IBC Threshold Must Be Tested Against MahaRERA Records At Time Of Filing Petition: NCLT Mumbai

On 6 July, the Mumbai Bench of the National Company Law Tribunal (NCLT) held that the number of allottees reflected on the MahaRERA website on the date of filing an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) is the relevant benchmark for determining whether the statutory threshold for initiating insolvency proceedings is satisfied.

Technical Member Anil Raj Chellan and Judicial Member K.R. Saji Kumar partly allowed an application filed by K.D. Lite Developers Pvt. Ltd. under Section 65 of the IBC (which deals with fraudulent or malicious initiation of insolvency proceedings), and rejected the Section 7 petition filed by allottees of the Ruparel Orion project as not maintainable. The Bench observed:

“In light of the above, we are of the view that the number of allottees shown on the RERA website at the time of filing the Company Petition shall be the basis unless it is demonstrated that alternate legally recognised sources concerning the allottees are available. Moreover, once the requisite number of allottees join together and fulfil the requirements to file an application under Section 7, a vested right is created to proceed with the action till its logical and legal conclusion.”

The dispute arose from a Section 7 petition filed on 3 December 2020 by 20 allottees of the Ruparel Orion project developed by K.D. Lite Developers, alleging default in refunding amounts after the project was not completed within the contractual deadline. The petition was admitted by the NCLT on 8 February 2023. However, the National Company Law Appellate Tribunal (NCLAT) set aside the admission order on 24 January 2024 and remanded the matter for reconsideration.

During the fresh proceedings, the developer contended that the petition was not maintainable as it failed to satisfy the statutory threshold under the IBC. It argued that there were 203 allottees in the project and not 124 as reflected on the MahaRERA website, meaning that the petition filed by 20 allottees did not meet the required threshold.

Rejecting the contention, the Tribunal held that the promoter was responsible for updating the MahaRERA portal and that homebuyers had no alternative source to ascertain the number of allottees. It also rejected the explanation that delays in updating records occurred due to the Covid-19 pandemic. It observed:

“We find that this argument is unconvincing for two primary reasons: first, it is the duty of the real estate developer to get the information updated on the RERA portal; second, the Petitioners had no alternative sources to obtain this information. Moreover, as evidenced by the list of allottees provided by the Applicant/Corporate Debtor, many allotments were made and agreements executed with allottees during the COVID period. Therefore, considering that the Applicant had the capacity to allot and enter into agreements with allottees during the pandemic, the justification provided for the lack of timely updates on the portal of RAERA lacks merit.”

Further, the Bench noted that the allotment letters made time the essence of the contract and required the developer to refund the consideration with 24 per cent interest if possession was not delivered by 30 June 2015. It observed that the project remained incomplete beyond the stipulated period. However, while examining the nature of the claims, the Tribunal held that the petitioners were speculative investors and could not invoke the IBC mechanism meant for genuine homebuyers.

Accordingly, the NCLT partly allowed the developer's application and rejected the Section 7 petition as not maintainable, while leaving the petitioners free to pursue other remedies available in law.

For the Applicant / CD : Sr. Adv. Janak Dwarkadas, Adv. Rohit Gupta a/w Adv. Viraj Parikh, Adv. Samit Shukla, Adv. Shivani Khanwilkar, Adv. Mustafa Nulwala Adv. Vidhi Goradia i/b Trilegal

For Respondents / Petitioners : Adv. Shyam Kapadia, Adv. Ayush Chaturvedi, Adv. Nikhil Bhargava, Adv. Anchal Agarwal, Adv. Sudeshna Roy, Adv. Treenok Guha i/b Saraf & Partners