professional's rejection, the Tribunal directed the Resolution Professional to reconsider GIC Housing Finance Ltd's claim as a secured financial creditor in accordance with law.