IBC Not An 'Expropriatory Statute'; NCLAT Directs RP To Verify Allottee's Claim In Raguleela Builders' CIRP

The National Company Law Appellate Tribunal (NCLAT) has observed that the Insolvency and Bankruptcy Code (IBC) is not an "expropriatory statute." It directed the Resolution Professional (RP) of Raguleela Builders Pvt Ltd to verify whether Mysore Petro Chemicals Ltd had paid consideration to the corporate debtor for a commercial unit and, if so, include its claim.

A bench of Judicial Member Justice N. Seshasayee and Technical Member Arun Baroka held that Mysore Petro Chemicals could not maintain a claim based on an order passed by the Maharashtra Real Estate Regulatory Appellate Authority (RERAA) during the insolvency process.

It further held that once the claim founded on the RERAA order was not maintainable, it was unnecessary to examine whether it had been filed within time.

“If the case of the respondent is tested on the plane of this legislative philosophy on which Sec.14 of the Code is set, it would render ineffective the Order of the RERAA passed during the moratorium, creating a new liability on the CD. Necessarily, no claim based on the Order of the RERAA can be maintained.”, it noted.

“If the claim is not maintainable, then it does not matter whether it is filed within time or belated. Therefore, we do not propose to deal with that issue," it added.

The tribunal nevertheless observed that the IBC is intended to recognise every right to claim a debt, even though it does not guarantee payment of that debt.

“In our opinion, RP should have realized that IBC is neither designed as a statute for the divestiture of individual rights, nor is it fashioned as an expropriatory statute. On the other hand, IBC is keen to recognize every right to claim a debt, which it defines as debt, even though it holds no promise to any creditor that the debt due to him will be paid.”, it observed.

The appeal was filed by Vandana Garg, the RP of Raguleela Builders. It challenged a December 18, 2023 order of the Mumbai bench of the National Company Law Tribunal (NCLT) directing consideration of Mysore Petro Chemicals' claim.

Mysore Petro Chemicals entered into an agreement on July 2, 2015 to purchase a commercial unit from Raguleela Builders. The unit was to be handed over by September 30, 2015.

According to Mysore Petro Chemicals, it paid the entire sale consideration of ₹12.93 crore. However, possession of the unit was not delivered.

Its complaint before the Real Estate Regulatory Authority (RERA) was dismissed on October 8, 2020. The company thereafter filed an appeal before RERAA.

On June 30, 2022, RERAA directed Raguleela Builders to pay ₹5.28 crore with interest. In the meantime, insolvency proceedings had commenced against the company on October 4, 2021.

The RP rejected the claim on the ground that the RERAA order had been passed after commencement of the insolvency process. The RP also stated that the claim had been filed belatedly.

Mysore Petro Chemicals then approached the NCLT. The tribunal directed consideration of its claim.

The NCLAT noted that Mysore Petro Chemicals claimed to have paid ₹12.93 crore towards the commercial unit. It also noted that the allotment was not disputed by the RP.

The tribunal observed that the RP could have investigated and accepted a claim based on Mysore Petro Chemicals' original investment in the commercial unit rather than the RERAA order.

The NCLAT ultimately directed the RP to verify whether consideration had been paid to Raguleela Builders and, if so, include the company's claim.